<PAGE>
As filed with the Securities and Exchange Commission on April 13, 2000.
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------
INTERNET CAPITAL GROUP, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 7389 23-2996071
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
-------------
435 Devon Park Drive
600 Building
Wayne, Pennsylvania 19087
(610) 989-0111
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------
Henry N. Nassau, Esq.
Managing Director, General Counsel and Secretary
Internet Capital Group, Inc.
435 Devon Park Drive
600 Building
Wayne, Pennsylvania 19087
(610) 989-0111
(Name, address including zip code, and telephone number, including area code,
of agent for service)
-------------
With copies to:
<TABLE>
<S> <C> <C> <C>
Christopher G. Karras, Esq. Mark Borden, Esq. Kenneth Guernsey, Esq. Steve L. Camahort, Esq.
Dechert Price & Rhoads Hale and Dorr LLP Cooley Godward LLP Wilson Sonsini
4000 Bell Atlantic Tower 60 State Street One Maritime Plaza Goodrich & Rosati
1717 Arch Street Boston, Massachusetts 02109 20th Floor Professional Corporation
Philadelphia, Pennsylvania 19103 (617) 526-6000 San Francisco, CA 94111 Spear Street Tower
(215) 994-4000 (415) 693-2000 One Market
San Francisco, CA 94105
(415) 947-2000
</TABLE>
-------------
Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [X]
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<CAPTION>
Proposed
Proposed maximum
Title of each class of Amount maximum aggregate Amount of
securities to be to be offering price offering registration
registered registered per share(1) price(1) fee
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.001 per share....... 23,000,000 $52.82 $1,214,860,000 $320,724
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, based on the
average of the high and low selling prices of the Common Stock on April 12,
2000.
-------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains three separate prospectuses. The
first prospectus will be used in connection with current exchange offers and
future business combination transactions or acquisitions in amounts, at prices
and on terms as we may determine at the time of the future offering. The next
two prospectuses relate to current exchange offers of our common stock, par
value $.001 per share. The first of these prospectuses will be used in
connection with an exchange offer of our common stock for eCredit.com, Inc.'s
common stock, par value $.001 per share. The second of these prospectuses will
be used in connection with an exchange offer of our common stock for RightWorks
Corporation's Series B Preferred Stock, par value $0.001 per share. The three
prospectuses will be identical except that:
. The first prospectus does not include the following sections while
the eCredit.com and RightWorks Corporation prospectuses include
them: "The Exchange Offer"; "Comparison of Stockholder Rights" and
"United States Federal Income Tax Considerations".
. The language contained in the cover pages and the following
sections differs in each prospectus: "Table of Contents";
"Summary" and "Risk Factors: Risk Factors Relating to the Exchange
Offer".
. The language contained in the "Legal Matters" section is identical
in the first prospectus and the eCredit.com prospectus but differs
in the RightWorks Corporation prospectus.
. Only the eCredit.com prospectus contains the "Plan of
Distribution" and "Selling eCredit.com Stockholders" sections.
The first prospectus is included in this registration statement in its
entirety. For the eCredit.com and RightWorks Corporation prospectuses, we have
included only the portions of sections that differ from the first prospectus.
<PAGE>
---------------
ABOUT THIS PROSPECTUS
The terms "Internet Capital Group," the "Company," "our" and "we," as
used in this Prospectus, refer to Internet Capital Group, L.L.C. and its
wholly-owned subsidiary, Internet Capital Group Operations, Inc. (formerly
known as Internet Capital Group, Inc.), for periods before the reorganization
of Internet Capital Group, L.L.C. into Internet Capital Group, Inc., except
where it is clear that the term refers only to Internet Capital Group, Inc. For
periods after the reorganization, these terms refer to Internet Capital Group,
Inc. and its wholly-owned subsidiaries Internet Capital Group Operations, Inc.,
Internet Capital Group (Europe) Limited, Satori Inc., ICG Holdings, Inc., Rain
Acquisition Corp. and ICG Holdings, Inc.'s wholly-owned subsidiaries, except
where it is clear that the term refers only to Internet Capital Group, Inc. In
addition, all information in this Prospectus gives effect to the reorganization
described in "Internet Capital Group's Business--Reorganization" that was
effected before this offering.
Although we refer to the companies in which we have acquired an equity
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, 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 for our
partner companies that a general partner of a partnership would have.
You should rely only on the information contained in this Prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this Prospectus is accurate as of the date on the
front cover of this Prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.
We expect to furnish our shareholders with annual reports containing
consolidated financial statements audited by an independent accounting firm.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 13, 2000
PROSPECTUS
11,801,858 Shares
[LOGO OF INTERNET CAPITAL GROUP]
Common Stock
-----------
This prospectus relates to 11,801,858 shares of our common stock, par value
$.001 per share (the "Common Stock") that we may issue and offer for sale from
time to time in connection with business combination transactions or
acquisitions in amounts, at prices and on terms as we may determine at the time
of offering. We have not fixed a period of time during which the Common Stock
offered by this prospectus may be offered or sold.
We will pay all expenses of this offering. No underwriting discounts or
commissions will be paid in connection with the issuance of Common Stock in
business combination transactions or acquisitions, although finder's fees may
be paid with respect to specific acquisitions. Any person receiving a finder's
fee may be deemed to be an underwriter within the meaning of Section 2(11) of
the Securities Act of 1933.
Our Common Stock is listed on The NASDAQ National Market under the symbol
"ICGE." The last reported sale price of our Common Stock on April 12, 2000 was
$47.13 per share.
Investing in our Common Stock involves risks. See "Risk Factors" starting
on page 8.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having
been authorized by Internet Capital Group or any other person. This Prospectus
does not constitute an offer to sell or the solicitation of an offer to buy the
Common Stock of Internet Capital Group in any circumstances in which such offer
or solicitation is unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of Internet Capital Group since the
date hereof or that the information contained herein is correct as of any time
subsequent to its date.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense.
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
-----------
The date of this Prospectus is , 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 22
Use of Proceeds.......................................................... 22
Dividend Policy.......................................................... 22
Comparative Per Share Data............................................... 23
Price Range of Common Stock.............................................. 24
Capitalization........................................................... 25
Internet Capital Group, Inc. Unaudited Pro Forma Information............. 28
Selected Consolidated Financial Data..................................... 33
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 36
Internet Capital Group................................................. 36
eCredit.com............................................................ 54
RightWorks............................................................. 61
Internet Capital Group's Business........................................ 67
eCredit.com's Business................................................... 89
RightWorks' Business..................................................... 90
Management............................................................... 91
Certain Transactions..................................................... 109
Principal Shareholders of Internet Capital Group......................... 114
Security Ownership of eCredit.com Principal Stockholders and eCredit.com
Management.............................................................. 116
Security Ownership of RightWorks Principal Stockholders and RightWorks
Management.............................................................. 120
Description of Internet Capital Group Capital Stock...................... 122
Shares Eligible for Future Sale.......................................... 126
Legal Matters............................................................ 127
Experts.................................................................. 127
Where You Can Find More Information...................................... 128
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
SUMMARY
This summary is not complete and may not contain all of the information
that may be important to you. You should read the entire Prospectus carefully,
including the financial data and related notes, before making an investment
decision.
Internet Capital Group
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 March 24, 2000, we owned interests in 61 B2B
e-commerce companies, which 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 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, 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. 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 March 24, 2000, our partner company network
included significant interests in the following 41 market makers:
Animated Images, Arbinet Communications, asseTrade, AUTOVIA,
Bidcom, BuyMedia, CentriMed, Collabria, Commerx, ComputerJobs.com,
CourtLink, CyberCrop.com., Deja.com, e-Chemicals, eMarketWorld,
eMerge Interactive, eMetra, EmployeeLife.com, eumediX, EuSupply,
FarmingOnline, Freeborders.com, ICG Commerce, Industrial America,
Internet Commerce Systems, Internet Healthcare Group,
InvestorForce.com, iParts, JusticeLink, MetalSite, NetVendor,
ONVIA.com, PaperExchange.com, Residential Delivery Services, Retail
Exchange, Simplexis, StarCite, TALPX, Universal Access, USgift.com
and VerticalNet. In addition, we have agreed to acquire a
significant interest in the following subject to customary closing
conditions:
<PAGE>
CapSpan, eColony, eCredit.com, enel, ICG Asia Works Limited, and
VerticalNet Europe. We expect these transactions to close, subject
to the completion of due diligence in certain instances, in the
quarter ending June 30, 2000.
. 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 March 24, 2000, our partner company
network included significant interests in the following 20 enabling
service providers: Benchmarking Partners, Blackboard, Breakaway
Solutions, ClearCommerce, CommerceQuest, Context Integration,
Entegrity Solutions, iSky, Jamcracker, LinkShare, Logistics.com,
PrivaSeek, SageMaker, Servicesoft Technologies, Syncra Software,
Team On, traffic.com, United Messaging, US Interactive, and Vivant!
In addition, we have agreed to acquire a majority interest in
RightWorks, and we expect this transaction to close in the quarter
ending June 30, 2000.
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. From
the beginning of 2000 to March 24, 2000, we added 13 B2B e-commerce companies
to our network. Most of our partner companies acquired to date have been B2B
e-commerce companies headquartered in the United States; four of our partner
companies acquired (EuSupply, eumediX, FarmingOnLine and eMetra) are
headquartered in Europe. We expect to continue to evaluate additional partner
company opportunities in the United States, Europe and Asia. In February 2000,
we announced the formation of VerticalNet Europe, a joint venture with British
Telecommunications, plc and VerticalNet, and in March 2000, we announced a
strategic alliance to form a B2B e-commerce joint venture with Enel, which
will facilitate our position in the B2B e-commerce markets in Europe and
Italy, respectively. In March 2000, we announced an agreement to acquire an
interest in Harbour Ring International Holdings to facilitate our entrance
into the Asian e-commerce markets. Also in March 2000, we announced the
formation of eColony, a new incubator network that will provide B2B Internet
startups with financing, infrastructure technology and corporate counsel. At
the end of 1999 we opened an office in London, England that focuses on
European B2B e-commerce opportunities and we intend to open offices in Munich
and Paris during 2000.
We are a Delaware corporation. Our principal executive office is located
at 435 Devon Park Drive, 600 Building, Wayne, Pennsylvania 19087 and our
telephone number is (610) 989-0111. We also maintain offices in San Francisco,
California; Boston, Massachusetts; Seattle, Washington; and London, England.
We maintain sites on the World Wide Web at www.icge.com. and
www.internetcapital.com. The information on our Web site is not part of this
Prospectus.
eCredit.com
eCredit.com is a provider of credit management and financing solutions
for business-to-business and business-to-consumer commerce. eCredit.com's
products allow businesses and lenders to automate and manage credit and
financing decisions in real time.
eCredit.com's systems and services consist of the eCredit.com Enterprise
Credit Management System, the eCredit.com Enterprise Lending System and the
Global Financing Network. The eCredit.com systems are network applications
used to automate and streamline the credit management and financing process.
The eCredit.com Enterprise Credit Management System is designed to enable
businesses to reduce bad debts and operating costs, improve productivity and
increase revenues by automating the credit and collections cycle. The
eCredit.com Enterprise Lending System is a standardized credit-processing
platform that enables lenders to automate and manage the credit approval
process in real time for both consumer and business credit.
2
<PAGE>
eCredit.com's Global Financing Network is an Internet-based, real time global
network for credit approval and financing. Through a common electronic network
on which multiple lenders participate, each business customer of the Global
Financing Network is able to create a private network with selected lenders to
provide financing to buyers of products from that business customer.
As of March 31, 2000, eCredit.com had a total of 279 employees, 83 of
whom were in research and development, 11 were in business development, 90 were
in sales and marketing, 64 were in implementation and consulting services, 13
were in customer support and training, and 18 were in administration and
finance. Of these employees, 201 were located in the United States, 70 were
located in Bangalore, India and eight were located in Europe.
eCredit.com is a Delaware corporation. Its principal executive office is
located at 20 CareMatrix Drive, Dedham, MA 02026-6149 and its telephone number
is (781) 752-1200. eCredit.com maintains a site on the World Wide Web at
www.ecredit.com. The information contained on its Web site is not part of this
Prospectus.
eCredit.com, the eCredit.com logo, eCredit.com Enterprise Credit
Management System, eCredit.com Enterprise Lending System, and Global Financing
Network are trademarks of eCredit.com.
RightWorks
RightWorks provides Internet-based exchange software for powering B2B
digital marketplaces. These marketplaces, also known as online trading
exchanges or communities, serve as comprehensive online sources of information,
interaction and electronic commerce for the businesses that participate in them
as buyers or sellers. RightWorks' software, RightWorks 5.0, is a software
platform that manages the complex business transactions that take place on
digital marketplaces.
RightWorks' customers are companies that create and operate digital
marketplaces, including vertical--or industry-specific--marketplaces as well as
corporate marketplaces. By using RightWorks 5.0, customers can create
sophisticated digital marketplaces that allow large numbers of buyers and
sellers using standard computers and Web browsers to exchange information and
conduct electronic commerce transactions in a stable and secure environment.
RightWorks' current customers include Agilera, Applied Materials, BANK ONE,
Computer Sciences Corporation, ICG Commerce, Norwest Services and VerticalNet.
RightWorks offers its software to customers using two different models.
In the first model, the customer licenses the software for its own use and pays
a one-time licensing fee, annual maintenance fees, and per-transaction fees
based on the number of transactions executed on each digital marketplace using
the licensed software. In the second model, which currently is used by
approximately 20% of customers, the customer uses software hosted by RightWorks
and pays a one-time fee for the right to access the software, a monthly fee for
maintenance and hosting services, and per-transaction fees based on the number
of transactions executed on each digital marketplace using the hosted software.
To date, per-transaction and hosting fees have not represented a material
portion of RightWorks' total revenues. RightWorks also provides training and
customization services on a consulting basis.
RightWorks was founded in September 1994. Its principal executive office
is located at 31 North Second Street, Suite 400, San Jose, California 95113,
and its telephone number is (408) 882-0350. RightWorks maintains a site on the
World Wide Web at www.rightworks.com. The information contained on its Web site
is not part of this Prospectus.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common Stock offered......................... 23,000,000 shares to be issued
in connection with proposed
acquisitions by us including up
to a maximum of 4,726,891
shares of our Common Stock in
the eCredit.com, Inc. exchange
offer and up to 6,471,251
shares of our Common Stock in
the RightWorks Corporation
exchange offer.
Common Stock to be outstanding after this
offering.................................... 275,547,968
Voting Rights................................ The holders of the Common Stock
have one vote per share
Use of Proceeds.............................. We will not receive any cash
proceeds from this offering.
See "Use of Proceeds".
NASDAQ symbol................................ ICGE
</TABLE>
4
<PAGE>
Our Summary Historical, Pro Forma Consolidated Financial and Other Data
The following summary historical and pro forma consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our audited Consolidated
Financial Statements and related Notes included elsewhere in this Prospectus.
The summary pro forma data does not purport to represent what our results would
have been if the events described below had occurred at the dates indicated.
The Pro Forma column included in the Consolidated Statements of Operations Data
for the year ended December 31, 1999, derived from elsewhere in this
Prospectus, reflects the effect of our 1999 and 2000 acquisitions of companies
accounted for under the consolidation and equity methods, the deconsolidation
of Breakaway Solutions Inc., the acquisition of our ownership interest in
eCredit.com, Inc. as a company accounted for under the equity method and the
acquisition of a majority ownership interest in RightWorks as if they had
occurred on January 1, 1999. The Pro Forma Consolidated Statements of
Operations Data for the years ended December 31, 1998 and 1999, included under
the actual results for each of those periods, reflect our taxation as a
corporation since January 1, 1998 and 1999, respectively, although we have been
taxed as a corporation only since February 2, 1999. The Pro Forma Consolidated
Balance Sheet Data as of December 31, 1999, derived from elsewhere in this
Prospectus, reflect the effect of our acquisitions subsequent to December 31,
1999 as if they had occurred on December 31, 1999.
<TABLE>
<CAPTION>
March 4, 1996 Year Ended December 31,
(Inception) to ------------------------------------------
December 31, 1997 1998 1999 1999
1996 Actual Actual Actual Pro Forma
-------------- ------- -------- ---------- -----------
(unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenue................. $ 285 $ 792 $ 3,135 $ 16,536 $ 11,886
Operating Expenses...... 2,348 7,510 20,157 57,080 347,084
------- ------- -------- ---------- ---------
(2,063) (6,718) (17,022) (40,544) (335,198)
Other income, net....... -- -- 30,483 67,384 67,755
Interest income, net.... 88 138 925 5,734 5,729
------- ------- -------- ---------- ---------
Income (Loss) Before
Income Taxes, Minority
Interest and Equity
Income (Loss).......... (1,975) (6,580) 14,386 32,574 (261,714)
Income taxes............ -- -- -- 23,722 274,524
Minority interest....... 427 (106) 5,382 6,026 6,222
Equity income (loss).... (514) 106 (5,869) (92,099) (516,938)
------- ------- -------- ---------- ---------
Net Income (Loss)....... $(2,062) $(6,580) $ 13,899 $ (29,777) $(497,906)
======= ======= ======== ========== =========
Net income (loss) per
share--diluted......... $ (0.05) $ (0.10) $ 0.12 $ (0.15) $ (2.34)
Weighted average shares
outstanding--diluted... 40,792 68,198 112,299 201,851 213,199
Pro forma net income
(loss) (unaudited)..... $ 8,756 $ (37,449)
Pro forma net income
(loss) per share--
diluted (unaudited).... $ 0.08 $ (0.19)
<CAPTION>
December 31, 1999
-----------------------
Actual Pro Forma
---------- -----------
(Unaudited)
(In Thousands except
per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................... $1,343,459 $ 956,490
Short-term investments.................................. 3,359 3,359
Working capital......................................... 1,305,380 917,744
Total assets............................................ 2,050,384 3,402,388
Long-term debt.......................................... 3,185 5,641
Convertible subordinated notes.......................... 566,250 566,250
Total shareholders' equity.............................. 1,420,221 2,531,818
Book value per share.................................... 5.39 9.61
</TABLE>
5
<PAGE>
eCredit.com Summary Historical and Pro Forma Consolidated Financial Data
(in thousands, except per share data)
The following summary historical and pro forma consolidated financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
eCredit.com" and eCredit.com's audited Consolidated Financial Statements and
related Notes included elsewhere in this Prospectus. The summary pro forma data
does not purport to represent what eCredit.com's results would have been if the
events described below had occurred at the dates indicated. The summary pro
forma consolidated statement of operations and balance sheet data reflects
ICG's acquisition of eCredit.com as if it had occurred on January 1, 1999 and
December 31, 1999, respectively. The pro forma consolidated data gives effect
to the conversion of all outstanding shares of preferred stock of eCredit.com
into a total of 15,568,622 shares of common stock of eCredit.com immediately
prior to the closing of the Exchange Offer; the acceleration and exercise of
1,579,853 common stock options at a weighted average exercise price of $2.32;
and the issuance of a common stock warrant to Internet Capital Group.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1999
1995 1996 1997 1998 1999 Pro Forma
------ ------ ------- ------- --------- -----------
(In thousands Except Per Share Data) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Total revenues.......... $3,134 $3,270 $ 3,943 $ 4,824 $ 8,401 $ 8,401
Gross profit............ 1,912 1,214 1,350 2,129 1,976 1,976
Loss from operations.... (298) (588) (1,818) (2,407) (16,517) (127,366)
Net loss................ (389) (675) (1,946) (2,527) (16,373) (127,222)
Net loss attributable to
common stockholders.... (389) (675) (1,946) (7,608) (328,552) (127,222)
Basic and diluted net
loss per common share.. (0.16) (0.32) (0.93) (3.62) (110.02) (5.48)
Basic and diluted
weighted average
shares................. 2,363 2,100 2,100 2,100 2,986 23,212
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------
1999
1999 Pro Forma
--------- -----------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................ $ 35,210 $38,870
Working capital.......................................... 31,963 35,623
Total assets............................................. 45,814 49,474
Redeemable preferred stock............................... 373,652 --
Total stockholders' equity (deficit)..................... (337,517) 39,795
</TABLE>
6
<PAGE>
RightWorks Summary Historical Financial Data
(in thousands, except per share data)
The following summary historical financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations of RightWorks Corporation" and RightWorks
Corporation's audited Financial Statements and related Notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1996 1997 1998 1999
---- ------ ------- ------- -------
(In thousands Except Per Share
Data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues....................... $-- $ 223 $ 19 $ 75 $ 2,152
Gross profit......................... -- 164 19 75 1,722
Loss from operations................. (97) (351) (2,046) (5,486) (9,379)
Net loss............................. (96) (342) (2,017) (5,622) (9,309)
Basic and diluted net loss per common
share............................... $(12) $ (.28) $ (1.44) (3.48) (5.05)
Basic and diluted weighted average
shares.............................. 801 1,210 1,402 1,615 1,845
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------
1999
------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents.......................................... $11,922
Working capital.................................................... 10,720
Total assets....................................................... 15,769
Total shareholders' equity......................................... 8,604
</TABLE>
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RISK FACTORS
The Exchange Offer will provide you with an equity ownership interest in
Internet Capital Group. As one of our shareholders, your investment will be
subject to risks inherent in our business. The price of our Common Stock may
decline. You should carefully consider the following factors as well as other
information contained in this Prospectus before deciding to invest in shares of
our Common Stock.
RISKS PARTICULAR TO INTERNET CAPITAL GROUP
Limited Operating History--We have a limited operating history upon which you
may evaluate us.
We were formed in March 1996. Although we have grown significantly since
then, we have a limited operating history upon which you may evaluate our
business and prospects. We and our partner companies are among the many
companies that have entered into the emerging business-to-business, or B2B, e-
commerce market. Many of our partner companies are in the early stages of their
development. Our business and prospects must be considered in light of the
risk, expense and difficulties frequently encountered by companies in early
stages of development, particularly companies in new and rapidly evolving
markets such as B2B e-commerce. If we are unable to effectively allocate our
resources and help grow existing partner companies, our stock price may be
adversely affected and we may be unable to execute our strategy of developing a
collaborative network of partner companies.
Dependence on Partner Companies--Our business depends upon the performance of
our partner companies, which is uncertain.
Economic, governmental, industry and internal company factors outside our
control affect each of our partner companies. If our partner companies do not
succeed, the value of our assets and the price of our Common Stock could
decline. The material risks relating to our partner companies include:
. fluctuations in the market price of the common stock of
VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com
and Universal Access, five of our publicly traded partner
companies, and other future publicly traded partner companies,
which are likely to affect the price of our Common Stock;
. lack of the widespread commercial use of the Internet, which may
prevent our partner companies from succeeding; and
. intensifying competition for the products and services our partner
companies offer, which could lead to the failure of some of our
partner companies.
Of our $2,050.4 million in total assets as of December 31, 1999, $547.3
million, or 26.7%, consisted of ownership interests in and advances to our
partner companies. On a pro forma basis, adjusted for our acquisitions
subsequent to December 31, 1999 as if they had occurred on December 31, 1999,
our assets on December 31, 1999 were $3,402.4 million, of which $1,400.8
million, or 41.2%, consisted of ownership interests in and advances to our
partner companies. The carrying value of our partner company ownership
interests includes our original acquisition cost, the effect of accounting for
certain of our partner companies under the equity method of accounting, the
effect of adjustments to our carrying value resulting from certain issuances of
equity securities by our partner companies and the effect of impairment charges
recorded for the decrease in value of certain partner companies. The carrying
value of our partner companies will be impaired and decrease if one or more of
our partner companies do not succeed. The carrying value of our partner
companies is not marked to market; therefore a decline in the market value of
one of our publicly traded partner companies may impact our financial position
by not more than the carrying value of the partner company. However, this
decline would likely affect the price of our Common Stock. For example,
VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com and Universal
Access are five of our publicly traded
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partner companies and on March 24, 2000 our holdings in VerticalNet, Breakaway
Solutions, Universal Access, ONVIA.com and eMerge Interactive had respective
market values of approximately $2.3 billion, $818 million, $1.2 billion, $536
million and $381 million. A decline in the market value of VerticalNet,
Breakaway Solutions, Universal Access, ONVIA.com and eMerge Interactive will
likely cause a decline in the price of our Common Stock. On April 10, 2000, our
ownership in VerticalNet, Breakaway Solutions, ONVIA.com, eMerge Interactive,
and Universal Access had market values of approximately $1.3 billion, $556
million, $266 million, $154 million, and $713 million, respectively.
Other material risks relating to our partner companies are more fully
described below under "Risks Particular to Our Partner Companies."
Unproven Business Model--Our business model is unproven, which could limit our
ability to attract new companies and could adversely affect our business
strategy.
Our strategy is based on an unproven business model. Our business model
depends on the willingness of companies to join our collaborative network and
the ability of the collaborative network to assist our partner companies. Our
business model depends on our ability to share information within our network
of partner companies. If competition develops among our partner companies, we
may be unable to fully benefit from the sharing of information within our
network of partner companies. If we cannot convince companies of the value of
our business model, our ability to attract new companies will be adversely
affected and our strategy of building a collaborative network may not succeed.
Fluctuations in Quarterly Results--Fluctuations in our quarterly results may
adversely affect our stock price.
We expect that our quarterly results will fluctuate significantly due to
many factors, including:
. the operating results of our partner companies;
. changes in equity losses or income and amortization of goodwill
related to the acquisition or divestiture of interests in partner
companies;
. changes in our methods of accounting for our partner company
interests, which may result from changes in our ownership
percentages of our partner companies;
. sales of equity securities by our partner companies, which could
cause us to recognize gains or losses under applicable accounting
rules;
. the pace of development or a decline in growth of the B2B e-
commerce market;
. intense competition from other potential acquirors of B2B e-
commerce companies, which could increase our cost of acquiring
interests in additional companies, and competition for the goods
and services offered by our partner companies; and
. our ability to effectively manage our growth and the growth of our
partner companies during the anticipated rapid growth of the
global B2B e-commerce market.
We believe that period-to-period comparisons of our operating results are
not meaningful. If our operating results in one or more quarters do not meet
securities analysts' or your expectations, the price of our Common Stock could
decrease.
Dependence on Personnel--Our success is dependent on our key personnel and the
key personnel of our partner companies and our business and operations could be
disrupted if they do not continue in their present positions.
We believe that our success will depend on continued employment by us and
our partner companies of senior management and key technical personnel. Our
success also depends on the continued assistance of our
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Advisory Board members, some of whom may from time to time leave our Advisory
Board. If one or more members of our senior management, our partner companies'
senior management or our Advisory Board were unable or unwilling to continue in
their present positions, our business and operations could be disrupted.
As of March 24, 2000, 15 of our 24 management personnel have worked for
us for less than one year. Our efficiency may be limited while these employees
and future employees are being integrated into our operations. In addition, we
may be unable to find and hire additional qualified management and professional
personnel to help lead us and our partner companies.
The success of some of our partner companies also depends on their having
highly trained technical and marketing personnel. Our partner companies will
need to continue to hire additional personnel as their businesses grow. A
shortage in the number of trained technical and marketing personnel could limit
the ability of our partner companies to increase sales of their existing
products and services and launch new product offerings.
Historical and Future Losses--We have had a history of losses and expect
continued losses in the foreseeable future.
Our net loss for the year ended December 31, 1999 of $29.8 million
includes gains of $44.2 million, net of deferred taxes, related to the issuance
of stock by VerticalNet and Breakaway Solutions and a $7.7 million deferred tax
benefit related to our conversion from a limited liability company to a taxable
corporation. Without the $51.9 million effect of these items on our net
results, we would have had a net loss of $81.7 million. For the year ended
December 31, 1998, we realized net income of $13.9 million primarily due to
$34.4 million of non-operating gains from the sale of certain minority
interests. In addition, we incurred net losses of $6.6 million in 1997 and $2.1
million in 1996. After giving effect to our acquisitions during 1999 and 2000
as if they had occurred on January 1, 1999, pro forma net loss for the year
ended December 31, 1999 would have increased by $468.1 million. Excluding the
effect of any future non-operating gains, we expect to continue to incur losses
for the foreseeable future and, if we ever have profits, we may not be able to
sustain them. Without the effect of any significant non-operating gains during
the year ending December 31, 2000, we expect to incur a significant net loss
for this period.
Our expenses will increase as we build an infrastructure to implement our
business model. For example, we expect to hire additional employees, expand
information technology systems and lease more space for our corporate offices.
In addition, we plan to significantly increase our operating expenses to:
. broaden our partner company support capabilities;
. explore acquisition opportunities and alliances with other
companies;
. facilitate business arrangements among our partner companies; and
. expand our business internationally.
Expenses will also increase due to the effect of goodwill amortization and
other charges resulting from completed and future acquisitions. If any of these
and other expenses are not accompanied by increased revenue, our losses will be
greater than we anticipate.
Ability to Manage Partner Company Growth--Our partner companies are growing
rapidly and we may have difficulty assisting them in managing their growth.
Our partner companies have grown, and we expect them to continue to grow
rapidly, by adding new products and services and hiring new employees. This
growth is likely to place significant strain on their resources and on the
resources we allocate to assist our partner companies. In addition, our
management may
10
<PAGE>
be unable to convince our partner companies to adopt our ideas for effectively
and successfully managing their growth.
Shareholder and Partner Competition--We may compete with some of our
shareholders and partner companies, and our partner companies may compete with
each other which could deter companies from partnering with us and may limit
future business opportunities.
We may compete with some of our shareholders and partner companies for
Internet-related opportunities. As of March 24, 2000, Comcast Corporation and
Safeguard Scientifics, Inc. own 8.3% and 13.7% of our outstanding Common Stock,
respectively. These shareholders may compete with us to acquire interests in
B2B e-commerce companies. Comcast Corporation and Safeguard Scientifics
currently each have a designee as a member of our board of directors and IBM
Corporation and AT&T Corp. each have 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 acquisitions, 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, we have no current contractual obligations to do so. We
do not have any policies, contracts or other understandings with any of our
shareholders or partner companies that would govern the resolution of these
potential conflicts. This competition, and the complications posed by the
designated directors, may deter companies from partnering with us and may limit
our business opportunities.
Capital Provider Competition--We face competition from other potential
acquirors of B2B e-commerce companies which could affect our ability to build
successful 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 on reasonable terms, our strategy to build a collaborative
network of partner companies may not succeed.
Global Expansion--Our global expansion exposes us to less developed markets,
currency fluctuations and political instability which could adversely impact
our financial results and our partner companies' ability to conduct business.
We are pursuing B2B e-commerce opportunities outside the United States.
We recently opened an office in London whose personnel will focus on B2B e-
commerce opportunities in Europe. This international expansion exposes us to
several risks, including the following:
. Less Developed Markets. We believe that e-commerce markets outside
the United States are less developed than the United States e-
commerce market. If the e-commerce markets outside the United
States do not continue to mature, any of our partner companies
outside the United States may not succeed.
. Currency Fluctuations. When we purchase interests in non-United
States partner companies for cash, we will likely have to pay for
the interests using the currency of the country where the
prospective partner company is located. Similarly, although it is
our intention to act as a long-term partner to our partner
companies, if we sold an interest in a non-United States partner
company we might receive foreign currency. To the extent that we
transact in foreign currencies, fluctuations in the relative value
of these currencies and the United States dollar may adversely
impact our financial results.
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<PAGE>
. Compliance with Laws. As we expand internationally, we will become
increasingly subject to the laws and regulations of foreign
countries. We may not be familiar with these laws and regulations,
and these laws and regulations may change at any time.
. Political Instability. We may purchase interests in foreign
partner companies that are located, or transact business in, parts
of the world that experience political instability. Political
instability may have an adverse impact on the subject country's
economy, and may limit or eliminate a partner company's ability to
conduct business.
Substantial Leverage--Our outstanding indebtedness may increase substantially
which would negatively impact our future prospects.
As of December 31, 1999, we had $569.4 million in long term debt,
including $566.3 million in outstanding convertible subordinated notes. This
indebtedness will impact us in a number of ways:
. significantly increase our interest expense and related debt
service costs;
. make it more difficult to obtain additional financing; and
. constrain our ability to react quickly in an unfavorable economic
climate.
If we are unable to satisfy our debt service requirements, substantial
liquidity problems could result, which would negatively impact our future
prospects.
Access to Capital Markets--Our growth could be impaired by limitations on our
and our partner companies' access to the capital markets.
We are dependent on the capital markets for access to funds for
acquisitions and other purposes. Our partner companies are also dependent on
the capital markets to raise capital for their own purposes. To date, there
have been a substantial number of Internet-related initial public offerings and
additional offerings are expected to be made in the future. If the market for
Internet-related companies and initial public offerings were to weaken for an
extended period of time, our ability and the ability of our partner companies
to grow and access the capital markets will be impaired.
Divestiture of Partner Company Interests--We may be unable to obtain maximum
value for our partner company interests.
We have significant positions in our partner companies. While we
generally do not anticipate selling our interests in our partner companies, if
we were to divest all or part of an interest in a partner company, we may not
receive maximum value for this position. For partner companies with publicly-
traded stock, we may be unable to sell our interest at then-quoted market
prices. Furthermore, for those partner companies that do not have publicly-
traded stock, the realizable value of our interests may ultimately prove to be
lower than the carrying value currently reflected in our consolidated financial
statements.
Lack of Opportunities for Future Acquisitions--We may not have opportunities to
acquire interests in additional companies, which would affect our growth
strategy.
We may be unable to identify companies that complement our strategy, and
even if we identify a company that complements our strategy, we may be unable
to acquire an interest in the company for many reasons, including:
. a failure to agree on the terms of the acquisition, such as the
amount or price of our acquired interest;
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<PAGE>
. incompatibility between us and management of the company;
. competition from other acquirors of B2B e-commerce companies;
. a lack of capital to acquire an interest in the company; and
. the unwillingness of the company to partner with us.
If we cannot acquire interests in attractive companies, our strategy to
build a collaborative network of partner companies may not succeed.
Limitation of Resources for Future Acquisitions--Our resources and our ability
to manage newly acquired partner companies may be strained as we acquire more
and larger interests in B2B e-commerce companies.
We have acquired, and plan to continue to acquire, significant interests
in B2B e-commerce companies that complement our business strategy. In the
future, we may acquire larger percentages or larger interests in companies than
we have in the past, or we may seek to acquire 100% ownership of companies. We
may also spend more on individual acquisitions than we have in the past. These
larger acquisitions may place significantly greater strain on our resources,
ability to manage such companies and ability to integrate them into our
collaborative network. Future acquisitions are subject to the following risks:
. Our acquisitions may cause a disruption in our ongoing support of
our partner companies, distract our management and other resources
and make it difficult to maintain our standards, controls and
procedures.
. We may acquire interests in companies in B2B e-commerce markets in
which we have little experience.
. We may not be able to facilitate collaboration between our partner
companies and new companies that we acquire.
. To fund future acquisitions we may be required to incur debt or
issue equity securities, which may be dilutive to existing
shareholders.
Registration Under the Investment Company Act of 1940--We may have to buy, sell
or retain assets when we would otherwise not wish to in order to avoid
registration under the Investment Company Act of 1940 which would impact our
investment strategy.
We believe that we are actively engaged in the business of B2B e-commerce
through our network of majority-owned subsidiaries and companies that we are
considered to "control." Under the Investment Company Act, a company is
considered to control another company if it owns more than 25% of that
company's voting securities. A company may be required to register as an
investment company if more than 45% of its total assets consists of, and more
than 45% of its income/loss and revenue attributable to it over the last four
quarters is derived from, ownership interests in companies it does not control.
Because many of our partner companies are not majority-owned subsidiaries, and
because we own 25% or less of the voting securities of a number of our partner
companies, changes in the value of our interests in our partner companies and
the income/loss and revenue attributable to our partner companies could subject
us to regulation under the Investment Company Act unless we took precautionary
steps. For example, in order to avoid having excessive income from "non-
controlled" interests, we may not sell minority interests we would otherwise
want to sell or we may have to generate non-investment income by selling
interests in partner companies that we are considered to control. We may also
need to ensure that we retain more than 25% ownership interests in our partner
companies after any equity offerings. In addition, we may have to acquire
additional income or loss generating majority-owned or controlled interests
that we might not otherwise have acquired or may not be able to acquire "non-
controlling" interests in companies that we would otherwise want to acquire. It
is not feasible
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for us to be regulated as an investment company because the Investment Company
Act rules are inconsistent with our strategy of actively managing, operating
and promoting collaboration among our network of partner companies. 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. This exemptive order reduces the risk
that we may have to take action to avoid registration as an investment company,
but it does not eliminate the risk.
RISKS PARTICULAR TO OUR PARTNER COMPANIES
Common Stock Price Fluctuations--Fluctuation in the price of the common stock
of our publicly-traded partner companies may affect the price of our common
stock.
VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com and
Universal Access are five of our publicly-traded partner companies. The price
of their common stock has been highly volatile. On February 16, 1999,
VerticalNet completed its initial public offering at a price of $8.00 per share
and its common stock has since traded as high as $296.75 per share, adjusted
for a two for one stock split. On October 6, 1999, Breakaway Solutions
completed its initial public offering at a price of $7.00 per share and its
common stock has since traded as high as $85.50 per share, adjusted for a two
for one stock split. On February 8, 2000, eMerge Interactive completed its
initial public offering at a price of $15.00 per share and its common stock has
traded as high as $70.50 per share. On March 1, 2000, ONVIA.com completed its
initial public offering at a price of $21.00 per share and its common stock has
traded as high as $78.00 per share. On March 17, 2000, Universal Access, Inc.
completed its initial public offering at a price of $14.00 per share and its
common stock has traded as high as $54.63 per share. The market value of our
holdings in these partner companies changes with these fluctuations. Based on
the closing price of VerticalNet's common stock on March 24, 2000 of $183.88,
our holdings in VerticalNet had a market value of approximately $2.3 billion.
Based on the closing price of Breakaway Solutions' common stock on March 24,
2000 of $58.56, our holdings in Breakaway Solutions had a market value of
approximately $818 million. Based on the closing price of eMerge Interactive's
common stock on March 24, 2000 of $47.19, our holdings in eMerge Interactive
had a market value of approximately $381 million. Based on the closing price on
ONVIA.com's common stock on March 24, 2000 of $31.19, our holdings in ONVIA.com
had a market value of approximately $536 million. Based on the closing price of
Universal Access' common stock on March 24, 2000 of $54.63, our holdings in
Universal Access had a market value of approximately $1.2 billion. Fluctuations
in the price of VerticalNet's, Breakaway Solutions', eMerge Interactive's,
ONVIA.com's and Universal Access' and other publicly-traded partner companies'
common stock are likely to affect the price of our Common Stock. On April 10,
2000, our ownership in VerticalNet, Breakaway Solutions, ONVIA.com, eMerge
Interactive, and Universal Access had market values of approximately $1.3
billion, $556 million, $266 million, $154 million, and $713 million,
respectively.
VerticalNet's results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:
. lack of acceptance of the Internet as an advertising medium;
. inability to develop a large base of users of its Web sites who
possess demographic characteristics attractive to advertisers;
. inability to generate significant e-commerce transaction revenues
from its communities;
. lower advertising rates; and
. loss of key content providers.
Breakaway Solutions' results of operations, and accordingly the price of
its common stock, may be adversely affected by the following factors:
. growing enterprises' failure to accept e-commerce solutions;
. inability to open new regional offices;
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. loss of money on fixed-fee or performance-based contracts; and
. inability to develop brand awareness.
eMerge Interactive's results of operations, and accordingly the price of
its common stock, may be adversely affected by the following factors:
. lack of commercial acceptance of online cattle sales and services;
. failure to expand the number of livestock industry participants in
its network;
. failure to obtain access to data from feedlots to adequately meet
information needs of its customers;
. inability to respond to competitive developments; and
. failure to achieve brand recognition.
Onvia.com's results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:
. small businesses' unwillingness to purchase their business
services and products online;
. a significant number of small businesses' and small business
service providers' unwillingness to use its emarketplace to buy
and sell services and products; and
. failure of small business customers to provide it data about
themselves.
Universal Access' results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:
. failure of its services to be sufficiently rapid, reliable and
cost-effective;
. unwillingness of clients to outsource the obtaining of circuits;
. inability to market its services effectively; and
. slow growth of the Internet.
Our assets as reflected in our balance sheet, dated December 31, 1999,
were approximately $2,050 million, of which $128.3 million related to
VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com and Universal
Access. However, we believe that comparisons of the value of our holdings in
partner companies to the value of our total assets are not meaningful because
not all of our partner company ownership interests are marked to market in our
balance sheet.
Dependence on B2B Market--The success of our partner companies depends on the
development of the B2B e-commerce market, which is uncertain.
All of our partner companies rely on the Internet for the success of
their businesses. The development of the e-commerce market is in its early
stages. If widespread commercial use of the Internet does not develop, or if
the Internet does not develop as an effective medium for providing products and
services, our partner companies may not succeed.
Our long-term success depends on widespread market-acceptance of B2B e-
commerce. A number of factors could prevent this acceptance, including the
following:
. the unwillingness of businesses to shift from traditional
processes to B2B e-commerce processes;
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. the network necessary for enabling substantial growth in usage of
B2B e-commerce may not be adequately developed;
. increased government regulation or taxation which may adversely
affect the viability of B2B e-commerce;
. insufficient availability of telecommunication services or changes
in telecommunication services which could result in slower
response times for the users of B2B e-commerce; and
. concern and adverse publicity about the security of B2B e-commerce
transactions.
Competitors of Partner Companies--Our partner companies may fail if their
competitors provide superior Internet-related offerings or continue to have
greater resources than our partner companies have.
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
online providers and traditional distribution channels;
. dollars spent on consulting services with many established
information systems and management consulting firms; and
. advertising budget with online 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 in responding
to their competitors' pricing strategies, technological advances, advertising
campaigns, strategic partnerships and other initiatives.
Infringement on Proprietary Rights--Some of our partner companies may be unable
to protect their proprietary rights and may infringe on the proprietary rights
of others.
Our partner companies are inventing new ways of doing business. In
support of this innovation, they will develop proprietary techniques,
trademarks, processes and software. Although reasonable efforts will be taken
to protect the rights to this intellectual property, the complexity of
international trade secret, copyright, trademark and patent law, coupled with
the limited resources of these young companies and the demands of quick
delivery of products and services to market, create risk that their efforts
will prove inadequate. Further, the nature of Internet business demands that
considerable detail about their innovative processes and techniques be exposed
to competitors, because it must be presented on the Web sites in order to
attract clients. Some of our partner companies also license content from third
parties and it is possible that they could become subject to infringement
actions based upon the content licensed from those third parties. Our partner
companies generally obtain representations as to the origin and ownership of
such licensed content; however, this may not adequately protect them. Any
claims against our partner companies' proprietary rights, with or without
merit,
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could subject our partner companies to costly litigation and the diversion of
their technical and management personnel. If our partner companies incur costly
litigation and their personnel are not effectively deployed, the expenses and
losses incurred by our partner companies will increase and their profits, if
any, will decrease.
Liabilities from Internet Publications or Distributions--Our partner companies
that publish or distribute content over the Internet may be subject to legal
liability.
Some of our partner companies may be subject to legal claims relating to
the content on their Web sites, or the downloading and distribution of this
content. Claims could involve matters such as defamation, invasion of privacy
and copyright infringement. Providers of Internet products and services have
been sued in the past, sometimes successfully, based on the content of
material. In addition, some of the content provided by our partner companies on
their Web sites is drawn from data compiled by other parties, including
governmental and commercial sources. This data may have errors. If any of our
partner companies' Web site content is improperly used or if any of our partner
companies supply incorrect information, it could result in unexpected
liability. Any of our partner companies that incur this type of unexpected
liability may not have insurance to cover the claim or its insurance may not
provide sufficient coverage. If our partner companies incur substantial cost
because of this type of unexpected liability, the expenses incurred by our
partner companies will increase and their profits, if any, will decrease.
Failure of Systems--Our partner companies' computer and communications systems
may fail, which may discourage content providers from using our partner
companies' systems.
Some of our partner companies' businesses depend on the efficient and
uninterrupted operation of their computer and communications hardware systems.
Any system interruptions that cause our partner companies' Web sites to be
unavailable to Web browsers may reduce the attractiveness of our partner
companies' Web sites to third party content providers. If third party content
providers are unwilling to use our partner companies' Web sites, our business,
financial condition and operating results could be adversely affected.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events.
Inability to Upgrade Systems--Our partner companies' businesses may be
disrupted if they are unable to upgrade their systems to meet increased demand.
Capacity limits on some of our partner companies' technology, transaction
processing systems and network hardware and software may be difficult to
project and they may not be able to expand and upgrade their systems to meet
increased use.
As traffic on our partner companies' Web sites continues to increase,
they must expand and upgrade their technology, transaction processing systems
and network hardware and software. Our partner companies may be unable to
accurately project the rate of increase in use of their Web sites. In addition,
our partner companies may not be able to expand and upgrade their systems and
network hardware and software capabilities to accommodate increased use of
their Web sites. If our partner companies are unable to appropriately upgrade
their systems and network hardware and software, the operations and processes
of our partner companies may be disrupted.
Dependence on Loyal Users of Web Sites--Our partner companies may not be able
to attract a loyal base of users to their Web sites.
While content is important to all our partner companies' Web sites, our
market maker partner companies are particularly dependent on content to attract
users to their Web sites. Our success depends upon the ability of these partner
companies to deliver compelling Internet content to their targeted users. If
our partner companies are unable to develop Internet content that attracts a
loyal user base, the revenues and profitability of our partner companies could
be impaired. Internet users can freely navigate and instantly switch
17
<PAGE>
among a large number of Web sites. Many of these Web sites offer original
content. Thus, our partner companies may have difficulty distinguishing the
content on their Web sites to attract a loyal base of users.
Maintenance of Website Addresses--Our partner companies may be unable to
acquire or maintain easily identifiable Web site addresses or prevent third
parties from acquiring Web site addresses similar to theirs.
Some of our partner companies hold various Web site addresses relating to
their brands. These partner companies may not be able to prevent third parties
from acquiring Web site addresses that are similar to their addresses, which
could adversely affect the use by businesses of our partner companies' Web
sites. In these instances, our partner companies may not grow as we expect. The
acquisition and maintenance of Web site addresses generally is regulated by
governmental agencies and their designees. The regulation of Web site addresses
in the United States and in foreign countries is subject to change. As a
result, our partner companies may not be able to acquire or maintain relevant
Web site addresses in all countries where they conduct business. Furthermore,
the relationship between regulations governing such addresses and laws
protecting trademarks is unclear.
Dependence on Barter Transactions--Some of our partner companies are dependent
on barter transactions that do not generate cash revenue.
Our partner companies often enter into barter transactions in which they
provide advertising for other Internet-related companies in exchange for
advertising for the partner company. In a barter transaction the partner
company will reflect the sales of the advertising received as an expense and
the value of the advertising provided, in an equal amount, as revenue. However,
barter transactions also do not generate cash revenue, which may adversely
affect the cash flows of some of our partner companies. Limited cash flows may
adversely affect a partner company's abilities to expand its operations and
satisfy its liabilities. During 1998 and 1999, revenue from barter transactions
constituted a significant portion of some of our partner companies' revenue.
Barter revenue may continue to represent a significant portion of their revenue
in future periods. For example, for the year ended December 31, 1999,
approximately 18% of VerticalNet's revenue was attributable to barter
transactions.
RISKS RELATING TO THE INTERNET INDUSTRY
Confidentiality and Security--Concerns regarding security of transactions and
transmitting confidential information over the Internet may have an adverse
impact on our business.
We believe that concern regarding the security of confidential
information transmitted over the Internet prevents many potential customers
from engaging in online transactions. If our partner companies that depend on
these types of transactions do not add sufficient security features to their
future product releases, our partner companies' products may not gain market
acceptance or our partner companies may incur additional legal exposure.
Despite the measures some of our partner companies have taken, their web
sites remain potentially vulnerable to physical or electronic break-ins,
viruses or similar problems. If a person circumvents the security measures
imposed by any one of our partner companies, he or she could misappropriate
proprietary information or cause interruption in operations of the partner
company. Security breaches that result in access to confidential information
could damage the reputation of any one of our partner companies and expose the
partner company affected to a risk of loss or liability. Some of our partner
companies may be required to make significant investments and efforts to
protect against or remedy security breaches. Additionally, as e-commerce
becomes more widespread, our partner companies' customers will become more
concerned about security. If our partner companies are unable to adequately
address these concerns, they may be unable to sell their goods and services.
18
<PAGE>
Rapid Technological Changes--Rapid technological changes may prevent our
partner companies from remaining current with their technical resources and
maintaining competitive product and service offerings.
The markets in which our partner companies operate are characterized by
rapid technological change, frequent new product and service introductions and
evolving industry standards. Significant technological changes could render
their existing Web site technology or other products and services obsolete. The
e-commerce market's growth and intense competition exacerbate these conditions.
If our partner companies are unable to successfully respond to these
developments or do not respond in a cost-effective way, our business, financial
condition and operating results will be adversely affected. To be successful,
our partner companies must adapt to their rapidly changing markets by
continually improving the responsiveness, services and features of their
products and services and by developing new features to meet the needs of their
customers. Our success will depend, in part, on our partner companies' ability
to license leading technologies useful in their businesses, enhance their
existing products and services and develop new offerings and technology that
address the needs of their customers. Our partner companies will also need to
respond to technological advances and emerging industry standards in a cost-
effective and timely manner.
Effect of Government Regulations--Government regulations and legal
uncertainties may place financial burdens on our business and the businesses of
our partner companies.
As of March 24, 2000, there were few laws or regulations, at either the
state or federal level, directed specifically at e-commerce. Despite the
scarcity of laws targeted at e-commerce, courts and administrative agencies
have shown an increased willingness to apply traditional legal doctrines to
cyberspace in areas including libel, wire fraud, copyright, trade secrets,
unfair competition, consumer protection, monopolies, and unfair trade
practices, creating an aura of uncertainty regarding the legality of certain
widespread practices. It is possible that court decisions on issues such as
deep-linking, protection of databases, and privacy rights may affect the
valuation of our business and the businesses of our partner companies, call
into question the viability of current business practices, and require the
revision of certain business models.
Because of the Internet's popularity and increasing use, as well as the
sometimes imperfect fit of traditional legal doctrines to Internet-related
issues, 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, spam, pricing, content, copyrights, online gambling,
distribution and 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 our business and the businesses of our partner companies.
Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. For example, the United States
Congress recently enacted laws regarding online copyright infringement and the
protection of information collected online from children. Although these and
other laws may not have a direct adverse effect on our business or those of our
partner companies, they add to the legal and regulatory uncertainty faced by
B2B e-commerce companies.
Importantly, the current moratorium on certain Internet taxes expires in
October 2001, and there is some chance that it will not be extended. If not, e-
commerce businesses could be faced with an array of state and local taxes that
could impede the growth prospects of our partner companies.
19
<PAGE>
RISKS RELATING TO THE EXCHANGE OFFER
Dilution of Common Stock--We may issue securities which may dilute your
ownership interest in the Common Stock.
In the future, we may issue securities to raise cash for acquisitions,
and we may also pay for interests in additional partner companies by using a
combination of cash and our Common Stock, or just our Common Stock. Any of
these events may dilute your ownership interest in us and have an adverse
impact on the price of our Common Stock. In addition, if we issue securities
convertible into our Common Stock, the conversion of these securities may
dilute your ownership interest and have an adverse impact on the price of our
Common Stock.
Future Sales of Shares--Shares eligible for future sale by our current
shareholders may decrease the price of our Common Stock.
If our shareholders sell substantial amounts of our Common Stock,
including shares issued upon the exercise of outstanding options, in the public
market following this Exchange Offer then the market price of our Common Stock
could fall. Restrictions under the securities laws and certain repurchase and
lock-up agreements limit the number of shares of Common Stock available for
sale in the public market. Prior to this offering, the holders of 131,872,442
shares of our Common Stock and warrants exercisable for 569,451 shares of our
Common Stock agreed not to sell any of these securities until June 13, 2000
without the prior written consent of Merrill Lynch. However, Merrill Lynch may,
in its sole discretion, release all or any portion of the securities subject to
these lock-up agreements.
The holders of 169,683,868 shares of Common Stock and the holders of
warrants to purchase 2,160,817 shares of Common Stock have demand or piggy-back
registration rights. Prior to this Exchange Offer, the holders of 58,507,579
shares of our Common Stock and warrants exercisable for 351,860 shares of our
Common Stock that have demand registration rights have agreed not to demand
that their securities be registered until June 13, 2000 without the prior
written consent of Merrill Lynch. Common Stock issued upon exercise of stock
options under our benefit plans are eligible for resale in the public market
without restriction. In addition, we may issue and register securities in
connection with acquisitions or other business combinations.
Interests of Significant Shareholders--The interests of certain of our
significant shareholders may conflict with our interests and the interests of
our other shareholders.
As a result of its ownership of our Common Stock, Safeguard Scientifics
will be in a position to affect significantly our corporate actions such as
mergers or takeover attempts in a manner that could conflict with the interests
of our public shareholders. After these Exchange Offers, Safeguard Scientifics
will beneficially own about 13.2% of our Common Stock.
Anti-Takeover Protections--Anti-takeover provisions and our right to issue
preferred stock could make a third-party acquisition of us difficult.
Our certificate of incorporation provides that our board of directors may
issue preferred stock without shareholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a three-year
term. The issuance of preferred stock and the existence of a classified board
could make it more difficult for a third-party to acquire us without the
approval of our board.
Price Volatility--Our Common Stock price is highly volatile.
The market price for our Common Stock has been highly volatile and is
likely to continue to be highly volatile. The trading prices of many technology
and Internet-related company stocks, including ours, have experienced
significant price and volume fluctuations in recent months. These fluctuations
often have been
20
<PAGE>
unrelated or disproportionate to the operating performance of these companies.
The trading price of our Common Stock has increased significantly from our
initial public offering price of $6.00 per share, as adjusted for our 2 for 1
stock split. Any negative change in the public's perception of the prospects of
Internet or e-commerce companies could depress our stock price regardless of
our results.
The following factors will add to our Common Stock price's volatility:
.actual or anticipated variations in our quarterly results and those
of our partner companies;
. new sales formats or new products or services offered by us, our
partner companies and their competitors;
.changes in our financial estimates and those of our partner
companies by securities analysts;
.changes in the size, form or rate of our acquisitions;
. conditions or trends in the Internet industry in general and the
B2B e-commerce industry in particular;
. announcements by our partner companies and their competitors of
technological innovations;
. announcements by us or our partner companies or our competitors of
significant acquisitions, strategic partnerships or joint ventures;
. changes in the market valuations of our partner companies and other
Internet companies;
. our capital commitments;
. negative changes in the public's perception of the prospects of e-
commerce companies;
. general economic conditions such as a recession, or interest rate
or currency rate fluctuations;
. additions or departures of our key personnel and key personnel of
our partner companies; and
. additional sales of our securities.
Many of these factors are beyond our control. These factors may decrease
the market price of our Common Stock, regardless of our operating performance.
In the past, securities class action litigation has often been brought against
a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business, operating results and financial condition.
21
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act, 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. These factors are discussed in the "Risk
Factors" section beginning on page 8 of this Prospectus, and include, among
other things:
. development of an e-commerce market;
. our ability to identify trends in our markets and the markets of
our partner companies and to offer new solutions that address the
changing needs of these markets;
. our ability to successfully execute our business model;
. our partner companies' ability to compete successfully against
direct and indirect competitors;
. our ability to acquire interests in additional companies;
. our ability to expand our business successfully into international
markets;
. growth in demand for Internet products and services; and
. adoption of the Internet as an advertising medium.
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. All forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by
the cautionary statements included in this Prospectus. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks, uncertainties and assumptions, the forward-looking events discussed in
this Prospectus might not occur.
USE OF PROCEEDS
We will not receive any proceeds from any offerings of our Common Stock
registered under this registration statement other than the value of the
businesses or properties we acquire in the proposed acquisitions.
DIVIDEND POLICY
Neither we, nor eCredit.com nor RightWorks have ever declared or paid
cash dividends on our capital stock, and none of us intend to pay cash
dividends in the foreseeable future. We, eCredit.com and RightWorks plan to
retain any earnings for use in the operation of our business and to fund future
growth.
22
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents our historical and pro forma per share data
and historical and pro forma per share data of eCredit.com and RightWorks. You
should read this information together with the historical financial statements
in this document. While the pro forma information is helpful in showing our
financial characteristics after the completion of our exchange offer, it does
not attempt to predict or suggest future results.
The information in the following table is based on the historical
financial information that we, eCredit.com and RightWorks have presented in
this Prospectus.
<TABLE>
<CAPTION>
Internet Capital Group eCredit.com RightWorks
------------------------ ------------------------ ----------------------
Equivalent Equivalent
Historical Pro Forma (1) Historical Pro Forma(2) Historical Pro Forma
---------- ------------- ---------- ------------ ---------- -----------
(unaudited) (unaudited) (unaudited)
(In thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations
before extraordinary
items attributable to
common Shareholders:... $(29,777) $(497,906) $(328,552) $(127,222) $(9,309) $(9,309)
Income (loss) per
share--basic:
For the year ended
December 31, 1999.... (0.15) (2.34) (110.02) (5.48) (5.05) (5.05)
Income (loss) from
continuing operations
before extraordinary
items:................. (29,777) (497,906) (328,552) (127,222) (9,309) (9,309)
Income (loss) per
share--diluted:
For the year ended
December 31, 1999.... (0.15) (2.34) (110.02) (5.48) (5.05) (5.05)
Cash dividends declared
per share:
For the year ended
December 31, 1999.... -- -- -- -- -- --
Book value per share:(3)
December 31, 1999..... $ 5.39 $ 9.61 $ (55.66) $ 1.71 $ 1.95 $ 1.95
</TABLE>
- --------
(1) Pro forma information gives effect to the exchange as of and for the
periods beginning on the dates indicated.
(2) The pro forma per share data for eCredit.com reflects Internet Capital
Group's acquisition of eCredit.com as if it had occurred on January 1,
1999 for the statement of operations data and December 31, 1999 for the
balance sheet data. The pro forma adjustments include: (i) conversion
of all of eCredit.com's outstanding shares of preferred stock into a
total of 15,568,622 shares of common stock, (ii) acceleration and
exercise of 1,579,853 common stock options at a weighted average
exercise price of $2.32 (this acceleration and exercise, in conjunction
with the issuance of a warrant (discussed below), results in a stock
compensation charge of $62 million and an acceleration of deferred
compensation of $8.8 million) and (iii) issuance of a warrant to
Internet Capital Group, valued at approximately $40 million, in
connection with the Exchange Offer, which warrant is exercisable upon
an initial public offering. This assumes an implied price per
eCredit.com share of $48.68. The pro forma per share data excludes
5,283,177 shares of common stock of eCredit.com issuable upon exercise
of outstanding options as of December 31, 1999 at a weighted average
exercise price of $2.35 per share and 191,378 shares of common stock of
eCredit.com issuable upon exercise of warrants outstanding as of
December 31, 1999 at an exercise price of $25.08 per share.
(3) Book value per share is computed by dividing total shareholders' equity
by the aggregate number of common shares outstanding as of the balance
sheet date.
23
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock is listed on the Nasdaq National Market under the symbol
"ICGE". The following table shows, for the periods indicated, the range of high
and low reported sales prices per share for the common stock as quoted on the
Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
------- ------
<S> <C> <C>
Quarter ended:
September 30, 1999........................................ $ 53.75 $ 7.00
December 31, 1999......................................... $193.63 $43.00
March 31, 2000............................................ $200.94 $80.00
Thru April 11, 2000....................................... $ 89.00 $55.69
</TABLE>
On April 12, 2000, the last reported sale price of the common stock as
quoted on the Nasdaq National Market was $47.13. As of March 31, 2000, there
were approximately 1,392 holders of record of Common Stock.
eCredit.com and RightWorks capital stock is not listed for trading on any
exchange or automated quotation service.
24
<PAGE>
CAPITALIZATION
Internet Capital Group
You should read this capitalization table together with "Selected
Consolidated Financial Data," "Pro Forma Consolidated Financial Information"
and our consolidated financial statements and notes included elsewhere in this
Prospectus.
The pro forma basis reflects the following:
. the issuance of 4,726,891 shares of our Common Stock in the
eCredit.com exchange offer;
. the issuance of 6,471,251 shares of our Common Stock in the
RightWorks Corporation offer; and
. the acquisition in January 2000 of a new significant minority
ownership interest in an equity method partner company for 150,000
shares of our Common Stock.
Common stock data is as of March 24, 2000 and excludes:
. the conversion of the Convertible subordinated notes into
4,443,266 shares of Common Stock;
. options to purchase 11,394,000 shares of Common Stock under our
equity plans at a weighted average exercise price of $71.59 per
share;
. 13,042,699 shares of Common Stock issuable upon exercise of
options reserved for grant;
. warrants outstanding to purchase 2,475,817 shares at a weighted
average price of $5.87 per share; and
. 599,426 shares of our Common Stock issuable upon exercise of an
ownership interest option under an agreement related to the
acquisition of a partner company ownership interest.
The following table sets forth our capitalization on an actual and pro
forma basis as of December 31, 1999.
<TABLE>
<CAPTION>
December 31, 1999
-----------------------
Actual Pro Forma
---------- -----------
(unaudited)
-----------
(In thousands)
<S> <C> <C>
Long-term debt......................................... $ 3,185 $ 5,641
Convertible subordinated notes......................... 566,250 566,250
Shareholders' equity:
Preferred stock, $.01 par value; 10,000 shares
authorized; none issued and outstanding-actual, and
pro forma........................................... -- --
Common stock, $.001 par value; 300,000 shares
authorized; 263,579 shares issued and outstanding-
actual; 274,927 shares issued and outstanding pro
forma............................................... 264 275
Additional paid-in capital............................. 1,513,615 2,625,201
Accumulated deficit.................................... (26,539) (26,539)
Unamortized deferred compensation...................... (11,846) (11,846)
Notes receivable--shareholders......................... (79,790) (79,790)
Accumulated other comprehensive income................. 24,517 24,517
---------- ----------
Total shareholders' equity......................... 1,420,221 2,531,818
---------- ----------
Total capitalization............................. $1,989,656 $3,103,709
========== ==========
</TABLE>
25
<PAGE>
eCredit.com
The following table sets forth eCredit.com's actual and pro forma
capitalization as of December 31, 1999. This table should be read in
conjunction with eCredit.com's consolidated financial statements and notes
appearing elsewhere in this Prospectus. The pro forma capitalization reflects
ICG's acquisition of eCredit.com as if it occurred on December 31, 1999. The
pro forma basis reflects the following:
. Conversion of all of its outstanding shares of preferred stock into a
total of 15,568,622 shares of common stock.
. Acceleration and exercise of 1,579,853 common stock options at a
weighted average exercise price of $2.32. Such acceleration and
exercise, in conjunction with the issuance of a warrant (see below),
results in a stock compensation charge of $62 million and
acceleration of deferred compensation of $8.8 million. This assumes
an implied price per eCredit.com share of $48.68.
. Issuance of warrants to Internet Capital Group, valued at
approximately $40 million, in connection with the purchase of
eCredit.com shares. Such warrants are exercisable upon an initial
public offering of common stock of eCredit.com.
This information excludes 5,283,177 shares of common stock issuable upon
exercise of outstanding options as of December 31, 1999 at a weighted average
exercise price of $2.35 per share and 191,378 shares of common stock issuable
upon exercise of warrants outstanding as of December 31, 1999 at an exercise
price of $25.08 per share.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------
Actual Pro Forma
---------------- -------------------
(unaudited)
(In thousands, except share data)
<S> <C> <C>
Capital lease obligations, net of current
portion.................................. $ 69 $ 69
Notes payable, net of current portion..... 1,172 1,172
Convertible preferred stock, par value
$.001:
11,037,987 shares authorized, 10,019,549
issued and outstanding, actual;
11,037,987 shares authorized, no shares
issued or outstanding, pro forma......... 373,652 --
Stockholders' equity (deficit):
Common stock, par value $.001; 33,962,013
shares authorized, 6,513,648 shares
issued and 6,063,648 shares outstanding,
actual; 33,962,013 shares authorized,
23,212,123 shares issued and outstanding,
pro forma................................ 7 31
Additional paid-in capital............... 41,844 905,390
Deferred stock compensation.............. (35,006) (26,181)
Accumulated deficit...................... (341,042) (836,125)
Notes receivable......................... (3,095) (3,095)
Treasury stock, 450,000 shares at cost... (225) (225)
---------------- ----------------
Total stockholders' equity (deficit).. (337,517) 39,795
---------------- ----------------
Total capitalization................ $ 37,376 $ 41,036
================ ================
</TABLE>
26
<PAGE>
RightWorks
The following table sets forth RightWorks' actual and pro forma
capitalization as of December 31, 1999. This table should be read in
conjunction with RightWorks' financial statements and notes appearing elsewhere
in this Prospectus. The pro forma capitalization reflects Internet Capital
Group's acquisition of a majority interest in RightWorks' as if it occurred on
December 31, 1999. The pro forma basis reflects the following:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------
Actual Pro Forma
---------------- -------------------
(unaudited)
(In thousands, except share data)
<S> <C> <C>
Capital lease obligations, net of current
portion................................. $ 206 $ 206
Notes payable, net of current portion.... 2,423 2,423
Convertible preferred stock, par value
$.001:
87,276,219 shares authorized, 79,248,953
issued and outstanding, actual;
87,276,219 shares authorized, 79,248,953
shares issued or outstanding, pro
forma................................... 79 79
Stockholders' equity (deficit):
Common stock, par value $.001;
100,000,000 shares authorized, 4,409,885
shares issued and outstanding, actual;
100,000,000 shares authorized, 4,409,885
shares issued and outstanding, pro
forma................................... 5 5
Warrants................................. 567 567
Additional paid-in capital............... 28,946 28,946
Notes receivable from shareholders....... (368) (368)
Deferred compensation.................... (3,239) (3,239)
Accumulated deficit...................... (17,386) (17,386)
---------------- ----------------
Total stockholders' equity
(deficit)........................... 8,604 8,604
---------------- ----------------
Total capitalization............... $ 11,233 $ 11,233
================ ================
</TABLE>
27
<PAGE>
INTERNET CAPITAL GROUP, INC.
Pro Forma Condensed Combined Financial Statements
Basis of Presentation
(Unaudited)
During 1999 and 2000, Internet Capital Group, Inc. acquired significant
minority ownership interests in 38 partner companies accounted for under the
equity method of accounting. In February 2000, we agreed to acquire a
significant minority ownership interest in eCredit.com for total purchase
consideration of approximately $450 million in stock. In March 2000, we agreed
to acquire a majority ownership interest in RightWorks for approximately $635
million in stock and $22 million in cash. In addition, we deconsolidated
Breakaway Solutions, Inc. subsequent to September 30, 1999 due to the decrease
in our voting ownership percentage in the company from above to below 50%.
The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1999 gives effect to the acquisition of a
significant minority ownership interest in eCredit.com, the acquisition of a
majority ownership interest in RightWorks, the 1999 and 2000 acquisitions of
significant minority ownership interests in 38 equity method partner companies,
and the acquisition of our ownership interest in Breakaway Solutions, Inc. as a
company accounted for under the equity method as if the transactions had
occurred on January 1, 1999. As VerticalNet, Inc. was deconsolidated in the
first quarter of 1999, no pro forma adjustments to the consolidated statement
of operations for the year ended December 31, 1999 are necessary to reflect its
deconsolidation.
The unaudited pro forma condensed combined balance sheet as of December
31, 1999 gives effect to the acquisition of a significant minority ownership
interest in eCredit.com, the acquisition of a majority ownership interest in
RightWorks, and the acquisitions during the period from January 1, 2000 through
March 24, 2000 of significant minority ownership interests in 13 new and 13
existing equity method partner companies as if the transactions had occurred on
December 31, 1999.
The unaudited pro forma condensed combined financial statements have been
prepared by the management of Internet Capital Group, Inc. and should be read
in conjunction with our historical consolidated financial statements contained
elsewhere herein, and the historical consolidated financial statements of
eCredit.com and RightWorks which are included elsewhere herein. Since the
unaudited pro forma financial statements which follow are based upon the
financial condition and operating results of eCredit.com, RightWorks and the
equity method partner companies acquired during periods when they were not
under the control or management of Internet Capital Group, Inc., the
information presented may not be indicative of the results which would have
actually been obtained had the acquisitions been completed on the pro forma
dates reflected nor are they indicative of future financial or operating
results. The unaudited pro forma financial information does not give effect to
any synergies that may occur due to the integration of Internet Capital Group,
Inc. with eCredit.com, RightWorks, and the other equity method partner
companies.
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, other identifiable intangibles and in-process research and
development costs (if any). We have not determined the amount of any in-process
research and development costs associated with the eCredit.com and RightWorks
acquisitions. The preliminary allocation of the purchase price will be subject
to further adjustments as we finalize our allocation of purchase price in
accordance with generally accepted accounting principles.
28
<PAGE>
INTERNET CAPITAL GROUP, INC.
Unaudited Pro Forma Condensed Combined Balance Sheet December 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Internet
Capital
Group, Pro Forma Sub- eCredit.com RightWorks Pro Forma
Inc. Adjustments Total Acquisition Acquisition Combined
---------- ----------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash
equivalents........... $1,343,459 $(376,891) c $ 966,568 -- $(10,078)b $ 956,490
Short-term
investments........... 3,359 -- 3,359 -- -- 3,359
Accounts receivable,
less allowance for
doubtful accounts..... 1,207 -- 1,207 -- 3,163 b 4,370
Prepaid expenses and
other current assets.. 6,347 -- 6,347 -- 129 b 6,476
---------- --------- ---------- -------- -------- ----------
Total current assets... 1,354,372 (376,891) 977,481 -- (6,786) 970,695
Fixed assets, net...... 4,015 4,015 -- 413 b 4,428
Ownership interests in
and advances to
Partner Companies..... 547,339 403,488 c,d 950,827 $450,000 a -- 1,400,827
Available-for-sale
securities............ 46,767 -- 46,767 -- -- 46,767
Intangible assets,
net................... 23,649 -- 23,649 -- 881,780 b 905,429
Deferred taxes......... 34,388 -- 34,388 -- -- 34,388
Other.................. 39,854 -- 39,854 -- -- 39,854
---------- --------- ---------- -------- -------- ----------
Total Assets............ $2,050,384 $ 26,597 $2,076,981 $450,000 $875,407 $3,402,388
========== ========= ========== ======== ======== ==========
Liabilities and
Shareholders' Equity
Current Liabilities
Current maturities of
long-term debt........ $ 3,000 -- $ 3,000 -- -- $ 3,000
Accounts payable....... 6,750 -- 6,750 -- $ 3,959 b 10,709
Accrued expenses....... 4,205 -- 4,205 -- -- 4,205
Notes payable to
Partner Company....... 34,134 -- 34,134 -- -- 34,134
Other.................. 903 -- 903 -- -- 903
---------- --------- ---------- -------- -------- ----------
Total current
liabilities........... 48,992 -- 48,992 -- 3,959 52,951
Long-term debt......... 3,185 -- 3,185 -- 2,456 b 5,641
Subordinated debt...... 566,250 -- 566,250 -- -- 566,250
Other liability........ 4,255 -- 4,255 -- -- 4,255
Deferred taxes......... -- -- -- -- 229,950 b 229,950
Minority interest...... 7,481 -- 7,481 -- 4,042 b 11,523
Shareholders' Equity
Total shareholders'
equity................ 1,420,221 $ 26,597 d 1,446,818 $450,000 a 635,000 b 2,531,818
---------- --------- ---------- -------- -------- ----------
Total Liabilities and
Shareholders' Equity... $2,050,384 $ 26,597 $2,076,981 $450,000 $875,407 $3,402,388
========== ========= ========== ======== ======== ==========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements
29
<PAGE>
INTERNET CAPITAL GROUP, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
Ended December 31, 1999
(In thousands, except per share data)
<TABLE>
<CAPTION>
Internet
Capital
Group, Breakaway Pro Forma eCredit.com RightWorks Pro Forma
Inc. Deconsolidation Adjustments Sub-Total Acquisition Acquisition Combined
-------- --------------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ 16,536 $(14,743) $ 7,941 f $ 9,734 -- $ 2,152 h $ 11,886
-------- -------- --------- --------- --------- --------- ---------
Operating Expenses
Cost of revenue........ 8,156 (7,038) -- 1,118 -- 430 h 1,548
Selling, general and
administrative........ 48,924 (14,722) 6,234 f,j 40,436 -- 305,100 h 345,536
-------- -------- --------- --------- --------- --------- ---------
Total operating
expenses.............. 57,080 (21,760) 6,234 41,554 -- 305,530 347,084
-------- -------- --------- --------- --------- --------- ---------
(40,544) 7,017 1,707 (31,820) -- (303,378) (335,198)
Other income, net....... 67,384 (28) 329 f 67,685 -- 70 h 67,755
Interest income......... 9,631 (59) -- 9,572 -- -- 9,572
Interest expense........ (3,897) 54 -- (3,843) -- -- (3,843)
-------- -------- --------- --------- --------- --------- ---------
Income (Loss) Before
Income Taxes, Minority
Interest and Equity
Income (Loss).......... 32,574 6,984 2,036 41,594 -- (303,308)h (261,714)
Income taxes............ 23,722 -- 93,550 i 117,272 $ 54,352 102,900 h 274,524
Minority interest....... 6,026 -- (3,993)f,j 2,033 -- 4,189 h 6,222
Equity income (loss).... (92,099) -- (269,547)g,j (361,646) (155,292) -- (516,938)
-------- -------- --------- --------- --------- --------- ---------
Net Income (Loss)....... $(29,777) $ 6,984 $(177,954) $(200,747) $(100,940) $(196,219) $(497,906)
======== ======== ========= ========= ========= ========= =========
Net Income (Loss) per
Share
Basic.................. $ (0.15) $ (2.34)
Diluted................ $ (0.15) $ (2.34)
Weighted Average Shares
Outstanding
Basic.................. 201,851 213,199 k
Diluted................ 201,851 213,199 k
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
30
<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 December
31, 1999 gives effect to the acquisition of a significant minority ownership
interest in eCredit.com, the acquisition of a majority ownership interest in
RightWorks, and the acquisition of significant minority ownership interests in
13 new and 13 existing equity method partner companies as if the transactions
had occurred on December 31, 1999.
The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1999 gives effect to the acquisition of a
significant minority ownership interest in eCredit.com, the acquisition of a
majority ownership interest in RightWorks, the deconsolidation of Breakaway
Solutions, Inc., the 1999 and 2000 acquisitions of significant minority
ownership interests in 38 equity method partner companies and the acquisition
of our ownership interest in Breakaway Solutions, Inc. as a company accounted
for under the equity method, as if the transactions had occurred on January 1,
1999.
The effects of the acquisitions have been presented using the purchase
method of accounting and accordingly, the aggregate purchase price of these
acquisitions 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, other identifiable intangibles and in-
process research and development (if any). We have not determined the amount of
any in-process research and development costs associated with the eCredit.com
and RightWorks' acquisitions. The preliminary allocation of the purchase price
will be subject to further adjustments as we finalize our allocations of
purchase price in accordance with generally accepted accounting principles.
2. Pro Forma Balance Sheet Adjustments
The pro forma balance sheet adjustments as of December 31, 1999 reflect:
(a) The acquisition of a significant minority ownership interest in
eCredit.com for approximately $450 million in our common stock.
(b) The acquisition of a majority ownership interest in RightWorks for
approximately $635 million in our common stock and $22 million in
cash. The total RightWorks purchase price of approximately $657
million was allocated as follows: cash -- $11.9 million, net
receivables -- $3.2 million, fixed and other assets -- $0.6 million,
accounts payable and accruals -- $4.0 million, long-term debt --
$2.5 million, minority interest -- $4.0 million, $230.0 million
deferred tax liability and goodwill and intangibles -- $881.8
million.
(c) The acquisition during the period from January 1, 2000 through March
24, 2000 of new and additional significant minority ownership
interests in equity method partner companies for aggregate cash
consideration of $377 million.
(d) The acquisition in January 2000 of a new significant minority
ownership interest in an equity method partner company for
approximately $26.6 million in our common stock.
31
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to Pro Forma Condensed Combined Financial Statements--(Continued)
(Unaudited)
3. Pro Forma Statement of Operations Adjustments
The pro forma statement of operations adjustments for the year ended
December 31, 1999 consist of:
(e) Equity income (loss) has been adjusted to reflect our acquisition of
a significant minority ownership interest in eCredit.com and the
related interest in the income (loss) and amortization of the
difference in our carrying value and ownership interest in the
underlying net equity of eCredit.com over an estimated useful life of
three years. For the year ended December 31, 1999, equity income
(loss) of $155.3 million includes $5.3 million of equity income
(loss), and $150 million in amortization of the difference between
cost and equity in net assets. For the year ended December 31, 1999,
income tax benefit has been adjusted $54.3 million to reflect the tax
effect of the eCredit.com pro forma adjustments.
(f) Reflects additional revenue of $7.9 million, general and
administrative expenses of $8.4 million, other income of $0.3
million, and minority interest of $0.5 million related to the
acquisitions of Animated Images, Purchasing Group, Inc. and
Integrated Sourcing, LLC. Included in general and administrative
expenses is approximately $2.4 million of goodwill amortization
during the year ended December 31, 1999, relating to these
acquisitions.
(g) Equity income (loss) has been adjusted by $267.3 million to reflect
our ownership interests in the income (loss) of the 38 equity method
partner company acquisitions in 1999 and 2000 and the amortization of
the difference in our carrying value in the partner companies and our
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, 1999, equity income (loss) includes $25.5 million
of equity income (loss) and $241.7 million in amortization of the
difference between cost and equity in net assets.
(h) Reflects additional revenue of $2.2 million, cost of revenue of $0.4
million, general and administrative expenses of $305.1 million, other
income of approximately $.1 million, income tax benefit of $102.9
million related to the amortization of goodwill, and minority
interest of $4.2 million related to the acquisition of a majority
interest in RightWorks. Included in general and administrative
expenses is approximately $294 million of goodwill amortization
during the year ended December 31, 1999, relating to this
acquisition.
(i) Income tax benefit has been adjusted $93.6 million for the year ended
December 31, 1999 to reflect the tax effect of the pro forma
adjustments.
(j) Reflects elimination of $3.4 million for the year ended December 31,
1999 related to Breakaway Solutions, Inc. upon its deconsolidation,
and the reclass of $2.2 million of amortization of goodwill related
to our acquisition of Breakaway Solutions, Inc. from selling, general
and administrative expense to equity income (loss) upon its
deconsolidation.
(k) Reflects the issuance of 150,000 shares related to the acquisition of
e-Chemicals, Inc. in January 2000, and the issuance of 6.5 million
shares related to the RightWorks acquisition and 4.7 million shares
related to the eCredit.com acquisition as if the issuances occurred
on January 1, 1999.
32
<PAGE>
INTERNET CAPITAL GROUP SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our Consolidated Financial Statements, including the Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The Consolidated
Statements of Operations Data for the years ended December 31, 1997, 1998 and
1999, and Consolidated Balance Sheet Data at December 31, 1998 and 1999 have
been derived from the Consolidated Financial Statements, that have been audited
by KPMG LLP, independent auditors, included elsewhere in this Prospectus. The
Consolidated Statements of Operations data from March 4, 1996, the date of our
inception, through December 31, 1996 and the Consolidated Balance Sheet Data at
December 31, 1996 and 1997 has been derived from the Consolidated Financial
Statements that have been audited by KPMG LLP, independent auditors, which are
not included in this Prospectus. The pro forma net income and net income per
share information included in the Consolidated Statements of Operations Data
for the years ended December 31, 1998 and 1999 is unaudited data derived from
the Consolidated Financial Statements included elsewhere in this Prospectus and
reflect our taxation as a corporation since January 1, 1998 and 1999,
respectively, although we have been taxed as a corporation only since February
2, 1999.
<TABLE>
<CAPTION>
March 4, 1996
(Inception) to Year Ended December 31,
December 31, -----------------------------
1996 1997 1998 1999
-------------- ------- -------- ----------
(In thousands, except per share amounts)
<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, 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)
<CAPTION>
December 31,
--------------------------------------------
1996 1997 1998 1999
-------------- ------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C>
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>
33
<PAGE>
eCREDIT.COM SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations--eCredit.com" and eCredit.com's Consolidated Financial Statements
and Notes to those statements and other financial information included
elsewhere in this Prospectus. The selected Consolidated Statements of
Operations data for the years ended December 31, 1997, 1998 and 1999 and the
selected Consolidated Balance Sheet data as of December 31, 1998 and 1999 are
derived from eCredit.com's audited Consolidated Financial Statements included
in this Prospectus. The selected Consolidated Statement of Operations data for
the years ended December 31, 1995 and 1996 and selected Consolidated Balance
Sheet data as of December 31, 1995, 1996 and 1997 are derived from audited
financial statements not included in this Prospectus. The pro forma selected
Consolidated Statement of Operations data and pro forma selected Consolidated
Balance Sheet data reflects ICG's acquisition of eCredit.com Shares as if it
occurred on January 1, 1999 and December 31, 1999, respectively. Pro forma
consolidated data gives effect to the (i) conversion of all of eCredit.com's
outstanding shares of preferred stock into a total of 15,568,622 shares of
common stock, (ii) acceleration and exercise of 1,579,853 common stock options
at a weighted average exercise price of $2.32 which, in conjunction with the
issuance of a warrant (discussed below), results in a stock compensation charge
of $62 million and an acceleration of deferred compensation of $8.8 million
(this assumes an implied price per eCredit.com share of $48.68), and (iii)
issuance of a warrant to Internet Capital Group, valued at approximately $40
million, in connection with the Exchange Offer, which warrant is exercisable
upon an initial public offering of eCredit.com's common stock. The pro forma
share data excludes 5,283,177 shares of common stock issuable upon exercise of
outstanding options as of December 31, 1999 at a weighted average exercise
price of $2.35 per share and 191,378 shares of common stock issuable upon
exercise of warrants outstanding as of December 31, 1999 at an exercise price
of $25.08 per share. The historical and pro forma results presented here are
not necessarily indicative of results to be expected in any future period.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999 1999
------- ------- ------- -------- --------- -----------
Pro Forma
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data: (In thousands except per share amounts)
Revenues:
License and related
implementation........ $ 3,032 $ 3,131 $ 3,358 $ 3,763 $ 6,702 $ 6,702
Services............... 102 139 585 1,061 1,699 1,699
------- ------- ------- -------- --------- ---------
Total revenues....... 3,134 3,270 3,943 4,824 8,401 8,401
------- ------- ------- -------- --------- ---------
Cost of revenues:
License and related
implementation........ 1,122 1,885 2,153 1,987 5,230 5,230
Services............... 100 171 440 708 1,195 1,195
------- ------- ------- -------- --------- ---------
Total cost of
revenues............ 1,222 2,056 2,593 2,695 6,425 6,425
------- ------- ------- -------- --------- ---------
Gross profit............ 1,912 1,214 1,350 2,129 1,976 1,976
------- ------- ------- -------- --------- ---------
Operating expenses:
Sales and marketing.... 666 494 1,151 2,262 11,225 11,225
Research and
development........... 657 30 419 472 823 823
General and
administrative........ 887 1,278 1,598 1,802 4,159 4,159
Stock compensation..... -- -- -- -- 2,286 113,135
------- ------- ------- -------- --------- ---------
Total operating
expenses............ 2,210 1,802 3,168 4,536 18,493 129,342
------- ------- ------- -------- --------- ---------
Loss from operations.... (298) (588) (1,818) (2,407) (16,517) (127,366)
Interest and other
income (expense), net.. (91) (87) (128) (120) 144 144
------- ------- ------- -------- --------- ---------
Net loss................ (389) (675) (1,946) (2,527) (16,373) (127,222)
Accretion of preferred
stock.................. -- -- -- (5,081) (312,179) --
------- ------- ------- -------- --------- ---------
Net loss attributable to
common stockholders.... $ (389) $ (675) $(1,946) $ (7,608) $(328,552) $(127,222)
======= ======= ======= ======== ========= =========
Basic and diluted net
loss per common share.. $ (0.16) $ (0.32) $ (0.93) $ (3.62) $ (110.02) $ (5.48)
Shares used to compute
basic and diluted net
loss per common share.. 2,363 2,100 2,100 2,100 2,986 23,212
<CAPTION>
December 31,
-----------------------------------------------------------
1995 1996 1997 1998 1999 1999
------- ------- ------- -------- --------- -----------
Pro Forma
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents............ $ 211 $ 46 $ 10 $ 2,312 $ 35,210 $ 38,870
Working capital
(deficit).............. (475) (1,184) (1,580) 1,761 31,963 35,623
Total assets............ 1,427 1,438 1,448 4,196 45,814 49,474
Capital lease
obligations, net of
current portion........ 123 67 129 99 69 69
Total redeemable
preferred stock........ 2,225 2,225 3,765 14,657 373,652 --
Total stockholders'
equity (deficit)....... (2,483) (3,158) (5,104) (12,318) (337,517) 39,795
</TABLE>
34
<PAGE>
RIGHTWORKS' SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of RightWorks"and RightWorks' financial statements and notes to
those statements and other financial information included elsewhere in this
Prospectus. The selected statement of operations data for the years ended
December 31, 1997, 1998 and 1999 and the selected balance sheet data as of
December 31, 1998 and 1999 are derived from RightWorks' audited financial
statements included in this Prospectus. The selected statement of operations
data for the years ended December 31, 1995 and 1996 and selected balance sheet
data as of December 31, 1995, 1996 and 1997 are derived from audited financial
statements not included in this Prospectus. The historical results presented
here are not necessarily indicative of results to be expected in any future
period.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1995 1996 1997 1998 1999
----- ----- ------- ------- -------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Product license................ $ -- $ 223 $ -- $ -- $ 2,150
Services....................... -- -- 19 75 274
Discount related to warrant.... -- -- -- -- (272)
----- ----- ------- ------- -------
Total revenue.................. -- 223 19 75 2,152
Cost of revenue.................. -- 59 -- -- 430
----- ----- ------- ------- -------
Gross Profit..................... -- 164 19 75 1,722
----- ----- ------- ------- -------
Operating Expenses:
Research and development....... 88 424 1,201 2,263 3,345
Sales and marketing............ -- 13 312 2,262 6,062
General and administrative..... 9 78 552 1,036 1,544
Amortization of deferred
compensation.................. -- -- -- -- 150
----- ----- ------- ------- -------
Total operating expenses....... 97 515 2,065 5,561 11,101
----- ----- ------- ------- -------
Loss from operations............. (97) (351) (2,046) (5,486) (9,379)
Interest and Other Income
(Expense), net.................. 1 9 29 (136) 70
----- ----- ------- ------- -------
Net Loss and Comprehensive Loss.. $ (96) $(342) $(2,017) $(5,622) $(9,309)
===== ===== ======= ======= =======
Basic and diluted net loss per
share........................... $(.12) $(.28) $ (1.44) $ (3.48) $ (5.05)
===== ===== ======= ======= =======
Shares used in computing basic
and diluted net loss per share.. 801 1,210 1,402 1,615 1,845
===== ===== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ------ -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents....................... $ 72 $169 $688 $3,949 $11,922
Working capital (deficit)....................... 72 182 (22) 3,539 10,720
Total assets.................................... 81 288 871 4,256 15,769
Capital leases, less current portion............ -- -- -- -- 206
Notes payable, less current portion............. -- -- -- -- 2,423
Total shareholders' equity...................... 81 259 161 3,742 8,604
</TABLE>
35
<PAGE>
INTERNET CAPITAL GROUP 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 under "Risk Factors" and elsewhere in this
Prospectus. The following discussion should be read in conjunction with our
audited Consolidated Financial Statements and related Notes thereto included
elsewhere in this Prospectus.
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.
36
<PAGE>
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 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.
37
<PAGE>
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 General Partner, LLC............ 1999 N/A 47%
NetVendor, Inc. .......................... 1999 N/A 27%
ONVIA.com, Inc. .......................... 1999 N/A 23%
PaperExchange.com, Inc. .................. 1999 N/A 24%
InvestorForce.com ........................ 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>
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.
Subsequent to December 31, 1999, Plan Sponsor Exchange, Inc. changed its name
to InvestorForce.com.
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
38
<PAGE>
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>
Voting Ownership
Partner -------------------------
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 Corp....................... 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 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 Statement of
Financial and Accounting Standards 115.
Effect of Various Accounting Methods on the Presentation of our 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
39
<PAGE>
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.
40
<PAGE>
Our consolidated net results of operations consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
------- -------- ---------
(In thousands)
<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, 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>
41
<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.
42
<PAGE>
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 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 $.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
43
<PAGE>
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 totaling $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 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-business emarketplace for small 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.
44
<PAGE>
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.
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.
45
<PAGE>
General ICG Operations' other income consisted of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1999
----------- -----------
(In thousands)
<S> <C> <C>
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
=========== ===========
</TABLE>
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 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
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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 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
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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 result 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 were 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 carry forwards.
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.
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).
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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,
ONVIA.com, Universal Access and US Interactive as of March 24, 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 March 24, 2000 was $50 million.
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 March 24, 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 bank financing, or may only be able to do so on
terms not favorable or acceptable to us. In March 2000, we entered into an
agreement to increase the amount available under our bank credit facility to
$250 million.
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
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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, InvestorForce.com,
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.
During the year ended December 31, 1999, we acquired an interest in
MetalSite General Partner, LLC and Metalsite L.P. 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 March 24, 2000 we utilized
$387.6 million to acquire interests in or make advances to new and existing
partner companies. These companies included: Arbinet
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Communications, AsseTRADE.com, AUTOVIA, Benchmarking Partners, BuyMedia,
Centrimed, ClearCommerce, Collabria, Commerce Quest, ComputerJobs.com,
CourtLink, e-Chemicals, Entegrity Solutions, eumediX, Eu Supply, FarmingOnLine,
FreeBorders, Industrial America, Internet Healthcare Group, iSky, LinkShare,
Logistics.com, Inc., eMetra, NetVendor, ONVIA.com, Servicesoft Technologies,
Simplexis, StarCite!, 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, Inc., 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 Hutchison 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. Upon completion of the acquisition, and
under the terms of a separate agreement, a third party affiliated with
Hutchison Whampoa Ltd. would, at the request of ICG and subject to the approval
by the Stock Exchange of Hong Kong Limited and the Securities & Futures
Commission, be required to purchase the operating subsidiaries of ICG AsiaWorks
Limited at a fixed price for a two-year period from the closing date of the
acquisition, including assets and liabilities arising subsequent to the closing
date of the acquisition. 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, regulatory
approval and completion of due diligence.
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.
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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. for approximately 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 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
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives), and for hedging
activities. SFAS No. 133, as amended by SFAS No. 137, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. We are currently
analyzing the potential impact of SFAS No. 133 on our results of operations,
financial position and cash flows upon the adoption of this standard.
In October 1999, the Chief Accountant of the Securities and Exchange
Commission required that the Financial Accounting Standards Board Emerging
Issues Task Force, or the EITF, address a number of accounting and financial
reporting issues that the Securities and Exchange Commission believes has
developed with respect to Internet businesses. The Securities and Exchange
Commission identified twenty issues for which they believed some form of
standard setting or guidance may be appropriate either because (i) there
appeared to be diversity in practice or (ii) the issues are not specifically
addressed in current accounting literature or (iii) the Securities and Exchange
Commission staff is concerned that developing practice may be inappropriate
under generally accepted accounting principles. Many of the issues identified
by the Securities and Exchange Commission, including those which address barter
and revenue recognition, are potentially applicable to us. Although the EITF
has begun to deliberate these issues, formal guidance has not been issued to
date for the majority of them. In addition, in December 1999, the Securities
and Exchange Commission staff issued Staff Accounting Bulletin ("SAB") No. 101,
Revenue Recognition in Financial Statements, which is required to be
implemented in the quarter ended March 31, 2000. Although we believe our
historical accounting policies and practices conform with generally accepted
accounting principles, there can be no assurance that final consensus reached
by the EITF on the Internet issues referred to above, or other actions by
standard setting bodies, will not result in changes to our historical
accounting policies and practices or to the manner in which certain
transactions are presented and disclosed in our consolidated financial
statements. We do not expect the adoption of SAB No. 101 to have a significant
impact on our net results of operations, financial position or cash flows.
Year 2000 Compliance
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates from 20th
century dates. Most reports to date, however, have indicated
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that computer systems are functioning normally and the compliance and
remediation work accomplished leading up to 2000 was effective to prevent any
problems. However, computer experts have warned that there may still be
residual consequences of the change in centuries. It is also possible that
errors or defects may remain undetected, or that dates other than January 1,
such as February 29, 2000, may trigger Year 2000 type problems. As a result,
although we have not experienced any significant Year 2000 problems to date, it
is possible that we could face problems or disruptions during 2000.
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. As of December 31,
1999, 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.
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eCREDIT.COM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with
"Selected Consolidated Financial Data--eCredit.com" and eCredit.com's
consolidated financial statements and the notes to those statements included
elsewhere in this Prospectus. The following discussion contains forward-looking
statements based on eCredit.com's current expectations, assumptions, estimates
and projections about eCredit.com and its industry that involve risks and
uncertainties. eCredit.com's actual results could differ materially from those
indicated in these forward looking statements as a result of certain important
factors, as more fully described in the "Risk Factors" section and elsewhere in
this Prospectus.
General
eCredit.com is a provider of credit management and financing solutions
for business-to-business and business-to-consumer commerce. From inception
through February 2000, its activities consisted primarily of the development
and licensing of eCredit.com software systems which automate and manage credit
and financing decisions. In the fourth quarter of 1999, it introduced the
Global Financing Network, an Internet-based product, which enables real-time
credit evaluation and financing of commerce. As of December 31, 1999,
eCredit.com had recognized no transaction revenues from the Global Financing
Network. eCredit.com's future success will depend in large part upon widespread
customer and lender acceptance of its Global Financing Network, and there can
be no assurance that eCredit.com can achieve this acceptance.
Prior to February 2000, eCredit.com's revenues consisted principally of
license and related implementation revenues, which included license fees
derived from licensing the eCredit.com systems to business customers and
lenders and the related fees from customization, modification, integration and
installation services, which are referred to as related implementation
services. eCredit.com's systems have historically been licensed, and the
eCredit.com Enterprise Credit Management System continues to be licensed, for a
one-time perpetual license fee. When the software system does not require
significant implementation services, the license fees are recognized upon
delivery of the software and fees for service are recognized as the services
are performed, provided that the related contract is executed, fees are fixed
and determinable and collection is probable. When significant implementation
services are required, the license fee and fees for these services are
recognized as the implementation services are performed, utilizing the
percentage of completion method based on cost incurred in relation to expected
total cost upon completion. Service revenues consist of consulting fees not
related to initial delivery of systems and revenues from software support
contracts. Revenues from consulting fees are recognized as the services are
performed. Revenues from software support contracts are deferred and recognized
on a straight-line basis over the contract period, which is typically one year.
In November 1999, eCredit.com began to license the eCredit.com Enterprise
Lending System to lenders for transaction-based fees on the Global Financing
Network in addition to the practice of a one-time perpetual license fee. Under
this new model, lenders will pay a transaction processing fee each time they
use the eCredit.com Enterprise Lending System to process a request for credit.
Business customers will typically pay a transaction fee to eCredit.com
for each credit or financing request sent to the Global Financing Network.
Lenders on the Global Financing Network will typically pay a transaction fee to
eCredit.com when the end-user customer accepts an offer for financing by the
lender; the fee amount depends on the size of the amount financed. If lenders
use the eCredit.com Enterprise Lending System, they will also pay a transaction
processing fee to eCredit.com each time they use the system to process a
request for credit on the Global Financing Network.
Commencing with the roll out of the Global Financing Network in 2000,
eCredit.com's consolidated statement of operations will include a new revenue
line called "Transaction Fees and Related Implementation
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Revenues." Transaction fees and related implementation revenues consist of
revenues derived from transaction fees paid by lenders who use the eCredit.com
Enterprise Lending System on a transaction fee basis and by business customers
and lenders who process transactions on the Global Financing Network.
eCredit.com recognizes transaction fee revenues when the transaction has been
completed, provided that the related contract is executed, fees are fixed and
determinable and collection is probable. Implementation revenues arising from
the Global Financing customers are recorded as services are performed.
Commencing in the fourth quarter of 1999 and continuing into 2000,
eCredit.com expects to incur significantly increased operating expenses in
connection with the introduction and marketing of the Global Financing Network,
as well as the expansion of its sales force. As a result, eCredit.com expects
its net loss in 2000 will exceed its net loss in 1999. In view of eCredit.com's
future dependence on the Global Financing Network for growth in revenues, its
transition to a business model that relies on transaction-based fees rather
than one-time license fees and the increased operating expenses needed to
support the introduction of the network, eCredit.com's historical financial
results are not a meaningful indication of its future financial performance.
Since its inception, eCredit.com has provided its employees, directors
and consultants with equity-based compensation. Stock compensation expenses
represent noncash charges related to stock options given to employees,
directors and consultants. For employee and director grants, the compensation
charge reflects the difference between the exercise price of the options and
the fair value of the underlying common stock on the date of the grant. This
compensation charge is deferred initially and amortized to expense over the
vesting period of the applicable options. For non-employee grants, the
compensation charge reflects the fair value of the options on the initial
measurement date (typically the date of grant for those exercisable immediately
or with fixed vesting periods, or the date when vesting becomes fixed for those
with variable vesting periods), as well as subsequent remeasurements of fair
value until such non-employee options vest. Accordingly, eCredit.com cannot
currently estimate the additional charges of 81,666 non-employee stock options
outstanding of December 31, 1999, related to future remeasurements of fair
value until the respective options vest. As of December 31, 1999, $35,006,000
of deferred stock compensation remained to be amortized to expense in future
periods for stock options granted to employees, directors and consultants
through December 31, 1999.
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<PAGE>
Results of Operations
The following table sets forth, for the periods presented, selected
consolidated financial data as a percentage of total revenues.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenues:
License and related implementation....... 85% 78% 80%
Services................................. 15 22 20
------- ------- --------
Total revenues........................... 100 100 100
======= ======= ========
Cost of revenues:
License and related implementation....... 55% 41% 63%
Services................................. 11 15 14
------- ------- --------
Total cost of revenues................... 66 56 77
------- ------- --------
Gross profit............................... 34 44 23
------- ------- --------
Operating expenses:
Sales and marketing...................... 29% 47% 134%
Research and development................. 11 10 10
General and administrative............... 40 37 49
Stock compensation....................... -- -- 27
------- ------- --------
Total operating expenses................. 80 94 220
------- ------- --------
Loss from operations....................... (46) (50) (197)
Interest and other income (expense), net... (3) (2) 2
------- ------- --------
Net loss................................... (49)% (52)% (195)%
======= ======= ========
</TABLE>
Comparison of Years Ended December 31, 1997, 1998 and 1999
Revenues. Total revenues increased 22% from $3.9 million in 1997 to $4.8
million in 1998, and 74% to $8.4 million in 1999. These increases resulted
primarily from licenses and related implementations of the eCredit.com systems
to new business customers and expanded services for existing business
customers.
Cost of revenues. Costs of revenues have historically consisted primarily
of payroll and related costs for personnel involved in developing and
implementing eCredit.com's software systems, consulting and maintenance. Cost
of revenues increased 4% from $2.6 million in 1997 to $2.7 million in 1998, and
138% to $6.4 million in 1999. These increases were primarily attributable to
additional costs associated with the increased revenues. eCredit.com's gross
profit increased from 34% of total revenues in 1997 to 44% in 1998, and
decreased to 23% in 1999. This gross profit improvement in 1998 reflected the
increase in revenues, improved utilization of project engineers and lower
implementation costs which resulted from the use of process automation tools
and improved business procedures developed over time. During 1999 eCredit.com
made a strategic decision to discount the implementation fees related to
migrating its customers with customized solutions to a standard platform. The
investment in this program resulted in the decrease in 1999 gross margin.
eCredit.com believes this will enable it to more efficiently service its
customers in the future.
Sales and marketing. Sales and marketing expenses increased from $1.2
million in 1997 to $2.3 million in 1998, and $11.2 million in 1999. These
increases were primarily attributable to the initiation of
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<PAGE>
advertising campaigns and promotional activities related to introducing the
Global Financing Network, as well as to the hiring of additional employees,
opening new offices and related expenses required to introduce the Global
Financing Network. eCredit.com expects sales and marketing expenses to increase
as it continues to expand the sales force and increase marketing activity.
Research and development. Research and development expenses increased
from $419,000 in 1997 to $472,000 in 1998, and $823,000 in 1999. The increases
in 1998 were attributable to increased headcount and additional costs
associated with development of and improvements to the eCredit.com systems. The
increases in 1999 were primarily attributable to the hiring of additional
research and development personnel and costs related to enhancing the features,
content and functionality of the eCredit.com systems and Global Financing
Network. eCredit.com expects research and development expenses to increase as
it continues to add new features to the Global Financing Network.
General and administrative. General and administrative expenses increased
13% from $1.6 million in 1997 to $1.8 million in 1998, and 131% to $4.2 million
in 1999. These increases were primarily attributable to increased headcount in
an effort to expand operations and the infrastructure to support future growth,
as well as increased legal and accounting expenses. eCredit.com expects general
and administrative expenses to increase as it expands its operations and
infrastructure to support future growth.
Stock compensation. eCredit.com recorded deferred stock compensation of
$37.2 million and amortized $2.2 million to stock compensation expense in 1999
related to restricted stock awards and stock options granted to employees,
directors and advisors. The remaining total deferred stock compensation is
being amortized over the vesting period of the individual options. No stock
compensation was recorded in 1997 and 1998.
Interest and other income (expense), net. Interest and other income
(expense), net consists primarily of interest expense related to short-term
notes payable and lease obligations, offset partially by interest earned on the
short-term investment of cash. Interest and other income (expense), net
decreased from a net expense of $128,000 in 1997 to a net expense of $120,000
in 1998. This decrease was primarily attributable to the offsetting effect of
$27,000 of interest income resulting from increased cash available for
investment. Interest and other income (expense), net increased from a net
expense of $120,000 in 1998 to a net income of $144,000 in 1999. This increase
was primarily attributable to a decrease in interest expense resulting from
decreased outstanding borrowings, an increase in interest income resulting from
increased cash available for investment from fourth quarter financings and
$31,000 of other income in the 1999 period.
Liquidity and Capital Resources
Since inception, eCredit.com has incurred significant losses. It has met
its cash requirements primarily through the sale of preferred stock and the use
of notes payable and capital leases. eCredit.com has received capital from
investors in five private financings totaling $57.7 million through December
31, 1999.
Net cash used in operating activities was $11.9 million in 1999 as
compared to $2.4 million in 1998. This increase in cash used in operating
activities was primarily attributable to increased expenses associated with the
development and marketing launch of the Global Financing Network and expansion
of the sales force. Net cash used in operating activities was $2.4 million in
1998 as compared to $1.3 million in 1997. In each of these periods,
eCredit.com's principal operating cash requirements were to fund its working
capital needs. In future periods, eCredit.com expects that operating cash
requirements will increase and that a significant portion of its cash used in
operating activities will be attributable to the expansion of the Global
Financing Network and international operations.
Net cash used in investing activities was $3.3 million in 1999 as
compared to $369,000 in 1998. The increase in cash used in investing activities
was primarily attributable to increased purchases of equipment to
57
<PAGE>
support eCredit.com's expanding organization and to investment in capitalized
costs incurred in the development of the Company's internet-based technology,
the Global Financing Network. Net cash used in investing activities was
$369,000 in 1998 and $157,000 in 1997, primarily attributable to purchases of
equipment.
Net cash provided by financing activities was $48.1 million in 1999 as
compared to $5.1 million in 1998. In 1999, net cash provided by financing
activities consisted primarily of proceeds from bank borrowings of $1.7 million
under the credit facility with Silicon Valley Bank, $3 million in bridge loans
which were converted into preferred stock in October 1999, and net cash
proceeds of $44.8 million from the issuance of preferred stock. In conjunction
with the issuance of restricted common stock, eCredit.com received full
recourse notes receivable from officers of the Company in the amount of $4.2
million. The notes bear interest at 6.02% and are payable in full by October
2005. Net cash provided by financing activities was $5.1 million in 1998 as
compared to $1.4 million in 1997. Net cash provided by financing activities in
1998 consisted primarily of net proceeds of $4.9 million from the issuance of
preferred stock. In addition, bridge loans issued during 1998 totaling $1.3
million were converted into shares of preferred stock. In 1997, net cash
provided by financing activities consisted primarily of proceeds of $1.5
million derived from the issuance of preferred stock.
As of December 31, 1999, eCredit.com had $35.2 million of cash and cash
equivalents and accounts receivable of $4.2 million. As of that date, its
principal commitments consisted of obligations outstanding under capital leases
in the amount of $145,000, accounts payable of $3.0 million and total notes
payable of $1.6 million. eCredit.com currently has commitments for capital
expenditures of approximately $1.1 million for furniture and equipment for its
new operating facility in Dedham, Massachusetts and for computer and network
systems for the Global Financing Network and for the infrastructure to support
its expanding operations. eCredit.com further anticipates that with the
expansion of the Global Financing Network it will need to commit significant
resources to promote its brand, expand its product and service offerings,
increase its staff and enhance its infrastructure. In August 1999, eCredit.com
leased 38,300 square feet of office space that will become the principal
facility for its sales, marketing, consulting services, research and
development and administrative offices. The lease expires in December 2007 and
provides for future minimum lease payments of $4.4 million as of December 31,
1999. In addition, the lease obligations are secured by standby letters of
credit amounting to $780,000 on December 31, 1999.
In May 1998, eCredit.com entered into a credit facility with Silicon
Valley Bank, which was amended and restated in July 1999 and amended in
November 1999 following the closing of an equity financing. The facility
provides eCredit.com with a $3.0 million revolving line of credit and an
aggregate of $2.0 million for two equipment lines of credit. The revolving line
expires in July 2000 and the equipment lines expire in March 2003. As of
December 31, 1999, no amounts were outstanding under the revolving line of
credit and $1.6 million was outstanding under the equipment lines of credit.
Interest on borrowings under the facility are payable monthly at the prime rate
plus .75% for extensions under the revolving line of credit and at the prime
rate plus 1% for extensions under the equipment lines of credit. Borrowings are
secured by substantially all of the assets of eCredit.com. Under the terms of
the credit facility, without the bank's approval eCredit.com may not have a
material change in ownership or management of greater than 25%, may not incur
or assume other indebtedness, and may not declare or pay any dividends, or
redeem, retire or purchase any of its capital stock. eCredit.com will seek to
obtain the bank's approval of the Exchange Offer prior to the expiration of the
Exchange Offer.
eCredit.com expects to seek additional financing through additional
rounds of private equity financing or an initial public offering. In the event
that the Company was unable to raise further financing to meet its anticipated
cash needs for working capital and capital expenditures, eCredit.com would
reduce its current growth plans. Management believes, if required, it is able
to reduce its cost structure and therefore meet its working capital
requirements for the next 12 months. eCredit.com cannot be certain that
additional financing will be available to it on favorable terms when required,
if at all. If eCredit.com raises additional funds through the issuance of
equity or convertible debt securities, the percentage ownership of its
stockholders may be reduced, and these newly-issued securities may have rights,
preferences or privileges senior to those of existing stockholders.
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<PAGE>
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued Statement of
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 provides guidance regarding
when software developed or obtained for internal use should be capitalized. SOP
98-1 is effective for fiscal years beginning after December 15, 1998.
eCredit.com adopted SOP 98-1 on January 1, 1999, resulting in capitalization of
$681,000 through December 31, 1999 related to the Global Financing Network.
In December 1998, AcSEC issued SOP No. 98-9, "Modification of SOP No. 97-
2, Software Revenue Recognition, with Respect to Certain Transactions". SOP 98-
9 amends SOP 97-2 to require recognition of revenue using the "residual method"
in circumstances outlined in SOP 98-9. Under the residual method, revenue is
recognized as follows: (1) the total fair value of undelivered elements, as
indicated by vendor-specific objective evidence, is deferred and subsequently
recognized in accordance with the relevant sections of SOP 97-2 and (2) the
difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered
elements. SOP 98-9 is effective for transactions entered into in fiscal years
beginning after March 15, 1999. Also, the provisions of SOP 97-2 that were
deferred by SOP 98-4 will continue to be deferred until the date SOP 98-9
becomes effective. eCredit.com does not expect that the adoption of SOP 98-9
will have a significant impact on its results of operations or financial
position.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
eCredit.com, to date, has not engaged in derivative and hedging activities, and
accordingly does not believe that the adoption of SFAS No. 133 will have a
material impact on its financial reporting and related disclosures. eCredit.com
will adopt SFAS No. 133 as required by SFAS No. 137, "Deferral of the Effective
Date of the FASB Statement No. 133", in 2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB101), "Revenue Recognition in Financial
Statements." SAB101 summarizes the application of generally accepted accounting
principles to revenue recognition in financial statements. On March 24, 2000,
the SEC issued an amendment to SAB101 delaying the effective date for certain
companies. eCredit.com will adopt SAB101 in the second quarter of fiscal 2000
and is presently analyzing the impact that SAB101 will have on its financial
statements. Based on the eCredit.com's review to date, SAB101 is not expected
to materially impact eCredit.com's financial position or operating results.
Year 2000 Compliance
The failure of eCredit.com, or the failure of its key business partners,
service vendors, suppliers, manufacturers or customers, to be Year 2000
compliant could have material adverse consequences on eCredit.com's business
and results of operations. Such consequences could include difficulties in
operating the Global Financing Network effectively and conducting other
essential and fundamental business operations. As of the date of this
Prospectus, eCredit.com has not experienced problems related to the Year 2000
computer issue.
Product Testing. eCredit.com has tested its software products for Year
2000 compliance. eCredit.com derived its testing method from its review and
analysis of the Year 2000 testing practices of other software vendors, relevant
industry Year 2000 compliance standards and the specific functions and
operating environments of its products. The tests were run on all supported
platforms for each current release of the eCredit.com products and included
testing for date calculations with test numbers starting in 1999 and going
beyond the year 2000. Based on these tests, eCredit.com believes its current
software products to be Year 2000 compliant with respect to date calculations.
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<PAGE>
External Vendors and Third-Party Supplied Software. The systems and
software of third parties on which eCredit.com relies may contain errors or
faults with respect to the Year 2000. For example, eCredit.com depends on
telecommunications vendors to maintain its network, hosting vendors to host
eCredit.com's Web site, and software, hardware and systems for use in its
administrative, communications, accounting, database, security, network,
electronic mail, product development, Web site operations, telephone and other
systems. All third parties, whose systems are material to the operations of
eCredit.com, have posted their Year 2000 compliance statements on their Web
sites where they have made assurances that their systems are Year 2000
compliant. As part of eCredit.com's continuing Year 2000 plan, it will pursue
Year 2000 related corrections or updates offered by vendors.
The failure of software and computer systems from other third-party
suppliers to be Year 2000 compliant could have a material adverse effect on
eCredit.com. Known or unknown errors or defects that affect the operation of
eCredit.coms software and systems and those of third parties could result in
delay or loss of revenue, interruption of services, cancellation of customer
orders, diversion of development resources, damage to eCredit.com's reputation,
increased service and warranty costs and litigation costs.
Internal Systems. eCredit.com has reviewed its internally developed
management information and other systems to identify any products, services or
systems that may not be Year 2000 compliant. eCredit.com did not identify any
material Year 2000 problems with its internally developed computer systems.
Costs of Addressing Year 2000 Compliance. Based on its experiences,
eCredit.com does not believe it incurred, or will incur, significant expenses
or be required to invest heavily in computer system improvements to be Year
2000 compliant. As of March 31, 2000, eCredit.com had spent approximately
$100,000 and approximately 160 person-hours on Year 2000 issues. However,
significant uncertainty exists concerning the potential costs and effects
associated with Year 2000 compliance. Any Year 2000 compliance problems
experienced by customers, its vendors or eCredit.com could reduce demand for
its products, which could have a material adverse effect on eCredit.com's
business.
Customer Claims. eCredit.com may be subject to customer claims to the
extent its software products or the software products of others that it sells
fail to operate properly as a result of the occurrence of the Year 2000 dates.
Liability may result to the extent eCredit.com's products are not able to
store, display, calculate, compute and otherwise process date-related data. It
could also be subject to claims based on the failure of eCredit.com software
products or the software products of others that it sells to work with software
or hardware from other vendors.
Contingency Planning. eCredit.com's contingency plan focuses on those
activities and functions specifically related to processing customer orders. It
addresses only those types of failures for which contingency operations are
possible. The contingency plan does not address any types of failures for which
contingency operations would be impossible, such as any significant disruption
in the Internet which would prevent customers from processing transactions via
the Internet.
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RIGHTWORKS CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with
"Selected Financial Data--RightWorks Corporation" and RightWorks' financial
statements and the notes to those statements included elsewhere in this
Prospectus. The following discussion and analysis contains forward-looking
statements based on RightWorks' current expectations, assumptions, estimates
and projections about RightWorks and its industry that involve risks and
uncertainties. RightWorks' actual results could differ materially from those
indicated in these forward-looking statements as a result of certain important
factors, as more fully described in the "Risks Factors" section and elsewhere
in this Prospectus.
Overview
RightWorks provides Internet-based exchange software for powering B2B
digital marketplaces. RightWorks' software, RightWorks 5.0, allows companies to
exchange goods and services online by managing the complex business
transactions that take place on online trading exchanges.
RightWorks was founded in September 1994 under the name of Media Kola,
Inc. In June 1998 RightWorks changed its name to RightWorks Corporation. Until
such time it was primarily developing its Internet-based software product,
RightWorks. In February 1999 it released and began selling RightWorks and
related services. Since then it has released subsequent versions of RightWorks
e-procurement software, and most recently released RightWorks 5.0 in January
2000. RightWorks currently markets the product in the United States and Canada
and primarily sells its product through its direct sales force and to a lesser
extent through indirect sales channels.
Source of Revenues and Revenue Recognition Policy
RightWorks primarily generates revenues from license fees, hosting fees,
transaction-based fees and service fees. RightWorks currently sells its
software to customers via two different models. Customers may either pay a fee
to license the software or they may pay a one-time fee together with a monthly
recurring hosting fee to access the software that is hosted for them at its
hosting provider. In addition to a license fee or hosting fees, each customer
who uses its software to host a B2B digital marketplace also pays transaction
based fees that are based upon the volume of transactions generated as a result
of the customer's digital marketplace. To date, hosting fees and transaction-
based fees have not represented a material portion of its revenues. Finally,
RightWorks generates service fees by providing maintenance, consulting and
training services. Customers who license its software generally purchase
maintenance contracts which provide software upgrades and technical support
over a stated term, typically twelve months. Additionally, customers may
purchase implementation consulting services from RightWorks, but it expects
consulting services to decrease as a percentage of revenues as it expects to
increasingly rely on third-party consulting organizations to deliver its
services directly to its customers. RightWorks also offers fee-based training
services to its customers. In the future, its revenue growth will depend upon
significantly increasing its licensing of its product and from realizing
significant transaction based fees.
Revenue Recognition. RightWorks has adopted Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of
Position 98-4 ("SOP 98-4") which were issued by the American Institute of
Certified Public Accountants or "AICPA". RightWorks believes its current
revenue recognition policies and practices are consistent with SOP 97-2 and SOP
98-4. Additionally, the AICPA issued SOP 98-9 in December 1998, which provides
certain amendments to SOP 97-2, and is effective for transactions entered into
beginning January 1, 2000.
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<PAGE>
RightWorks recognizes revenues from licenses upon delivery and acceptance
of the software if there is persuasive evidence of an arrangement or agreement,
the collection is probable, the fee is fixed or determinable, and there is
sufficient vendor-specific objective evidence to support allocating the total
fee to all elements of multiple-element arrangements. If an acceptance period
is required, license revenues are recognized upon the earlier of customer
acceptance or the expiration of the acceptance period. RightWorks recognizes
transaction-based fees each month upon receipt of a report from the customer
indicating those fees are owed. Revenue from hosting arrangements is recognized
pro rata over the period of the hosting arrangements. RightWorks recognizes
revenues from consulting and training services as the services are provided but
recognizes maintenance service fees ratably over the term of the service
contract, typically twelve months. If a transaction includes both license and
service elements, the license fee is recognized on delivery and acceptance of
the software, provided the related services do not include significant
customization or modification of its base product and the payment terms for
licenses are not dependent on additional acceptance criteria. In cases where
license fee payments are contingent on the acceptance of services, recognition
of revenues is deferred for both the license and the service fees until the
acceptance criteria are met.
Results of Operations
The following table sets forth, for the periods presented, selected financial
data:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product license...................... $ 2,149,757 $ -- $ --
Services............................. 273,667 75,000 19,160
Discount related to warrant.......... (271,887) -- --
----------- ----------- -----------
Total revenue........................ 2,151,537 75,000 19,160
Cost of Revenue........................ 429,960 -- --
----------- ----------- -----------
Gross Profit........................... 1,721,577 75,000 19,160
----------- ----------- -----------
Operating Expenses:
Research and development............. 3,344,721 2,262,607 1,200,707
Sales and marketing.................. 6,061,872 2,261,838 312,691
General and administrative........... 1,543,769 1,036,573 551,936
Amortization of deferred
compensation........................ 150,578 -- --
----------- ----------- -----------
Total operating expenses............. 11,100,940 5,561,018 2,065,334
----------- ----------- -----------
Loss from operations................... (9,379,363) (5,486,018) (2,046,174)
Interest and Other Income (Expense),
net................................... 70,364 (135,547) 29,337
----------- ----------- -----------
Net Loss and Comprehensive Loss........ $(9,308,999) $(5,621,565) $(2,016,837)
=========== =========== ===========
Basic and diluted net loss per common
share................................. $ (5.05) $ (3.48) $ (1.44)
=========== =========== ===========
Shares used in computing basic and
diluted net loss per common share..... 1,845,000 1,615,000 1,402,000
=========== =========== ===========
</TABLE>
Comparison of Fiscal Years Ended December 31, 1999 and 1998
Revenues
Total revenues for the year ended December 31, 1999, after an adjustment
of $272,000 for discounts related to warrants, were $2.2 million. Total
revenues for the year ended December 31, 1998 were $75,000. In the year ended
December 31, 1999, gross revenues from Computer Sciences Corporation (CSC)
represented approximately 86% of total revenues.
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License Revenues. License revenues for the year ended December 31, 1999,
before the deduction of the discount related to warrants described above, were
$2.1 million. RightWorks did not complete development of its principal product
until February 1999 and, accordingly, had no product revenue in 1998. After
deducting the warrant-related charge described above, net license revenues for
the year ended December 31, 1999 were $1.9 million, which related principally
to the arrangements with CSC.
Services Revenues. Services revenues include revenue from professional
services, maintenance fees, hosting fees and transaction fees. To date, hosting
and transaction fees have been immaterial. Services revenues for the year ended
December 31, 1999 were $274,000 compared to services revenues of $75,000 for
1998. The increase was primarily attributable to the increased software
licensing activity described above, which has resulted in increased revenues
from customer implementations and maintenance contracts.
In general, RightWorks expects that total revenues will fluctuate in
future periods depending on the timing and acceptance of new product and
service introductions, customer buying patterns, pricing actions taken by it,
competition and other factors.
Cost of Revenues
RightWorks delivers all of its software and documentation electronically
to its customers. Accordingly, it does not incur costs related to software
media, duplication or shipping or software documentation costs. Total cost of
revenues consists primarily of consulting, customer support and training costs.
Cost of revenues for the year ended December 31, 1999 were $430,000, or 20% of
total gross revenues. There were no costs of revenues for the period ended
December 31, 1998.
The increase resulted primarily from an increase in personnel-related
expenses due to the hiring and training of additional consulting, support and
training personnel.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses primarily
consist of employee salaries, benefits and commissions, and the costs of
seminars, promotional materials, trade shows and other sales and marketing
programs. Sales and marketing expenses for the year ended December 31, 1999
were $6.1 million, compared to sales and marketing expenses of $2.3 million for
the year ended December 31, 1998. The increase was attributable primarily to an
overall increase in the number of sales and marketing personnel as well as
increased commission expense and travel related expense resulting from
increased sales activity. The number of employees engaged in sales and
marketing increased to 31 at December 31, 1999 from 16 at December 31, 1998. In
addition, an increase in marketing-related expenses and allocated overhead
expenses contributed to the overall increase. RightWorks expects that the
dollar amount of sales and marketing expenses will continue to increase due to
the planned growth of its sales force, including the establishment of sales
offices in additional domestic and international locations.
Product Development Expenses. Product development expenses consist
primarily of personnel and related costs associated with its product
development efforts. Product development expenses for the year ended December
31, 1999 were $3.3 million, compared to product development expenses of $2.3
million for the year ended December 31, 1998. The increase was due primarily to
an increase in personnel-related expenses attributable to an increase in the
number of employees involved in its product development activities. It believes
that continued investment in product development is important to its future and
expects that the dollar amount of product development expenses will increase in
future periods.
General and Administrative Expenses. General and administrative expenses
primarily consist of employee salaries and related expenses for executive,
administrative and finance personnel. General and administrative expenses for
the year ended December 31, 1999 were $1.5 million, compared to product
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development expenses of $1.0 million for the year ended December 31, 1998. The
increase is attributable primarily to an increase in personnel-related expenses
and legal and consulting expenses. It expects general and administrative
expenses to increase in future periods as it adds additional personnel to
support its growth.
Amortization of Deferred Stock Compensation. During the year ended
December 31, 1999, amortization of deferred stock compensation was $151,000.
The deferred stock compensation is being amortized over the vesting periods of
the related options, generally four years.
Other Income, Net
Other income, net, consists of interest income, interest expense and
other non-operating expenses. Other income, net, for the year ended December
31, 1999 was net income of $70,000, compared to a net loss of $136,000 for the
year ended December 31, 1998. The increase is primarily attributable to
interest income resulting from higher average cash balances during the year
ended December 31, 1999.
Provision for Income Taxes
RightWorks incurred operating losses for all periods from inception
through December 31, 1999. It has recorded a valuation allowance for the full
amount of its net deferred tax assets, as the future realization of the tax
benefit is not currently likely. As of December 31, 1999, it had net operating
loss carryforwards of approximately $9,954,000 for federal and state income tax
purposes. These federal and state tax loss carryforwards are available to
reduce future taxable income and expire at various dates into fiscal 2019.
Under the provisions of the Internal Revenue Code, certain substantial changes
in its ownership may limit the amount of net operating loss carry-forwards that
could be utilized annually in the future to offset taxable income.
Comparison of Fiscal Years Ended December 31, 1998 and 1997
Revenues
Total revenues for the year ended December 31, 1998 were $75,000,
compared to total revenues of $19,000 for the year ended December 31, 1997.
Total revenues for both years consisted exclusively of revenues related to
royalties and services.
Cost of Revenues
Cost of revenues for the years ended December 31, 1998 and 1997 were not
material.
Operating Expenses
Sales and Marketing Expenses. Sales and marketing expenses for the year
ended December 31, 1998 were $2.3 million, compared to sales and marketing
expenses of $313,000 for the year ended December 31, 1997. The increase was
attributable primarily to an overall increase in the number of sales and
marketing personnel as well as increased commission expense and travel related
expense resulting from increased sales activity.
Product Development Expenses. Product development expenses for the year
ended December 31, 1998 were $2.3 million, compared to product development
expenses of $1.2 million for the year ended December 31, 1997. The increase was
primarily due to an increase in personnel-related expenses.
General and Administrative Expenses. General and administrative expenses
for the year ended December 31, 1998 were $1.0 million, compared to general and
administrative expenses of $552,000 for the
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year ended December 31, 1997. This increase was primarily attributable to an
increase in personnel-related expenses.
Other Income, Net
Other income, net, for the year ended December 31, 1998 was a net loss of
$136,000, compared to net income of $29,000 for the year ended December 31,
1997. This decrease is primarily attributable to lower average cash balances.
Liquidity and Capital Resources
RightWorks financed its operations through private sales of preferred
stock, with net proceeds of $20.0 million, and through bank loans and equipment
leases. As of December 31, 1999, it had outstanding lease liabilities of
$313,000 and a subordinated loan of $3.0 million. The subordinated loan
agreement
allows the lender to purchase shares of RightWork's Preferred Stock in an
amount equal to up to 30% of the $3.0 million loan amount at a price based on a
$20 million valuation of RightWorks, subject to increase pursuant to certain
anti-dilution rights. As confirmed in a Shareholder Agreement executed by the
lender in March 2000, the purchase right set forth in the subordinated loan
agreement represents the right to purchase 863,498 shares of Series B Preferred
Stock at $1.04 per share. As of December 31, 1999, it had $11.9 million in cash
and cash equivalents, and $10.7 million in working capital.
Net cash used in operating activities was $8.4 million, $5.1 million and
$1.8 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Net cash flows used in operating activities in each period
reflect increasing net losses and, to a lesser extent, increases in accounts
receivable.
Net cash used in investing activities was approximately $61,000, $121,000
and $142,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Net cash used in investing activities in each period primarily
reflects purchases of property and equipment.
Net cash provided by financing activities was $16.5 million, $8.5 million
and $2.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Net cash provided by financing activities in 1999 primarily
reflects net proceeds of its sale of preferred stock, proceeds from the
issuance of a note payable and exercises of employee stock options, offset by
payments on capital lease obligations. Net cash provided by financing
activities in 1998 and 1997 primarily reflects net proceeds of its sale of
preferred stock and exercises of employee stock options, offset by payments on
capital lease obligations.
Capital expenditures, including capital leases, were $393,000, $121,000
and $142,000 for the years ended December 31, 1999, 1998 and 1997,
respectively. Its capital expenditures consisted of purchases of operating
resources to manage its operations, including computer hardware and software,
office furniture and equipment. RightWorks expects that its capital
expenditures will continue to increase in the future. Since inception,
RightWorks has generally funded capital expenditures either through the use of
working capital or with capital leases. RightWorks will be relocating its
headquarters in April 2000 and expects to spend from $2,000,000 to $3,000,000
in fiscal 2000 for computer and office equipment, furniture and fixtures and
leasehold improvements. It will also need to purchase additional operating
resources. It expects to fund these commitments from its existing cash and cash
equivalents.
RightWorks expects to experience significant growth in its operating
expenses, particularly sales and marketing expenses and research and
development expenses, for the foreseeable future in order to execute its
business plan. As a result, it anticipates that such operating expenses, as
well as planned capital expenditures, will constitute a material use of its
cash resources. RightWorks believes that the net proceeds from the sale of its
preferred stock will be sufficient to meet its working capital and operating
resource expenditure requirements for at least the next twelve months.
Thereafter, it may find it necessary to obtain additional equity or debt
financing. In the event additional financing is required, it may not be able to
raise it on acceptable terms or at all.
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Year 2000 Issues
RightWorks has tested its products and believes that it is able to
properly recognize date-sensitive information in the year 2000 and beyond. It
has also inquired of significant vendors of its internal business systems as to
their Year 2000 readiness and has tested its material internal systems. It
believes that, based on these tests and the assurances of its vendors, it will
not incur material costs to resolve Year 2000 issues for its products and
internal business systems. Furthermore, to date it has not experienced any Year
2000 problems and its customers or vendors have not informed it of any
significant Year 2000 problems. It could be exposed to a loss of revenues and
its operating expenses could increase if its products or material internal
business systems have Year 2000 problems. If it comes to its attention that
there are any Year 2000 problems with its products or that some of its third-
party hardware and software used in its internal systems are not Year 2000
compliant, then, as applicable, it will endeavor to make modifications to its
products or internal business systems, or purchase new internal business
systems, to quickly respond to the problem. The reasonably likely worst case
scenario for Year 2000 problems would be if a significant defect exists in its
product or in key internal business systems and a solution for such a problem
were not readily available. The direct costs already incurred by RightWorks to
date related to Year 2000 compliance are not material and it does not
anticipate incurring additional direct costs related to Year 2000 compliance.
Market Risk
RightWorks' exposure to market risk is limited to interest income
sensitivity, which is affected by changes in the general level of U.S. interest
rates, particularly because the majority of its investments are in short-term
debt securities issued by banks and other financial institutions. RightWorks
places its investments with high-quality issuers and limits the amount of
credit exposure to any one issuer. Due to the nature of its short-term
investments, RightWorks believes that it is not subject to any material market
risk exposure. RightWorks does not have any foreign currency or other
derivative financial instruments.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In June 1999, the
FASB issued SFAS No. 137, "Accounting For Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (or January 1, 2001 for RightWorks). Management
believes that this Statement will not have a material impact on the financial
condition or results of the operations of RightWorks.
In December 1998, the AICPA issued Statement of Position ("SOP") 98-9,
"Modification of SOP97-2, Software Revenue Recognition, with Respect to Certain
Transactions." SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the deferral
of the application of certain provisions of SOP 97-2 amended by SOP 98-4
through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years beginning after March 15, 1999. RightWorks does not anticipate that this
statement will have a material impact on its statement of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the application of generally accepted
accounting principles to revenue recognition in financial statements. On March
24, 2000, the SEC issued an amendment to SAB 101 delaying the effective date
for certain companies. RightWorks will adopt SAB 101 in the second quarter of
fiscal 2000 and is presently analyzing the impact that SAB 101 will have on its
financial statements. Based on the RightWorks' review to date, SAB 101 is not
expected to materially impact RightWorks' financial position or operating
results.
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INTERNET CAPITAL GROUP'S BUSINESS
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.
International Data Corporation, or 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,
93% of all United States businesses expect some of their business trade to flow
over the Internet and 22% expect to do more than half of their business online
in 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 been $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.
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 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.
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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:
. 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.
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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 its 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 and significant resources and 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 March 24, 2000, we owned interests in 61 B2B e-commerce
companies which 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.
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.
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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 over 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 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
offices in continental Europe, Asia and Latin America during 2000. We plan to
staff these offices with personnel who will provide strategic guidance and
operational support to our partner companies operating in Europe, Asia and
Latin America.
We plan to acquire interests in European, Asian and Latin American B2B e-
commerce companies. If we wish to enter a 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 to expand 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 online
and estimate the potential to transfer transactions online. By
considering these factors, we can focus on vertical industries
for which the leading market maker can eventually generate
significant dollar volumes of profits for the market maker.
. 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 communication and transactions. We
generally avoid industries where this information is not
available.
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. 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. 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, and
Yossi Sheffi, Ph.D., a co-founder of Syncra Software, Inc., e-
Chemicals, Inc., and Logistics.com 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 the many
areas of expertise 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. 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
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addition, we regularly host conferences for the senior executives of partner
companies to accelerate their learning around topics such as new technologies,
financing issues, major operational issues, and aggressive growth strategies.
In March 2000, we hosted our first investor conference on B2B e-commerce during
which 18 of our partner companies made presentations to more than 350 leading
investors, analysts and entrepreneurs. On an informal basis, we promote
collaboration by making introductions and recommending partner companies to
each other.
Recent examples of collaboration among our partner companies include:
. PaperExchange.com and VerticalNet have developed a strategic
alliance that provides PaperExchange.com with co-branded access to
leading industry content, including news, feature articles and
interviews from VerticalNet's PulpandPaper Online property.
VerticalNet's members will get access to PaperExchange.com'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 less expensive
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 horizontal and vertical 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
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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 online support.
. Horizontal. One example of our horizontal market maker partner
companies is VerticalNet. As of March 24, 2000, VerticalNet owned
and operated 55 industry-specific Web sites designed to act as
online B2B communities. These trade communities act as
comprehensive sources of information, interaction and e-commerce.
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 March 24, 2000. 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 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, 50% 1999
www.appliedintranet.com communication, and procurement
services for the apparel and sewn
goods industries.
Arbinet Communications, Telecommunications Provides an Internet-based 8% 1999
Inc. trading floor and clearinghouse
www.arbinet.com for telecommunications carriers
to purchase bandwidth.
AUTOVIA Corporation Auto Parts Developing a system to provide 20% 1998
www.autovia.net Internet-based auto parts
procurement for professional
automotive and truck repair
shops.
Bidcom, Inc. Construction Provides Internet-based project 35% 1999
www.bidcom.com planning and management services
for the construction industry.
BuyMedia.com, Inc. Advertising Provides B2B e-commerce solutions 36% 2000
www.buymedia.com for the buying and selling of
broadcast advertising.
CentriMed Healthcare Provides e-marketplace solutions 47% 2000
www.centrimed.com to physicians, hospitals and
medical device manufacturers.
Collabria, Inc. Printing Provides Internet-based 11% 1999
www.collabria.com procurement and production
services for the commercial
printing industry.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Our Partner
Ownership Company
Category and Name Industry Description of Business Percentage Since
- ------------------------ ---------------- --------------------------------- ---------- -------
<S> <C> <C> <C> <C>
Commerx, Inc. Plastics Provides Internet-based 40% 1998
www.commerx.com procurement and sales of raw
materials, tools and maintenance
and repair products for the
plastics industry.
ComputerJobs.com, Inc. Technology Provides Internet-based job 33% 1998
www.computerjobs.com Employment screening and resume posting for
information technology
professionals, corporations and
staffing firms.
CourtLink Legal Provides online access to court 33% 1999
www.courtlink.com documents.
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 31% 1997
www.deja.com for potential purchasers to
access user comments on a variety
of products and services.
e-Chemicals, Inc. Chemicals Provides Internet-based sales and 48% 1998
www.e-chemicals.com distribution of industrial
chemicals.
eMerge Interactive, Inc. Livestock Provides Internet-based content, 22% 1999
www.emergeinteractive community and transaction
.com services in an online marketplace
for the cattle industry.
eMetra Ltd. Metals Developing a system to provide an 30% 2000
Internet-based exchange for
trading non-ferrous metals
EmployeeLife.com Healthcare Provides Internet-based solutions 52% 1999
www.employeelife.com for employee health benefits
management across the health care
industry.
eumediX Healthcare Developing a system to provide an 37% 2000
www.eumediX.com Internet-based content and
transaction service for European
hospitals to purchase goods and
services.
EuSupply Construction Provides online B2B market making 29% 2000
www.eu-supply.com services in Europe tailored to
meet the needs of the
construction industry and supply
chain.
FarmingOnLine Ltd. Agriculture Provides Internet-based content, 30% 2000
www.farmline.com community and transaction
services in an online marketplace
for the European agricultural
inputs and outputs market.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Our Partner
Ownership Company
Category and Name Industry Description of Business Percentage Since
- -------------------------- ---------------- --------------------------------- ---------- -------
<S> <C> <C> <C> <C>
Freeborders.com Trade Provides cross-borders trade 46% 2000
between suppliers of goods in
China and match them with U.S.-
based suppliers.
Industrial America Industrial Provides an online marketplace 36% 2000
Components and for the sale and procurement of
Supplies all major classes of industrial
components and supplies,
including electrical and
electronic components; pipes,
valves and fittings; power
transmission components; and
metalworking tools and supplies.
Internet Commerce Systems, Food Provides Internet-based product 43% 1999
Inc. introduction and promotion
www.icsfoodone.com services to wholesale and retail
food distributors.
Internet Healthcare Group Healthcare Provides an online marketplace 30% 2000
www.internethealthcare.com that facilitates B2B e-commerce
in the healthcare industry.
InvestorForce.com Asset Provides a Web-based community 49% 1999
www.investorforce.com Management for asset managers to reach fund
sponsors.
iParts Electronic Provides Internet-based sales and 66% 1999
www.ipartsupply.com Components distribution of electronic
components.
JusticeLink, Inc. Legal Provides electronic filing, 37% 1999
www.justicelink.com service and retrieval of legal
documents and information among
courts, attorneys, their clients
and other interested parties.
MetalSite General Partner, Metals Provides an Internet-based 47% 1999
LLC marketplace that enables
www.metalsite.net particpants in the metals
industry supply chain to
efficiently buy and sell metal
products using multiple
transaction methods.
PaperExchange, Inc. Paper Provides Internet-based sales and 24% 1999
www.paperexchange distribution of all grades of
.com pulp and paper.
Retail Exchange.com, Inc. Consumer Provides an online B2B 30% 1999
www.retailexchange.com Goods marketplace for the exchange of
excess consumer products.
Simplexis Education Provides value by helping school 33% 2000
www.simplexis.com business officials save money and
time when they buy goods and
services and offers related
content and information for
school business operations.
StarCite!, Inc. Travel Provides Internet-based services 43% 1999
www.starcite.com for planning and managing
corporate meetings for event
planners.
TALPX Lumber Provides Internet-based 28% 2000
www.talpx.com electronic trading to the North
American lumber and panel
industry.
</TABLE>
76
<PAGE>
<TABLE>
<CAPTION>
Our Partner
Ownership Company
Category and Name Industry Description of Business Percentage Since
- ---------------------- ---------------- --------------------------------- ---------- -------
<S> <C> <C> <C> <C>
Universal Access, Inc. Tele- Provides Internet-based ordering 25% 1999
www.universal communications for provisioning and access and
accessinc.com transportation exchange services
for network service providers
focused on business customers.
USgift.com Corporation 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 30% 1999
www.assetrade.com Equipment inventory recovery, disposal and
management solutions.
eMarketWorld, Inc. Special Event Provides industry-specific Web- 42% 1999
www.emarketworld.com Services based conferences and expositions
that help businesses understand
the Internet.
ICG Commerce, Inc. Sourcing Provides strategic sourcing 60% 1999
www.icgcommerce.com consulting and on-line Internet
purchasing.
NetVendor, Inc. Asset Provides B2B, industry-specific 27% 1999
www.netvendor.com Disposition Internet commerce solutions for
mid-size manufacturers and
distributors of automotive,
industrial and electronic
products.
ONVIA.com, Inc. Small Business Provides small businesses with a 23% 1999
www.onvia.com Services wide breadth of tailored products
and services over the Internet.
Residential Delivery Logistics Provides home delivery services 38% 1999
Services, Inc. to e-commerce companies,
www.rdshome.com retailers, and catalog companies
through a branded network of
local agents.
VerticalNet, Inc. Industrial Provides industry-specific Web- 34% 1996
www.verticalnet.com Services based trade communities for
businesses and professionals.
Vivant! Corporation Consulting Provides process automation and 39% 1998
www.vivantcorp.com decision support services that
enable companies to strategically
manage contractors, consultants
and temporary employees.
</TABLE>
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<PAGE>
Set forth below is a more detailed summary of some of our market maker
partner companies.
Commerx, Inc. Commerx is a vertical market maker that provides Internet-
based procurement and sales of raw materials, tools and maintenance and repair
products for the plastics industry. Commerx developed the PlasticsNet.com
("PlasticsNet") Web site in 1995 with the goal of establishing the first e-
commerce vertical marketplace for the plastics industry. Commerx provides this
service under the PlasticsNet brand name and develops the software to support
PlasticsNet.
PlasticsNet is a leading provider of e-commerce solutions for processors
and suppliers in the US plastics industry. Its vertical marketplace provides a
comprehensive platform for buyers and suppliers to streamline the sourcing and
procurement process for plastics products and services. The company's solutions
are designed to be a compelling and integral part of a plastics processor's
procurement and business processes while providing suppliers with cost-
effective, high-quality access to a large pool of buyers.
Our initial contact with Commerx came through our focus on the plastics
industry as a strong potential market for a market maker. We researched the
plastics industry and concluded, based upon the founding management and
business model, that Commerx was best positioned in the plastics market.
Kenneth A. Fox and Robert A. Pollan, two of our Managing Directors, are members
of Commerx's Board of Directors. We have assisted the founders in recruiting
key executives including the Chief Operating Officer, Chief Financial Officer,
Vice President of Sales and Vice President of Supplier Relations. In addition,
we have helped the company design their back office systems and assisted them
with various financial initiatives. Commerx is currently working on a strategic
partnership with CommerceQuest, another one of our partner companies. For 1998,
Commerx had revenue of $.4 million and for 1999, revenue of $3.0 million.
ComputerJobs.com, Inc. ComputerJobs.com is a leading skill-based
employment Web site and career content provider for information technology
professionals, corporations and staffing firms. Identifying and attracting
information technology professionals is an expensive and critical success
factor for many businesses. ComputerJobs.com is focused on improving the online
recruitment process for both information technology job seekers and employers,
including staffing firms and corporations. Job seekers may visit
ComputerJobs.com's regional and skill-specific Web sites to submit their resume
and pursue job opportunities free of charge. ComputerJobs.com allows job
seekers to scan job opportunities by information technology-specific skill
requirements, geographic preferences and other job criteria. Job seekers also
have access to extensive career resources and industry news on the site. By
attracting a significant number of job seekers and their resumes,
ComputerJobs.com offers staffing firms and corporations seeking information
technology professionals the ability to post job openings as well as search and
receive daily resumes of information technology candidates for a monthly fee.
ComputerJobs.com pre-screens job ads and resumes prior to placing them into its
database and before dissemination to its Web sites and clients.
ComputerJobs.com has Web sites for the information technology markets in
19 major metropolitan markets throughout the United States and recently
launched five vertically focused job sites. These vertical career portals
address the needs of high demand skill sets such as e-commerce, enterprise
resource planning, networking, project management and windows developer. We
identified ComputerJobs.com through a director of one of our partner companies.
We are assisting ComputerJobs.com with overall strategy, operational
management, recruiting, finance and marketing. Douglas A. Alexander and Gregory
W. Haskell, two of our Managing Directors, are members of ComputerJobs.com's
Board of Directors. ComputerJobs.com has formed a strategic alliance with
Deja.com that has enabled Deja.com to create a channel for accessing
ComputerJobs.com's database of technology employment opportunities. For 1998,
ComputerJobs.com had revenue of $4.4 million and for 1999, revenue of $9.1
million.
Deja.com, Inc. Deja.com, formerly Deja News, is a vertical market maker
that is the Web's leading source of shared knowledge in the form of user-
generated ratings and discussions. With over 160 million page views per month,
it is the leading purveyor of online discussion, offering access to more than
43,000 discussion
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forums. These forums are populated by knowledgeable participants who are
interested in sharing their knowledge and experience on a wide variety of
subjects.
Deja.com recently extended its franchise in shared knowledge with the
consumer-driven feature Deja Ratings, a tool that extends the site's ability to
support daily decision-making. Deja Ratings captures consumer opinions on a
wide range of products and services through a scaled voting system that
includes product comparisons. The analytical tools that support decision-making
are supplemented by contextual links to e-commerce retailers and vendors.
Deja.com derives revenue from sponsors and e-commerce partners, and
provides the marketing community with the compelling proposition of reaching a
highly targeted, self-segmenting audience consisting of highly active Internet
consumers intent on investigating considered purchases. Deja.com also delivers
to those marketers a unique means of programming to the specific interests of
their target consumers, all in the context of a commerce-friendly platform.
We have been very active in recruiting Deja.com's management team and
developing its business strategy. In addition, Kenneth A. Fox and Douglas A.
Alexander, two of our Managing Directors, are members of Deja.com's Board of
Directors. Deja.com is in discussions with several partner companies to provide
services to its user community. For 1998, Deja.com had revenue of $5.1 million,
and for 1999, revenue of $9.3 million.
eMerge Interactive, Inc. eMerge Interactive is a vertical market maker
that combines content, community and transaction services to create an online
marketplace for the cattle industry. eMerge Interactive believes that the
production chain of the cattle industry, which includes cattle producers,
feedlots, packers and suppliers, contains inefficiencies that reduce animal
health and value. These inefficiencies, which include excessive animal
transportation and handling, result in additional transaction costs and reduced
beef quality.
eMerge Interactive offers its comprehensive cattle solution through its
Internet-based information and transaction platform, its Web-enabled private
network and its direct sales force. eMerge Interactive's products and services
are designed to create an efficient market for the purchase and sale of cattle
and to improve quality and productivity in the cattle industry. eMerge
Interactive's family of integrated Web sites and Web-enabled private network
provide:
. livestock procurement services consisting of cattle sales and
auctions;
. customer-specific daily feedlot operations analysis, comparative
cattle industry analysis and benchmarking studies;
. cattle inventory management tools; and
. livestock health management and quality enhancement products.
We acquired our interest in eMerge Interactive in November, 1999 after
identifying it as a potential market leader in the e-commerce market for the
livestock industry. Anthony Ibarguen and Douglas Alexander, two of our Managing
Directors, are members of eMerge Interactive's Board of Directors. In February
2000, eMerge Interactive became a public company, trading on the Nasdaq
National Market under the symbol "EMRG." For 1998, eMerge Interactive had
revenue of $1.8 million, and for 1999, revenue of $43.8 million.
ONVIA.com, Inc. ONVIA.com is a horizontal market maker that provides
products and services to small businesses over the Internet. ONVIA.com is a B2B
online operations center devoted to helping small businesses succeed. ONVIA.com
provides small businesses with business products, direct purchase and request
for quote services, customer lead generation and expert advice.
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ONVIA.com was introduced to us through a member of our network. Kenneth
A. Fox, one of our Managing Directors, is a member of ONVIA.com's Board of
Directors. Alex W. Hart, a member of our Advisory Board, is a member of
ONVIA.com's Advisory Board. We have facilitated a partnership between ONVIA.com
and Bidcom, one of our other partner companies, helped design ONVIA.com's back
office systems, and our executive recruiting personnel recruited their Vice
President of Marketing. In March 2000, ONVIA.com became a public company,
trading on the Nasdaq National Market under the symbol "ONVI." For 1998,
ONVIA.com had revenue of $1 million, and for 1999, revenue of $27.2 million.
Universal Access, Inc. Universal Access is a vertical market maker that
is a Web-enabled business-to business intermediary that facilitates the
provisioning, installation and servicing of dedicated, point-to-point
communications circuits for service providers who buy network capacity, and
transport suppliers who sell network capacity. Universal Access aggregates
network information, manages facilities where communications networks can be
physically interconnected, provides ongoing dedicated circuit access and offers
client support services. Through these services, Universal Access provides its
clients with an outsourced, integrated solution to the challenges of the
fragmented network services market.
As an independent intermediary, Universal Access has been able to collect
and aggregate network information from multiple transport suppliers. Universal
Access' Web-enabled Universal Information Exchange, or UIX, consists of several
proprietary interrelated databases containing capacity, availability, location
and pricing information from transport suppliers and physical sites. Through
the UIX, Universal Access provides its clients with point-to-point network
connections efficiently and cost-effectively. In addition, Universal Access
operates network interconnection facilities called Universal Transport
Exchanges, of UTXs, where various transport suppliers can easily access the
network connections of any other transport supplier in that facility. Universal
Access also provides a single point of contact for network management services,
including network monitoring, maintenance and restoration.
We are actively providing Universal Access with overall strategy,
marketing and finance guidance. Robert Pollan, one of our Managing Directors,
is a member of Universal Access' Board of Directors. In March 2000, Universal
Access became a public company, trading on the Nasdaq National Market under the
symbol "UAXS." For 1998, Universal Access had revenue of $1.6 million, and for
1999, revenue of $14.3 million.
VerticalNet, Inc. VerticalNet is a horizontal market maker that provides
industry-specific Web-based trade communities for businesses and professionals.
VerticalNet owns and operates 55 industry-specific Web sites as of March 24,
2000 designed as online B2B communities, known as vertical trade communities.
These vertical trade communities act as comprehensive sources of information,
interaction and e-commerce. VerticalNet's objective is to continue to be a
leading owner and operator of industry-specific vertical trade communities on
the Internet.
Each VerticalNet community is individually branded, focuses on a single
business sector and caters to individuals with similar professional interests.
VerticalNet designs each of its vertical trade communities to attract
professionals responsible for selecting and purchasing highly specialized
industry related products and services. VerticalNet's communities combine
product information, requests for proposals, discussion forums, electronic
commerce opportunities, industry news, directories, classifieds, job listings,
and online professional education courses.
VerticalNet satisfies a developing market not currently being adequately
served through traditional channels, including trade publishers, trade shows
and trade associations. VerticalNet believes that this market is not currently
being served by Internet companies, which tend to focus on the consumer and not
on the B2B market.
VerticalNet's vertical trade communities take advantage of the Internet's
ability to allow users around the world to contact each other online, allowing
buyers to research, source, contact and purchase from
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suppliers. Although other companies offer B2B services on the Internet,
VerticalNet believes that it is currently the only company operating a
portfolio of specialized B2B communities. A portfolio strategy permits
VerticalNet to:
. offer consistent content and services in its current vertical
trade communities and replicate these offerings as it launches new
communities;
. realize cost savings and operating efficiencies in its technology,
marketing, enabling and management resources; and
. increase its overall audience, making its individual sites more
appealing to a broad array of advertisers and suppliers who sell
their goods and services over the Internet.
VerticalNet currently generates the majority of its revenue from Internet
advertising, including the development of "storefronts." A storefront is a Web
page posted on one of its vertical 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. VerticalNet believes that
industry professionals using its vertical trade communities possess the
demographic characteristics that are attractive to its advertisers.
We were first introduced to VerticalNet through one of our major
shareholders. We helped to recruit several of VerticalNet's executive officers
and one of the members of its Board of Directors, and worked with them to
develop VerticalNet's business strategy. Douglas A. Alexander, one of our
Managing Directors, currently serves as VerticalNet's Chairman of the Board of
Directors and Walter W. Buckley, our President and Chief Executive Officer, is
a member of VerticalNet's Board of Directors. In 1999, VerticalNet became a
public company, trading on the Nasdaq National Market under the symbol "VERT."
In addition to its strategic alliance with PaperExchange, VerticalNet has also
formed a strategic alliance with e-Chemicals to provide customer leads for e-
Chemicals and to expand VerticalNet's services to its chemical business
customers. For 1998, VerticalNet had revenue of $3.1 million, and for 1999,
revenue of $20.8 million.
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 enabling 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, enabling 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.
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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 table shows certain
information regarding our enabling service provider partner companies by
category as of March 24, 2000. 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 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, Provides e-commerce best practices research 18% 1996
Inc. and consulting services to maximize return on
www.benchmarking.com investment from demand/supply chain and e-
business initiatives.
Context Integration, Provides systems integration services focused 14% 1997
Inc. on customer support, data access and e-
www.context.com commerce.
US Interactive, Inc. Provides a range of consulting and technical 3% 1996
www.usinteractive.com services relating to Internet marketing
solutions.
Software Providers:
Blackboard Inc. Provides universities and corporations with 29% 1998
www.blackboard.com applications that enable them to host classes
and training on the Internet.
ClearCommerce Corp. Provides comprehensive e-commerce solutions 15% 1997
www.clearcommerce.com including transaction and payment processing,
credit card authorization, fraud tracking and
reporting functions.
Entegrity Solutions Provides encryption software to secure 11% 1996
Corporation transactions and communications between
www.entegrity.com business applications.
Logistics.com, Inc. Provides Internet-based transportation 36% 2000
www.logistics.com solutions for shippers, carriers, and third
parties.
Servicesoft Provides tools and services used by its 5% 1998
Technologies, Inc. customers to create Internet customer service
www.servicesoft.com applications consisting of self-service, e-
mail response and live interaction products.
Syncra Software, Inc. Provides software that improves supply chain 35% 1998
www.syncra.com efficiency through collaboration of trading
partners over the Internet.
Outsourced Service
Providers:
Breakaway Solutions, Provides application service hosting, e- 40% 1999
Inc. commerce, consulting and systems integration
www.breakaway.com services to growing companies.
</TABLE>
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<TABLE>
<CAPTION>
Our Partner
Ownership Company
Category and Name Description of Business Percentage Since
- ------------------------ --------------------------------------------- ---------- -------
<S> <C> <C> <C>
CommerceQuest, Inc. Provides a messaging service for data sharing 28% 1998
www.commercequest.com across separate enterprises. Also provides
software, systems integration services and
managed network services for application
integration within enterprises or with
external trading partners and customers.
iSky, Inc. Provides services to improve customer 26% 1996
www.isky.com communications and relationships.
Jamcracker, Inc. Provides integrated application service 24% 1999
www.jamcracker.com provider services to middle market companies.
LinkShare Corporation Establishes affiliate relationships for 39% 1998
www.linkshare.com online merchants with other Web sites to
facilitate e-commerce.
PrivaSeek, Inc. Provides consumers with control of their Web- 8% 1998
www.privaseek.com based personal profiles, allowing merchants
to offer consumers incentives for selective
disclosure.
SageMaker, Inc. Provides services that combine an 21% 1998
www.sagemaker.com enterprise's external and internal
information assets into a single, Web-based
knowledge management platform.
TeamOn.com, Inc. Provides small businesses, groups and 36% 2000
www.teamon.com individuals with access-anywhere, Web-based,
professional e-mail solutions and customer-
interaction management capabilities.
traffic.com, Inc. Provides real time traffic monitoring for 20% 1999
www.traffic.com logistics and transportation optimization.
United Messaging, Inc. Provides high performance electronic 37% 1999
www.unitedmessaging.com messaging services for organizations with
mission critical e-mail networks.
</TABLE>
Set forth below is a more detailed summary of some of our enabling
service provider partner companies.
Benchmarking Partners, Inc. Benchmarking Partners is a strategic research
and consulting company that provides e-commerce best practices research and
consulting services to maximize return on investment from demand/supply chain
and e-business initiatives. The use of best business practices enabled by
information technology established by Benchmarking Partners allows companies to
efficiently manage their e-business initiatives. Benchmarking Partners improves
supply and distribution networks in the following ways:
. Integration. Coordinating diverse business functions such as
manufacturing, logistics, sales and marketing to maximize
efficiency.
. Optimization. Developing strategies that increase the efficiency
of supply networks.
. Collaboration. Creating collaborative solutions that incorporate
key trading partners.
Benchmarking Partners' clients include: companies undergoing business and
information technology transformation; technology solution providers hoping to
gain a better understanding of the market requirements
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for their products; and management consultants and systems integrators seeking
to refine their ability to effectively support their clients.
We were introduced to Benchmarking Partners through a member of our Board
of Directors. We have helped Benchmarking Partners recruit key managers and are
currently helping it build and position its best practice e-commerce Web site.
Benchmarking Partners assisted us in assessing enterprise software markets and
provides information technology advice to other partner companies. Benchmarking
Partners is also working with iSky and US Interactive to develop Internet
business application opportunities. For 1998, Benchmarking Partners had revenue
of $15.9 million, and for 1999, revenue of $20.3 million.
Breakaway Solutions, Inc. Breakaway Solutions is an outsourced service
provider enabling service company that is an application service provider and
e-commerce consulting and systems integration services provider to middle-
market companies. Through its application service hosting solutions, Breakaway
Solutions implements, operates and supports software applications that can be
accessed and used over the Internet. Breakaway Solutions also offers custom
developed, e-commerce related B2B interactive marketing and other solutions. By
focusing on Internet-based solutions, Breakaway Solutions has created a library
of components that can be redeployed by multiple clients. This allows Breakaway
Solutions to provide rapid, cost-effective service to clients.
We first met Breakaway Solutions through one of our shareholders and
Advisory Board members. We helped Breakaway Solutions to complete its
management team and merge with one of our other partner companies. In addition,
Breakaway Solutions is a strategic partner for installing ClearCommerce's Web-
based transaction and order processing solutions. Breakaway Solutions is also
in discussions to provide its services to ONVIA.com. In 1999, Breakaway
Solutions became a public company, trading on the Nasdaq National Market under
the symbol "BWAY." For 1998, Breakaway Solutions had revenue of $10 million,
and for 1999, revenue of $25.4 million.
CommerceQuest, Inc. CommerceQuest is an outsourced service provider of
B2B infrastructure solutions for mission-critical e-business applications. The
company provides infrastructure solutions to leading global companies and
Internet market makers that need to exchange business-critical information
across geographically and technologically diverse boundaries. CommerceQuest
currently employs over 275 professionals, and the company has extensive
experience in software and systems integration and building solutions around
IBM Corporation's MQSeries messaging middleware.
At the core of CommerceQuest's portfolio is enableNet, an outsourced
managed service designed to provide trusted B2B integration over the Internet.
enableNet is augmented by industry-leading software products and professional
services designed to provide maximum flexibility of integration options.
enableNet is a network independent service that allows businesses to exploit
the Internet, or their choice of network, to exchange business-critical
information with business partners and customers. enableNet delivers security,
reliability and manageability to the Internet, making it an industrial-
strength, cost-effective alternative to traditional value-added networks.
enableNet contributes the capability to bridge Web-based processes with legacy
or traditional EDI services. The service also allows organizations to reliably
and securely exchange any form of operational data internally or with business
partners via the Internet or other networks. In addition, enableNet provides
end-to-end integration capability, which provides message delivery across
multiple systems, such as applications, databases, clients, or servers, even
when using a wide range of networks and protocols.
We believe that the services and software provided by CommerceQuest can
be used throughout our partner company network, including our market makers
interested in tight integration with their suppliers and customers. We have
assisted CommerceQuest in recruiting senior management and repositioning it to
offer managed network services. To support the introduction of managed network
services, we provided the company with strategic planning, sales and marketing
support and introductions to potential business partners. For 1998,
CommerceQuest had revenues of $31.1 million, and for 1999 revenue of $23.8
million.
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CommerceQuest implemented significant business model transitions during
1999, including a de-emphasis of reselling and a shift from indirect to direct
license sales. As a result, CommerceQuest changed its infrastructure to support
the hiring and administration of a direct sales force. During this transition,
CommerceQuest also moved personnel from the professional services area to
development to enhance CommerceQuest's proprietary products and service
offerings. As a result, professional service sales have decreased.
CommerceQuest's revenues have decreased compared with the same periods in
1998. This decrease reflects the strategic decision to de-emphasize reselling
and to sell proprietary software and expertise directly. For 1999, reselling
accounted for only about 10% percent of total revenues compared to almost 60%
percent for 1998. As CommerceQuest has built its direct sales force and moved
away from third party marketing, the royalties previously earned on those sales
have decreased without any offset by direct sales.
Government Regulations and Legal Uncertainties
As of March 24, 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, online
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 online copyright infringement and the protection of
information collected online 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.
. Online 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 online 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 Online Privacy Protection Act, which takes effect on
April 21, 2000. These regulations make it illegal to collect
information online 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
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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.
. 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 online 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, Inc. own
8.3% and 13.7% of our outstanding common stock, respectively, based on the
number of shares held by each of them on March 24, 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, 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.
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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
online providers and traditional distribution channels;
. dollars spent on consulting services with many established
information systems and management consulting firms; and
. advertising budget with online 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 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.
Facilities
Our corporate headquarters are located at 435 Devon Park Drive, 600
Building, in an office facility located in Wayne, Pennsylvania, where we lease
approximately 14,800 square feet. We also maintain offices in San Francisco,
California; Boston, Massachusetts; Seattle, Washington; and London, England.
Employees
As of March 24, 2000 excluding our partner companies, we had 120
employees, 119 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 collective bargaining agreements.
Reorganization
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
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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. The distributions made to some of the members of Internet
Capital Group, L.L.C. are described in detail below under the heading "Certain
Transactions." 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.
Legal Matters
We are not a party to any material legal proceedings.
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eCREDIT.COM'S BUSINESS
eCredit.com is a provider of credit management and financing solutions
for business-to-business and business-to-consumer commerce. eCredit.com's
products allow businesses and lenders to automate and manage credit and
financing decisions in real time.
eCredit.com's systems and services consist of the eCredit.com Enterprise
Credit Management System, the eCredit.com Enterprise Lending System, and the
Global Financing Network. The eCredit.com systems are network applications used
to automate and streamline the credit management and financing process. The
eCredit.com Enterprise Credit Management System is designed to enable
businesses to reduce bad debts and operating costs, improve productivity and
increase revenues by automating the credit and collections cycle. The
eCredit.com Enterprise Lending System is a standardized credit-processing
platform that enables lenders to automate and manage the credit approval
process in real time for both consumer and business credit. eCredit.com's
Global Financing Network is an Internet-based, real time global network for
credit approval and financing. Through a common electronic network on which
multiple lenders participate, each business customer of the Global Financing
Network is able to create a private network with selected lenders to provide
financing to buyers of products from that business customer.
As of March 31, 2000, eCredit.com had a total of 279 employees. Of that
total, 83 were in research and development, 11 were in business development, 90
were in sales and marketing, 64 were in implementation and consulting services,
13 were in customer support and training, and 18 were in administration and
finance. Of these employees, 201 were located in the United States, 70 were
located in Bangalore, India and eight were located in Europe.
eCredit.com is a Delaware corporation. Its principal executive office is
located at 20 CareMatrix Drive, Dedham, MA 02026-6149 and its telephone number
is (781) 752-1200. eCredit.com maintains a site on the World Wide Web at
www.ecredit.com. The information contained on its Web site is not part of this
Prospectus.
eCredit.com, the eCredit.com logo, eCredit.com Enterprise Credit
Management System, eCredit.com Enterprise Lending System, and Global Financing
Network are trademarks of eCredit.com.
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RIGHTWORKS' BUSINESS
RightWorks provides Internet-based exchange software for powering B2B
digital marketplaces. These marketplaces, also known as online trading
exchanges or communities, serve as comprehensive online sources of information,
interaction and electronic commerce for the businesses that participate in them
as buyers or sellers. RightWorks' software, RightWorks 5.0, is a software
platform that manages the complex business transactions that take place on
digital marketplaces.
RightWorks' customers are companies that create and operate digital
marketplaces, including vertical--or industry-specific--marketplaces as well as
corporate marketplaces. By using RightWorks 5.0, customers can create
sophisticated digital marketplaces that allow large numbers of buyers and
sellers using standard computers and Web browsers to exchange information and
conduct electronic commerce transactions in a stable and secure environment.
RightWorks' current customers include Agilera, Applied Materials, BANK ONE,
Computer Sciences Corporation, ICG Commerce, Norwest Services and VerticalNet.
RightWorks offers its software to customers using two different models.
In the first model, the customer licenses the software for its own use and pays
a one-time licensing fee, annual maintenance fees, and per-transaction fees
based on the number of transactions executed on each digital marketplace using
the licensed software. In the second model, which currently is used by
approximately 20% of customers, the customer uses software hosted by RightWorks
and pays a one-time fee for the right to access the software, a monthly fee for
maintenance and hosting services, and per-transaction fees based on the number
of transactions executed on each digital marketplace using the hosted software.
To date, per-transaction and hosting fees have not represented a material
portion of RightWorks' total revenues. RightWorks also provides training and
customization services on a consulting basis.
RightWorks was founded in September 1994. Its principal executive office
is located at 31 North Second Street, Suite 400, San Jose, California 95113,
and its telephone number is (408) 882-0350. RightWorks maintains a site on the
World Wide Web at www.rightworks.com. The information contained on its Web site
is not part of this Prospectus.
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MANAGEMENT
Executive Officers and Directors
Our executive officers, key employees and directors, their ages and
their positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Walter W. Buckley, III 40 President, Chief Executive Officer and
Director
Douglas A. Alexander 38 Managing Director, East Coast Operations
Matthias Allgaier 33 Managing Director, European Operations
Richard G. Bunker, Jr. 38 Managing Director and Chief Technology
Officer
Mary Coleman 45 Managing Directors, Operations
Richard S. Devine 42 Managing Director, Executive Recruiting
Stephen Duckett 32 Managing Director, European Operations
Kenneth A. Fox 29 Managing Director, West Coast Operations and
Director
David D. Gathman 52 Chief Financial Officer and Treasurer
Christopher H. Greendale 48 Managing Director, Operations
John Hamm 40 Managing Director, Operations
Gregory W. Haskell 43 Managing Director, Operations
Todd G. Hewlin 33 Managing Director, Strategy
Victor S. Hwang 31 Managing Director, Acquisitions
Anthony Ibarguen 40 Managing Director, Operations, and President
of Professional Services
Sam Jadallah 35 Managing Director, Operations
Mark J. Lotke 32 Managing Director, Acquisitions
Walter P. Maner 32 Managing Director, Acquisitions
Henry N. Nassau 45 Managing Director, General Counsel and
Secretary
John N. Nickolas 33 Managing Director, Finance and Assistant
Treasurer
Robert A. Pollan 39 Managing Director, Operations
John P. Shoemaker 35 Managing Director, Acquisitions
Paul Slaats 37 Managing Director, Acquisitions
Sherri L. Wolf 32 Managing Director, Investor Relations
Michael H. Forster 56 Senior Partner, Operations
Robert E. Keith, Jr. (1) 58 Chairman and Director
Julian A. Brodsky (2) 66 Director
Thomas P. Gerrity (1) 58 Director
Warren V. Musser 73 Director
Peter A. Solvik (1) 41 Director
</TABLE>
- --------
(1) Member of the compensation committee
(2) Member of the audit committee
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, including Multigen, XL
Vision, Inc., ChromoVision, and Video Server, 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., eColony, iSky, Inc., Inc., Metal Site,
L.P., Paper Exchange.com, Inc., PrivaSeek, Inc., Safeguard Scientifics, Inc.,
Syncra Software, Inc., VerticalNet, Inc., Who?Vision Systems, Inc., and
XLVision.
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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.
Matthias Allgaier has served as one of our Managing Directors, European
Operations since November 1999. Prior to joining us, Mr. Allgaier was an
Assistant Director at Apax Partners since 1997. In this capacity, Mr. Allgaier
headed the software and services divisions of Apax Partners' Information
Technology group and was responsible for generation and execution of
acquisitions. Prior to this Mr. Allgaier was associated with Broadview
Associates since 1994, where he worked on a variety of acquisitions, and was
associated with General Atlantic Partners. Mr. Allgaier received a Masters of
Business Administration from the University of Mannheim and later earned a
doctorate degree with distinction in Business Administration from the same
university. Mr. Allgaier serves as a director of eumediX, VerticalNet Europe,
and enel.
Richard G. Bunker, Jr. has served as one of our Managing Directors and
has been our Chief Technology Officer since April 1999. Prior to joining us,
Mr. Bunker was President and Chief Executive Officer of Reality Online, a
Reuters company, from September 1997 to April 1999. Before becoming President
and Chief Executive Officer, Mr. Bunker served in various senior management
positions at Reality Online. While President and Chief Executive Officer of
Reality Online, Mr. Bunker built the firm into a market leading builder and
host of online securities trading and account inquiry Web sites, and provider
of market data to the online securities industry. He also served as Senior Vice
President and Chief Information Officer of SEI Investments from January 1994 to
March 1996, and Vice President of the investment management and trading
technology group at State Street Global Advisors from October 1992 to January
1994.
Mary Coleman has served as one of our Managing Directors since January
2000. Prior to joining us, Ms. Coleman was Chief Executive Officer at Baan
Company, Europe's second largest software company. Prior to her tenure at Baan,
Ms. Coleman was Chief Executive Officer at Aurum Software, Inc. Prior to
joining Aurum, Ms. Coleman held several senior marketing and technical
positions in high technology companies including Radius Inc., McDATA
Corporation, and Selbourne Computer, Inc. Ms. Coleman brings to us more than 25
years of high technology experience.
Richard S. Devine has served as our Managing Director of Executive
Recruiting since June 1999. Prior to joining us, Mr. Devine was a Partner at
Heidrick & Struggles, and a member of its International Technology Practice
from October 1997 to June 1999. In this capacity, Mr. Devine led the search for
many high profile executive positions including the Chief Executive Officer of
Global Crossing, President of Transport, a joint venture between Microsoft
Corporation and First Data Corporation, Senior Vice President of Worldwide
Operations at Apple Computer Corporation, Vice President of Customer Service at
Amazon.com, Chief Financial Officer and Chief Information Officer at Remedy
Corporation and General Manager of the Americas, General Manager of Services
and Vice President of International at Siebel Systems. Mr. Devine also served
as President and Chief Executive Officer of KidSoft LLC from March 1992 to
February 1997.
Stephen Duckett has served as one of our Managing Directors, European
Operations since November 1999. For the past five years, Mr. Duckett was
associated with Apax Partners where he generated and executed acquisitions,
managed ownership interests, and helped to establish an Internet group. Mr.
Duckett received a Masters of Business Administration from Harvard Business
School, where he was a Fulbright Scholar. Mr. Duckett serves as a director of
EuSupply, eMetra Ltd., FarmingOnline, and enel.
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,
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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, Commerx, Inc., Deja.com, Inc., Entegrity Solutions Corporation,
Internet Commerce Systems, Inc., ONVIA.com, Inc. and Vivant! Corporation.
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.
Christopher H. Greendale has served as one of our Managing Directors
since July 1999 and was one of our Senior Partners of Operations from January
1999 to July 1999. Prior to joining us, Mr. Greendale served as an independent
management consultant from January 1998 to December 1998. Prior to becoming a
consultant, Mr. Greendale served as Executive Vice President of Cambridge
Technology Partners, a company he co-founded in 1991. Cambridge Technology
Partners is a systems integrator that initiated fixed price, fixed time, rapid
systems development. Mr. Greendale has extensive experience in sales and
marketing, and general management in the information technology industry. Mr.
Greendale is Chairman of the Board of Breakaway Solutions, Inc. and serves as a
director of Benchmarking Partners, Inc., Context Integration, Inc., Servicesoft
Technologies, Inc., Vivant! Corporation and MediaBridge.
John Hamm has served as one of our Managing Directors of Operations since
March 2000. Prior to joining us, Mr. Hamm served as President and Chief
Executive Officer of Whistle Communications, which was acquired by IBM
Corporation in June 1999. From 1990 to 1996, Mr. Hamm was Vice President and
General Manager of the Enterprise Computing Business Unit at Adaptec. Mr. Hamm
serves or has served as a director of Brocade Communications, Sylantro Systems,
Cybrant and ConvergeNet and attended the University of California--Irvine
executive masters of business administration program.
Gregory W. Haskell has served as one of our Managing Directors of
Operations since June 1999. Prior to joining us, Mr. Haskell served from
January 1994 to June 1999 as President and Chief Operating Officer of XL
Vision, Inc., a business and technology incubator that builds companies and
spins them out into stand alone public companies. During his tenure at XL
Vision, Mr. Haskell co-founded four technology-based spinout companies. Mr.
Haskell serves as a director of asseTrade.com, Inc., Axcess, Inc.,
ComputerJobs.com, Inc., CyberCrop.com, Inc., e-Chemicals, Inc., Internet
Healthcare Group, Logistics.com, PaperExchange.com LLC, Presidio and XL Vision,
Inc.
Todd G. Hewlin has served as our Managing Director of Corporate Strategy
and Research since July 1999. Prior to joining us, Mr. Hewlin served as a
Partner with McKinsey & Company, a global management consultancy, and has held
various positions with McKinsey & Company from September 1993 to June 1999.
During that time, Mr. Hewlin led technology-intensive strategy projects for
leading organizations in North America and Europe. Mr. Hewlin's clients have
included world-class technology companies, an Internet bank, a global satellite
telephony startup, and a range of traditional companies assessing the impact of
the Internet. From December 1998 to June 1999, Mr. Hewlin co-led McKinsey's
Global Electronic Commerce practice.
Victor S. Hwang has served as one of our Managing Directors of
Acquisitions since March 1999. Prior to joining us, Mr. Hwang served from
January 1999 to March 1999 as a General Partner of Softbank Holdings, a fund
focused on late-stage private equity investments in Internet companies. From
August 1995 to January 1999, Mr. Hwang also served as an investment banker at
Goldman, Sachs & Co., where he was involved in more than 25 financing and
merger transactions for a broad range of Internet, software, semiconductor,
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communications and hardware companies. While at Goldman, Sachs & Co., Mr.
Hwang's clients included eBay, GeoCities and Yahoo!. Mr. Hwang obtained a
Masters of Business Administration from the Graduate Business School of
Stanford University where he was in attendance from September 1993 to June 1995
and graduated as an Arjay Miller Scholar.
Anthony Ibarguen has served as our Managing Director, Operations and
President of Professional Services since December 1999. Prior to joining us,
Mr. Ibarguen served as President and Chief Operating Officer of Tech Data
Corporation from March 1997 to December 1999 and as their President of the
Americas since September 1996. He was elected to Tech Data's Board of Directors
in June 1997. Tech Data is a Fortune 150 global information technology
distribution and logistics services provider. Prior to this, Mr. Ibarguen
served as Executive Vice President of Sales and Marketing of ENTEX Information
Services, Inc., a systems intergrator he co-founded in 1993. Mr. Ibarguen
earned his Masters of Business Administration from Harvard University and
serves as a director of Smartdisk Inc., eMerge Interactive, Inc. and Commerce
Quest, Inc.
Sam Jadallah has served as one of our Managing Directors of Operations
since July 1999. Prior to joining us, Mr. Jadallah served as a Microsoft Vice
President of Worldwide Enterprise Sales from June 1996 to July 1999 where he
was responsible for leading sales efforts to business and academic customers.
Prior to holding this position, Mr. Jadallah served as Manager of Worldwide
Business Strategy reporting to Steve Ballmer, President of Microsoft. Mr.
Jadallah also served as General Manager of Corporate and Developer Support and
served as District Manager leading Microsoft sales to the US Department of
Defense from 1990 to 1992. Mr. Jadallah held various other sales, management
and technical positions since joining Microsoft in 1987. Mr. Jadallah serves as
a director of JusticeLink, Inc.
Mark J. Lotke has served as one of our Managing Directors of Acquisitions
since June 1999. Prior to joining us, Mr. Lotke served from August 1997 to May
1999 as an Associate and from July 1993 to August 1997 as a Junior Associate at
General Atlantic Partners, a private equity firm focused on investing in global
information technology companies. While at General Atlantic Partners, Mr. Lotke
was involved in numerous private equity transactions across a wide range of
Internet, software, and services companies, including E*Trade, Priceline.com,
Inc., LHS Group, Inc., and Predictive Systems. Prior to joining General
Atlantic Partners, Mr. Lotke served as a strategy consultant at Corporate
Decisions, Inc. Mr. Lotke obtained a Masters of Business Administration from
the Graduate Business School of Stanford University where he was in attendance
from September 1995 to June 1997. Mr. Lotke serves as a director of Animated
Images, Inc., Logistics.com, Inc., Residential Delivery Services, Inc., Retail
Exchange.com, Inc. and TALPX, Inc.
Walter P. Maner has served as one of our Managing Directors of
Acquisitons since March 2000 and as a Vice President of Acquisitions from April
1999 to March 2000. Prior to joining us, Mr. Maner was employed by Technology
Leaders, where he focused on e-commerce, customer-relationship management and
supply-chain-oriented investments. Prior to joining Technology Leaders, Mr.
Maner worked as a Senior Associate at Safeguard Scientifics. Mr. Maner obtained
a Masters of Business Administration from The Wharton School of the University
of Pennsylvania.
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. Nassau serves as a director of
The Albert Abela Corporation, Bliley Electric Company, JusticeLink, Inc. and
Data West Corporation which does business as CourtLink.
John N. Nickolas has served as our Managing Director of Finance and has
been our Assistant Treasurer since January 1999. Prior to joining us, Mr.
Nickolas served from October 1994 to December 1998 in various finance and
accounting positions for Safeguard Scientifics, Inc., most recently serving as
Corporate Controller from December 1997 to December 1998. Mr. Nickolas brings
to us extensive financial experience
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including corporate finance, financial reporting, accounting and treasury
operations. Before joining Safeguard Scientifics, Inc., Mr. Nickolas was Audit
Manager and held various other positions at KPMG LLP from July 1990 to October
1994.
Robert A. Pollan has served as one of our Managing Directors of
Operations since June 1998. Prior to joining us, Mr. Pollan served as a Chief
Technology Officer and Vice President of Business Development at General
Electric Capital Corporation from August 1995 to June 1998. During his tenure
at General Electric Capital Corporation, Mr. Pollan co-founded and served as
President of two supply chain ventures focused on remote telemetry and third-
party logistics, returnable packaging leasing and logistics. He led several
acquisitions in Europe, Asia and the United States. Mr. Pollan was co-founder
and, from September 1991 to July 1995, Managing Director of OFR, Ltd., an
advisory firm focused on the organizational and financial restructuring of
industrial enterprises in Central Europe. While in Central Europe, Mr. Pollan
founded the first Polish industrial group and advised the World Bank and a
number of Eastern European governments. Mr. Pollan serves as a director of
CapSpan, CommerceQuest, Inc., Commerx, Inc., Internet Commerce Systems, Inc.,
Logistics.com, TALPX, United Messaging, Inc. and Universal Access, Inc. Mr.
Pollan earned a Masters of Business Administration with distinction from
Harvard Business School.
Sherri L. Wolf has served as our Managing Director of Investor Relations
since May 1999. Prior to joining us, Ms. Wolf served as a Vice President in
equity research at Adams, Harkness & Hill, an investment banking firm, from
September 1994 to May 1999. While with Adams, Harkness & Hill, Ms. Wolf focused
on the Internet and the information technology services sectors and covered
such companies as CMG Information Services, Inc., Safeguard Scientifics, Inc.,
Lycos and Forrester Research. Ms. Wolf obtained a Masters of Science from the
Massachusetts Institute of Technology's Sloan School of Management where she
was in attendance from September 1992 to June 1994.
Michael H. Forster has served as one of our Senior Partners of Operations
since June, 1998. Before joining us, Mr. Forster served as Senior Vice
President of Worldwide Field Operations for Sybase, Inc. from April 1996 to
March 1999. Prior to this position with the company, Mr. Forster was Sybase's
Senior Vice President and President of the company's Information Connection
Division from April 1994 to March 1996. Mr. Forster has over 30 years of sales,
marketing and general management experience in the information technology
industry. Mr. Forster serves as a director of SageMaker, Inc., Syncra Software,
Inc. and Tangram Enterprise Solutions.
John P. Shoemaker is one of our Managing Directors of Acquisitions since
March 2000. Prior to joining us, Mr. Shoemaker was a Managing Director and head
of the Philadelphia office of Mellon Ventures, Inc. Before Mellon Ventures, Mr.
Shoemaker was Vice President of RAF Industries, Inc. Prior to RAF Industries,
Mr. Shoemaker worked as a corporate lawyer in Philadelphia and as an investment
banker with Morgan Stanley, Inc. in New York.
Paul Slaats has served as one of our Managing Directors of Acquisitions
since March 2000 and as a Vice President of Acquisitions from January 1997 to
March 2000. Prior to joining us, Mr. Slaats was an associate with Safeguard
Scientifics, Inc. Mr. Slaats has more than 12 years of experience in
information technology companies including manufacturing, sales management and
senior marketing positions with IBM, and channel development, product
management, and market development experience with Marcam Corporation and SAP
America.
Robert E. Keith, Jr. has served as the Chairman of our Board of Directors
since our inception in March 1996. Mr. Keith is also Managing General Partner
of Technology Leaders II, L.P. and has had principal operating responsibility
for Technology Leaders II, L.P. since 1988. Mr. Keith also serves as a director
of American Education Centers, Inc., Cambridge Technology Partners
(Massachusetts), Inc., Diablo Research Corporation, LLC, Masterpack
International, Inc., MultiGen-Paradigm, Inc., Naviant Technology Solutions,
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Inc., Sunsource, Inc., US Interactive, Inc., and Whisper Communications, Inc.
and is Vice Chairman of the Board of Safeguard Scientifics, Inc.
Julian A. Brodsky has served as one of our directors since May 1996. Mr.
Brodsky is a founder of Comcast Corporation, a developer of broadband cable
networks, cellular and personal communications systems and has served as a
director of Comcast since 1969 and Vice Chairman since 1988. He serves as Vice
President and a director of Sural Corporation. Mr. Brodsky serves as a director
of Comcast Cable Communications, Inc., the RBB Fund, Inc. NDS Group pls and is
Chief Executive Officer of Comcast Interactive Capital Group L.P.
Dr. Thomas P. Gerrity has served as one of our directors since December
1998. Dr. Gerrity also served as the Dean of The Wharton School of the
University of Pennsylvania from July 1990 to June 1999. He is currently
Professor and Director of the Wharton School Electronic Commerce Forum. Dr.
Gerrity also serves as a director of CVS Corporation, Fannie Mae, ICG Commerce,
Inc., Knight-Ridder, Inc., Reliance Group Holdings, Inc., Sunoco, Inc. and a
trustee of MAS Funds.
Warren V. Musser has served as one of our directors since March 2000. Mr.
Musser is currently Chairman and Chief Executive Officer of Safeguard
Scientifics, Inc., a position he has held since 1953. Mr. Musser is Chairman of
the Board of Cambridge Technology Partners (Massachusetts), Inc. and CompuCom
Systems, Inc. He is also a Director of DocuCorp International, Inc. and Sanchez
Computer Associates, Inc. and a trustee of Brandywine Realty Trust. Mr. Musser
serves on a variety of civic, educational and charitable boards of directors,
and serves as Vice President/Development, Cradle of Liberty Council, Boy Scouts
of America, Vice Chairman of The Eastern Technology Council, and Chairman of
the Pennsylvania Partnership on Economic Education.
Peter A. Solvik has served as one of our directors since May 1999. Mr.
Solvik has served as Senior Vice President and Chief Information Officer of
Cisco Systems, Inc. since January 1999, as Vice President and CIO from 1995 to
1999, and as Director of Information Systems and CIO from 1993 to 1995. Under
Mr. Solvik's leadership, Cisco Systems has been recognized as one of the most
innovative and successful large corporations in the use of the Internet. Mr.
Solvik serves as a director of Asera Inc., Cohera Corp. and Context
Integration, Inc.
Advisory Board
Our Advisory Board members provide our partner companies with strategic
guidance in general management, sales and marketing, and information technology
management. Our Advisory Board members and their backgrounds are:
General Management Guidance
Jeff Ballowe has served on our Advisory Board since February 1998. Mr.
Ballowe served as President, Interactive Media and Development Group, of Ziff-
Davis, Inc., where he was in charge of ZDNet, ZDTV, Ziff-Davis' Internet
Publications, and Ziff-Davis, Inc.'s investments. Prior to joining Ziff-Davis,
Mr. Ballowe worked as a marketing executive at various technology and marketing
services companies. Mr. Ballowe serves as Chairman of the Board of Directors of
Deja.com, Inc. and as a director of drkoop.com, Inc., GiveMeTalk.com, Inc.,
Jupiter Communications, Inc., SuperGroups, Inc., VerticalNet, Inc. and ZDTV,
Inc.
Alex W. "Pete" Hart has served on our Advisory Board since March 1998.
Mr. Hart is a consultant in consumer financial services specializing in
emerging payment and distribution systems. Mr. Hart has served in numerous
positions, including Chief Executive Officer, of Advanta Corporation from March
1994 to October 1997. Prior to joining Advanta Corporation, Mr. Hart served as
President and Chief Executive Officer of MasterCard International. Mr. Hart
serves as a director of Sanchez Computer Associates, Who?Vision Systems,
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4anything.com, HNC Software, Integrated Vision and Destiny Systems and on the
advisory board of ONVIA.com, Inc. and Qpass.
Martha Rogers, Ph.D., has served on our Advisory Board since 1996. Dr.
Rogers is a Professor at the Duke University Fuqua School of Business. Dr.
Rogers has served as Founding Partner of Peppers and Rogers Group/Marketing 1
to 1 since 1994. Peppers and Rogers Group/Marketing 1 to 1 is a management
consulting firm that focuses on thought leadership and strategy in the growing
fields of interactivity, marketing, technology, relationship management and
business development. Dr. Rogers frequently appears on a variety of radio and
television programs, including C-SPAN's "American Perspectives" covering
business trends and features.
Yossi Sheffi has served on our Advisory Board since July 1998. Dr. Sheffi
is a Professor at Massachusetts Institute of Technology where he serves as
Director of the Center for Transportation Studies. Dr. Sheffi's teaching and
research areas include logistics, optimization, supply chain management and e-
commerce. Dr. Sheffi is the author of a textbook and over fifty technical
publications. In 1997, Dr. Sheffi co-founded Syncra Software, Inc., in 1998, he
co-founded e-Chemicals, Inc., and in 1999, he co-founded Logistics.com.
David Stamm has served on our Advisory Board since June 1999. Mr. Stamm
founded Clarify, Inc. in August 1990 and served as President, Chief Executive
Officer and Director from its inception until March 1998. In March 1998, Mr.
Stamm was appointed Chairman of the Board of Directors of Clarify. From 1980 to
1989, Mr. Stamm served as Executive Vice President and a director of Daisy
Systems Corporation, a computer-aided engineering hardware and software company
which he co-founded in August 1980. Mr. Stamm also serves as a director of
TimeDance, Inc., a privately-held internet start-up that sends invitations and
manages RSVPs for events and Nowonder, Inc., a privately-held start-up that
matches people who have technical support questions with experts who can answer
them.
Gary C. Wendt has served on our Advisory Board since May 1999. Mr. Wendt
served as President, Chairman and Chief Executive Officer of General Electric
Capital Services, Inc. from 1986 to 1998. During Mr. Wendt's tenure as leader
of General Electric Capital Services, the company became General Electric
Corporation's largest business sector. Mr. Wendt serves as a director of iXL
Enterprises, Inc., Sanchez Computer Associates, Inc. and LAPA Lineas Aereas
Privadas Argentinas S.A.
Sales and Marketing Guidance
Rowland Hanson has served on our Advisory Board since September 1996. Mr.
Hanson is founder and President of C. Rowland Hanson & Associates which
provides strategic planning, marketing and communications to a variety of
software companies. Mr. Hanson has also been involved in the founding,
development and sale or merger of several software companies. Prior to founding
C. Rowland Hanson & Associates, Mr. Hanson served as Vice President of
Corporate Communications at Microsoft Corporation, where he is credited with
developing and executing the company's original branding strategy. Mr. Hanson
serves as a director of Webforia and Sequel Technology.
Tom Kippola has served on our Advisory Board since February 1997. Mr.
Kippola is the Managing Partner of The Chasm Group, which provides market
strategy consulting and training and speaking services for start-up, growing
and established information technology companies. Prior to his consulting
career, Mr. Kippola was director of marketing for a service automation software
vendor. Mr. Kippola has co-authored a book entitled "The Gorilla Game: An
Investor's Guide to Picking Winners in High Technology." Mr. Kippola serves as
a director of Whisper Communications, Inc. and The EC Company. In addition, Mr.
Kippola is an advisory board member of eCustomers.com, Rubric, RTMS, Inc. and
Voyager Capital.
Geoffrey A. Moore has served on our Advisory Board since February 1997.
Mr. Moore is Chairman of the Board and founder of The Chasm Group, where he
continues to provide market development and business
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strategy services to many leading high-technology companies. He is also a
venture partner with Mohr Davidow Ventures where he provides market strategy
advice to the high-tech portfolio companies. Prior to founding The Chasm Group,
Mr. Moore was a principal and partner at Regis McKenna, Inc., a leading high-
tech marketing strategy and communications company. Mr. Moore serves as a
director of many companies, including Documentation Inc. and Objectivity, Inc.
John A. Miller, Jr. has served on our Advisory Board since July 1996. Mr.
Miller has served as President and Chief Executive Officer of Miller Consulting
Group since founding the company in 1996. Miller Consulting Group is a
strategy-driven public relations firm that integrates market positioning with
tactical public relations for emerging information technology companies. Prior
to founding the Miller Consulting Group, Mr. Miller founded Miller
Communications, a leader in the field of high technology public relations,
which advised Compaq Computer Corporation, Lotus Corporation and more than 100
other emerging information technology firms throughout the 1980s.
Don Peppers has served on our Advisory Board since August 1996. Mr.
Peppers is a founding partner at Pepper and Rogers Group/Marketing 1 to 1, a
management consulting firm. Mr. Peppers is a co-author with Dr. Martha Rogers,
of several books on customer relationship management and one-on-one marketing.
Mr. Peppers serves as a director of DoubleClick, a network of Web advertising
sites and ad serving services, and Modem Media.Poppe Tyson, an interactive
marketing and advertising agency.
Charles W. Stryker, Ph.D., has served on our Advisory Board since
September 1997. Dr. Stryker is President and CEO of Naviant, Inc. Naviant is
focused on providing information enabling marketers to precisely target their
customers and prospects in both the physical and on-line worlds. Dr. Stryker
has served as President, Marketing Information Solutions for IntelliQuest, Inc.
Dr. Stryker is a recognized leader in the information solutions industry with
his record as founder of Trinet, Inc., MkIS User Forum, Information Technology
Forum and President of National Accounts Division of American Business
Information. Dr. Stryker is a director of 24/7 Media (TFSM) and iSky, Inc.
Sergio Zyman has served on our Advisory Board since February 1999. Mr.
Zyman is founder of The Z Group, a broad consulting and venture firm. Prior to
his consulting career, Mr. Zyman served as Vice President and Chief Marketing
Officer of the Coca-Cola Company. During Mr. Zyman's tenure with Coca-Cola, he
had responsibility for the introduction of Cherry Coke(R), Diet Coke(R),
Fruitopia(R) and the New Coke initiative. Since leaving Coca-Cola, Mr. Zyman
has also authored a book entitled "The End of Marketing As We Know It." Mr.
Zyman serves as a director of Gap, Inc., Netcentives, Inc. and VC Television
Network Corp.
Information Technology Management Guidance
K.B. Chandrasekhar has served on our Advisory Board since April 1999. Mr.
Chandrasekhar is Chairman of the Board of Exodus Communications, a company he
co-founded in 1994. Exodus Communications is a leading server hosting company
for Internet sites. Since establishing its first Internet data center in 1996,
Exodus Communications has expanded to nine cities with more than 1,000
employees and 1,000 customers. Prior to co-founding Exodus Communications, Mr.
Chandrasekhar founded Fouress, Inc., a network software design and development
firm. Mr. Chandrasekhar also founded Jamcracker, one of our partner companies.
Esther Dyson has served on our Advisory Board since May 1996. Ms. Dyson
is Chairman of EDventure Holdings, Inc. EDventure Holdings is a company focused
on emerging technologies worldwide, and on the computer markets of the United
States and Central and Eastern Europe. EDventure publishes Release 1.0, a
monthly newsletter and sponsors two annual technology forums. Ms. Dyson serves
as a director of Scala Business Solutions N.V., Poland Online, New World
Publishing, Graphisoft, PRT Group, Inc., Languageware, Medscape Inc., Thinking
Tools and WPP Group. Ms. Dyson also serves on the advisory board of Perot
Systems Corporation.
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John McKinley has served on our Advisory Board since July 1998. Mr.
McKinley is Chief Technology Officer of Merrill Lynch & Co. With Merrill Lynch,
Mr. McKinley has responsibility for 8,200 information technology professionals
and is responsible for driving e-commerce initiatives throughout the company.
Prior to joining Merrill Lynch, Mr. McKinley served as Chief Technology and
Information Officer for General Electric Capital Corporation. Mr. McKinley
serves as a director of Proxicom Inc., a leading Internet-focused systems
integration firm. Mr. McKinley also serves on the Executive Client Advisory
Board of AT&T Corporation.
William Powar has served on our Advisory Board since June 1998. Mr. Powar
is a principal of Venture Architects, a company he founded in January 1997.
Venture Architects is a consulting firm that provides strategic guidance and
business development expertise to companies in the e-commerce industry. Prior
to founding Venture Architects, Mr. Powar served 22 years with Visa USA and
Visa International developing new markets and businesses. From 1994 through
1996, Mr. Powar directed Visa's venture investments and strategic alliances.
Mr. Powar serves as a director of MobiNetix Systems, Inc.
We expect to change the composition of our Advisory Board from time to
time to match the evolving needs of our partner companies.
Classes of the Board
Our Board of Directors is divided into three classes that serve staggered
three-year terms as follows:
<TABLE>
<CAPTION>
Class Expiration Member
----- ---------- --------------------------------
<C> <C> <S>
Class I 2000 Messrs. Brodsky and Musser
Class II 2001 Messrs. Keith and Solvik
Class III 2002 Messrs. Buckley, Fox and Gerrity
</TABLE>
Board Committees
The compensation committee reviews and makes recommendations to the Board
regarding the compensation to be provided to our Chief Executive Officer and
our directors. In addition, the compensation committee reviews compensation
arrangements for our other executive officers. The compensation committee also
administers our equity compensation plans. The current members of the
compensation committee are Messrs. Gerrity, Keith and Solvik.
The audit committee reviews and monitors our corporate financial
reporting, external audits, internal control functions and compliance with laws
and regulations that could have a significant effect on our financial condition
or results of operations. In addition, the audit committee has the
responsibility to consider and recommend the appointment of, and to review fee
arrangements with, our independent auditors. The current members of the audit
committee are Messrs. Brodsky and Musser.
Director Compensation and Other Arrangements
We do not pay cash compensation to our directors; however they are
reimbursed for the expenses they incur in attending meetings of the board or
board committees. Non-employee directors are eligible to receive options to
purchase common stock awarded under our 1999 Equity Compensation Plan. See
"Employee Benefit Plans--Internet Capital Group, Inc. 1999 Equity Compensation
Plan--Non-Employee Director Option Grants," below.
IBM Corporation has designated James Corgel as an observer to our board of
directors. In connection with our private placement to AT&T Corp., AT&T Corp.
is entitled to designate an observer to our board of directors.
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Compensation Committee Interlocks and Insider Participation
Our compensation committee makes all compensation decisions. Messrs.
Gerrity, Keith and Solvik serve as the members of the compensation committee.
Mr. Buckley previously served on the compensation committee. Messrs. Alexander
and Buckley serve on the compensation committee of VerticalNet. None of our
other executive officers, directors or compensation committee members currently
serve, or have in the past served, on the compensation committee of any other
company whose directors or executive officers have served on our compensation
committee.
Executive Compensation
The following table provides certain summary information concerning the
compensation earned by our chief executive officer and the other executive
officers employed by us during the fiscal year ended December 31, 1999 and
1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
---------------------------------- ------------
Securities
Name and Principal Other Underlying
Position Year Salary Bonus Compensation (1) Options
- ------------------ ---- -------- -------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Walter W. Buckley, III... 1999 $250,000 $125,000 -- 2,000,000
President and Chief 1998 $159,769 $ 96,000 -- 2,600,000
Executive Officer
Douglas A. Alexander..... 1999 $225,000 $112,500 -- 1,000,000
Managing Director, East 1998 $225,000 $100,000 -- 2,500,000
Coast
Operations
Kenneth A. Fox........... 1999 $225,000 $112,500 -- 1,800,000
Managing Director, West 1998 $119,538 $ 75,000 -- 2,500,000
Coast
Operations
David D. Gathman......... 1999 $192,308 $100,000 -- 1,500,000
Chief Financial Officer 1998 -- -- -- --
and
Treasurer
Henry N. Nassau.......... 1999 $171,924 $200,000 -- 1,500,000
Managing Director, 1998 -- -- -- --
General Counsel
and Secretary
</TABLE>
- --------
(1) The value of certain perquisites and other personal benefits is not
included in the amounts disclosed because it did not exceed for any officer
in the table above the lesser of either $50,000 or 10% of the total annual
salary and bonus reported for such officer.
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The following tables set forth certain information concerning grants to
purchase shares of our common stock of each of the officers named in the
summary compensation table above during the year ended December 31, 1999.
Option Grants During the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of Percentage of Annual Rates of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term (3)
Options Employees in Price per Expiration ----------------------------
Name Granted (1) 1998 Share (2) Date 5% 10%
---- ----------- ------------- --------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Walter W. Buckley, III.. 2,000,000 6.9% $3.40 May 20, 2009 $ 11,825,939 $ 21,505,372
Douglas A. Alexander.... 1,000,000 3.4% 3.40 May 20, 2009 5,912,969 10,752,686
Kenneth A. Fox.......... 1,800,000 6.2% 3.40 May 20, 2009 10,643,345 19,354,835
David D. Gathman........ 1,300,000 4.5% 1.00 Jan. 10, 2009 10,800,360 17,091,992
David D. Gathman........ 200,000 0.7% 3.40 May 20, 2009 1,182,594 2,150,537
Henry N. Nassau......... 1,500,000 5.2% 2.44 May 2, 2009 10,301,954 17,561,529
</TABLE>
- --------
(1) All options granted to employees are immediately exercisable, are
nonqualified stock options and generally vest over five years at the rate
of 20.0% of the shares subject to the option per year. Unvested shares are
subject to a right of repurchase upon termination of employment. Options
expire ten years from the date of grant.
(2) We granted options at an exercise price equal to the fair market value of
our common stock on the date of grant, as determined by our Board of
Directors.
(3) These amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5.0% and 10.0%
compounded annually from the date the respective options were granted to
their expiration dates, based upon the initial public offering price of
$6.00 per share. These assumptions are not intended to forecast future
appreciation of our stock price. The potential realizable value computation
does not take into account federal or state income tax consequences of
option exercises or sales of appreciated stock.
The following table sets forth certain information concerning option
exercises by each of the officers named in the above summary compensation
table.
Year-End December 31, 1999 Option Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities Underlying in-the-Money
Unexercised Options at Fiscal Options at Fiscal
Shares Year-End Year-End (1)
Acquired on Value ------------------------------------ -------------------------
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walter W. Buckley, III.. 4,600,000 5,054,000 -- -- $ -- --
Douglas A. Alexander.... 3,500,000 4,255,000 -- -- -- --
Kenneth A. Fox.......... 4,300,000 4,779,000 -- -- -- --
David D. Gathman........ 1,300,000 1,872,000 200,000 -- 33,321,000 --
Henry N. Nassau......... 1,500,000 -- -- -- -- --
</TABLE>
- --------
(1) These year-end values represent the difference between the fair market
value of the Common Stock subject to options (based on the stock's closing
price on the Nasdaq Stock Market on December 31, 1999) and the exercise
price of the options.
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Employee Benefit Plans
Membership Profit Interest Plan
In 1996, the board of managers of Internet Capital Group, L.L.C. approved
the Membership Profit Interest Plan, which we refer to as our restricted stock
issuances after the Reorganization. Under the terms of the Membership Profit
Interest Plan, certain employees, consultants and advisors who are designated
by Messrs. Buckley and Fox received grants of units of membership interest in
Internet Capital Group, L.L.C. These units of membership interest cannot be
transferred until the rights of the holder in the units vest. Twenty percent of
each of these holder's units of membership interest vest each year over a five
year period beginning on the vesting date established by our board. If any
holder's relationship with us is terminated, his or her units of membership
interest that have not vested are forfeited to us.
Following the Reorganization, all outstanding grants became grants under
our new Membership Profit Interest Plan. As of December 31, 1999 a total of
13,567,250 shares of Common Stock have been issued under the Membership Profit
Interest Plan, all of which were outstanding, leaving no shares available for
grant at a later date. Our board of directors has the power, subject to the
limitations contained in the Membership Profit Interest Plan, to prescribe the
terms and conditions of any award granted under the Membership Profit Interest
Plan, including the total number of shares awarded to each grantee and any
applicable vesting schedule.
Internet Capital Group, Inc. 1999 Equity Compensation Plan
Our 1998 Equity Compensation Plan and our Managers' Option Plan were
approved by the board of managers of Internet Capital Group, L.L.C. on October
13, 1998. The 1998 Equity Compensation Plan and Managers' Option Plan provided
for the grant of non-qualified options for membership interests in Internet
Capital Group, L.L.C., restricted stock, stock appreciation rights ("SARs"),
and performance awards. After the Reorganization, we converted the 1998 Equity
Compensation Plan and the Managers' Option Plan into our 1999 Equity
Compensation Plan. Our 1999 Equity Compensation Plan provides that options and
any other grants outstanding under the 1998 Equity Compensation Plan and
Managers' Option Plan will be considered options issued under the 1999 Equity
Compensation Plan.
We have adopted the Internet Capital Group, Inc. 1999 Equity Compensation
Plan, as amended and restated, effective as of February 2, 1999. The terms and
provisions of the 1999 Equity Compensation Plan are summarized below. This
summary, however, does not purport to be a complete description of the Equity
Compensation and is qualified in its entirety by the terms of the 1999 Equity
Compensation Plan.
Purpose. The purpose of the 1999 Equity Compensation Plan is to provide:
. designated employees of Internet Capital Group and its
subsidiaries;
. certain advisors who perform services for Internet Capital Group
or its subsidiaries; and
. non-employee members of our board of directors, with the
opportunity to receive grants of incentive stock options, non-
qualified options, share appreciation rights, restricted shares,
performance shares, dividend equivalent rights and cash awards. We
believe that the 1999 Equity Compensation Plan will encourage the
participants to contribute materially to our growth and will align
the economic interests of the participants with those of our
shareholders.
General. Subject to adjustment as described below, the plan authorizes
awards to participants of up to 60,000,000 shares of our Common Stock. This
includes 18,000 shares which were authorized by the board of directors in March
of 2000. No more than 60,000,000 shares in the aggregate may be granted to any
individual in any calendar year. Such shares may be authorized but unissued
shares of our Common Stock or may be
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shares that we have reacquired, including shares we purchase on the open
market. If any options or stock appreciation rights granted under the plan
expire or are terminated for any reason without being exercised, or restricted
shares or performance shares are forfeited, the shares of Common Stock
underlying that award will again be available for grant under the plan.
Administration of the Plan. A committee appointed by our board of
directors administers the 1999 Equity Compensation Plan. The committee has the
sole authority to designate participants, grant awards and determine the terms
of all grants, subject to the terms of the 1999 Equity Compensation Plan. As a
result of our becoming a publicly-traded company, the compensation committee of
the board of directors became responsible for administering and interpreting
the plan. Prior to that time, the board of directors had fulfilled those roles.
The compensation committee consists of two or more persons appointed by the
Board of Directors from among its members, each of whom is a "non-employee
director" as defined by Rule 16b-3 under the Securities Exchange Act of 1934,
and an "outside director" as defined by Section 162(m) of the Internal Revenue
Code and related Treasury regulations. The committee has the full authority to
interpret the 1999 Equity Compensation Plan and to make rules, regulations,
agreements and instruments for implementing the plan. The committee's
determinations made under the 1999 Equity Compensation Plan are to be
conclusive and binding on all persons having any interest in the plan or any
awards granted under the plan.
Eligibility. Grants may be made to any employee of Internet Capital
Group, Inc. or any of its subsidiaries and to any non-employee member of the
Board of Directors. Key advisors who perform services for us or any of our
subsidiaries are eligible if they render bona fide services, not as part of the
offer or sale of securities in a capital-raising transaction. As of March 24,
2000, 11,394,000 options were outstanding under the plan.
Options. Incentive stock options may be granted only to employees. The
maximum number of shares that may be subject to incentive stock options over
the life of the 1999 Equity Compensation Plan is 6,000,000. Non-qualified stock
options may be granted to employees, key advisors and non-employee directors.
The exercise price of Common Stock underlying an option shall be determined by
the compensation committee at the time the option is granted, and may be equal
to, greater than, or less than the fair market value of such stock on the date
the option is granted; provided that the exercise price of an incentive stock
option shall be equal to or greater than the fair market value of a share of
Common Stock on the date such incentive stock option is granted, and the
exercise price of an incentive stock option granted to an employee who owns
more than 10% of the common stock may not be less than 110% of such fair market
value.
Unless the applicable option agreement provides otherwise, a participant
can exercise an option award at any time, before or after the option has fully
vested, by paying the applicable exercise price in cash, or, with the approval
of the compensation committee, by delivering shares of Common Stock owned by
the grantee and having a fair market value on the date of exercise equal to the
exercise price of the grants, or by such other method as the compensation
committee shall approve, including payment through a broker in accordance with
procedures permitted by Regulation T of the Federal Reserve Board. In addition,
the plan provides that we may make loans to participants or guarantee loans
made by third parties to the participant for the purpose of assisting
participants to exercise their options. The compensation committee has the
authority to set the terms and conditions that will apply to any loan or
guarantee.
Options vest according to the terms and conditions determined by the
compensation committee and specified in the grant instrument. In general, the
options that have already been granted under the plan are subject to a five
year vesting schedule with twenty percent of each grant vesting on each
anniversary of the grant date. The compensation committee will determine the
term of each option up to a maximum of ten years from the date of grant except
that the term of an incentive stock option granted to an employee who owns more
than 10% of the common stock may not exceed five years from the date of grant.
The compensation committee may accelerate the exercisability of any or all
outstanding options at any time for any reason.
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Non-Employee Director Option Grants. The 1999 Equity Compensation Plan
provides that each of our non-employee directors, other than:
. non-employee directors who at any time during their membership on
our board of directors are employees of Safeguard Scientifics,
Inc. or any of its subsidiaries or affiliates;
. non-employee directors who at any time during their membership on
our board of directors are employees of TL Ventures, Inc. or any
of its subsidiaries or affiliates; or
. non-employee directors who are granted options under the general
option provisions of the 1999 Equity Compensation Plan are each
entitled to receive an option to purchase 94,000 shares of our
common stock, vesting in equal installments over four years, upon
their initial election to our board of directors, and a service
grant to purchase 40,000 shares every two years, vesting in equal
installments over two years. The plan also allows our board of
directors to grant an option to any of the eligible non-employee
directors who were members of the board of directors immediately
following the execution of the Reorganization to compensate any of
those non-employee directors for the cancellation of outstanding
options held immediately prior to the Reorganization. No non-
employee director may be granted more than 214,000 shares of our
common stock under the automatic and conversion grants described
above. Such automatic and conversion grants will otherwise be
generally subject to the terms provided for options under the 1999
Equity Compensation Plan.
Restricted Stock. The compensation committee shall determine the number
of restricted shares granted to a participant, subject to the maximum plan
limit described above. Grants of restricted shares will be conditioned on such
performance requirements, vesting provisions, transfer restrictions or other
restrictions and conditions as the compensation committee may determine in its
sole discretion. The restrictions shall remain in force during a restriction
period set by the compensation committee. If the grantee is no longer employed
by us during the restriction period or if any other conditions are not met, the
restricted shares grant will terminate as to all shares covered by the grant
for which the restrictions are still applicable, and those shares must be
immediately returned to us.
Stock Appreciation Rights. The compensation committee may grant stock
appreciation rights (SARs) to any participant, subject to the maximum plan
limit described above. At any time, the compensation committee may grant an SAR
award, either separately or in connection with any option; provided, that if an
SAR is granted in connection with an incentive stock option, it must be granted
at the same time that the underlying option is granted. The compensation
committee will determine the base amount of the SAR at the time that it is
granted and will establish any applicable vesting provisions, transfer
restrictions or other restrictions as it may determine is appropriate in its
sole discretion. When a participant exercises an SAR, he or she will receive
the amount by which the value of the stock has appreciated since the SAR was
granted, which may be payable to the participant in cash, shares, or a
combination of cash and shares, as determined by the compensation committee.
Performance Share Awards. The compensation committee may grant
performance share awards to any employee or key advisor. A performance share
award represents the right to receive an amount based on the value of our
stock, but may be payable only if certain performance goals that are
established by the compensation committee are met. If the compensation
committee determines that the applicable performance goals have been met, a
performance share award will be payable to the participant in cash, shares or a
combination of cash and shares, as determined by the compensation committee.
Dividend Equivalent Rights. The compensation committee may grant dividend
equivalent rights to any participant. A dividend equivalent right is a right to
receive payments in amounts equal to dividends declared on shares of our common
stock with respect to the number of shares and payable on such dates as
determined by the compensation committee. The compensation committee shall
determine all other terms applicable to dividend equivalent rights.
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Cash Awards. The compensation committee may grant cash awards to
employees under the 1999 Equity Compensation Plan. Such awards shall be in such
amounts and subject to such performance goals and other terms and conditions as
the compensation committee determines.
Amendment and Termination of the Plan. The compensation committee may
amend or terminate the plan at any time. The plan will terminate on the tenth
anniversary of its effective date, unless the compensation committee terminates
it earlier or extends it with the approval of the shareholders.
Adjustment Provisions. In the event that certain reorganizations of
Internet Capital Group or similar transactions or events occur, the maximum
number of shares of stock available for grant, the maximum number of shares
that any participant in the 1999 Equity Compensation Plan may be granted, the
number of shares covered by outstanding grants, the kind of shares issued under
the 1999 Equity Compensation Plan and the price per share or the applicable
market value of such grants shall be adjusted by the committee to reflect
changes to our common stock as a result of such occurrence to prevent the
dilution or enlargement of rights of any individual under the 1999 Equity
Compensation Plan.
Change of Control and Reorganization. Upon a Change of Control, as
defined in the 1999 Equity Compensation Plan, the compensation committee may:
. determine that the outstanding grants, whether in the form of
options and stock appreciation rights, shall immediately vest and
become exercisable;
. determine that the restrictions and conditions on all outstanding
restricted stock or performance share awards shall immediately
lapse;
. require that grantees surrender their outstanding options and
stock appreciation rights in exchange for payment by us, in cash
or common stock, in an amount equal to the amount by which the
then fair market value of the shares of common stock subject to
the grantee's unexercised options or stock appreciation rights
exceeds the exercise price of those options; and/or
. terminate any or all unexercised options and stock appreciation
rights after giving grantees an opportunity to exercise their
outstanding options and stock appreciation rights.
Upon a Reorganization, as defined in the 1999 Equity Compensation Plan,
where we are not the surviving entity or where we survive only as a subsidiary
of another entity, unless the compensation committee determines otherwise, all
outstanding option or SAR grants shall be assumed by or replaced with
comparable options or rights by the surviving corporation. In addition, the
compensation committee may:
. require that grantees surrender their outstanding options in
exchange for payment by us, in cash or common stock, at an amount
equal to the amount by which the then fair market value of the
shares of common stock subject to the grantee's unexercised
options exceeds the exercise price of those options; and/or
. after accelerating all vesting and giving grantees an opportunity
to exercise their outstanding options or SARs, terminate any or
all unexercised options and SARs.
Federal Tax Consequences of Stock Options. In general, neither the grant
nor the exercise of an incentive stock option will result in taxable income to
an option holder or a deduction to Internet Capital Group. To receive special
tax treatment as an incentive stock option under the Internal Revenue Code as
to shares acquired upon exercise of an incentive stock option, an option holder
must neither dispose of such shares within two years after the incentive stock
option is granted nor within one year after the exercise of the option. In
addition, the option holder must be an employee of Internet Capital Group or
one of its subsidiaries at all times between the date of grant and the date
three months, or one year in the case of disability, before the
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exercise of the option. Special rules apply in the case of the death of the
option holder. Incentive stock option treatment under the Internal Revenue Code
generally allows the sale of our common stock received upon the exercise of an
incentive stock option to result in any gain being treated as a capital gain to
the option holder, but we will not be entitled to a tax deduction. However, the
exercise of an incentive stock option, if the holding period rules described
above are satisfied, will give rise to income includable by the option holder
in his or her alternative minimum tax in an amount equal to the excess of the
fair market value of the stock acquired on the date of the exercise of the
option over the exercise price.
If the holding rules described above are not satisfied, gain recognized
on the disposition of the shares acquired upon the exercise of an incentive
stock option will be characterized as ordinary income. Such gain will be equal
to the difference between the exercise price and the fair market value of the
shares at the time of exercise. Special rules may apply to disqualifying
dispositions where the amount realized is less than the value at exercise. We
will generally be entitled to a deduction equal to the amount of such gain
included by an option holder as ordinary income. Any excess of the amount
realized upon such disposition over the fair market value at exercise will
generally be long-term or short-term capital gain depending on the holding
period involved. Notwithstanding the foregoing, in the event that the exercise
of the option is permitted other than by cash payment of the exercise price,
various special tax rules may apply.
No income will be recognized by an option holder at the time a non-
qualified stock option is granted. Generally, ordinary income will, however, be
recognized by an option holder at the time a vested non-qualified stock option
is exercised in an amount equal to the excess of the fair market value of the
underlying common stock on the exercise date over the exercise price. We will
generally be entitled to a deduction for federal income tax purposes in the
same amount as the amount included in ordinary income by the option holder with
respect to his or her non-qualified stock option. Gain or loss on a subsequent
sale or other disposition of the shares acquired upon the exercise of a vested
non-qualified stock option will be measured by the difference between the
amount realized on the disposition and the tax basis of such shares, and will
generally be long-term capital gain depending on the holding period involved.
The tax basis of the shares acquired upon the exercise of any non-qualified
stock option will be equal to the sum of the exercise price of such non-
qualified stock option and the amount included in income with respect to such
option. Notwithstanding the foregoing, in the event that exercise of the option
is permitted other than by cash payment of the exercise price, various special
tax rules apply.
Unless the holder of an unvested non-qualified stock option makes an
83(b) election as described below, there generally will be no tax consequences
as a result of the exercise of an unvested option until the stock received upon
such exercise is no longer subject to a substantial risk of forfeiture or is
transferable. Generally, when the shares have vested, the holder will recognize
ordinary income, and we will be entitled to a deduction, equal to the
difference between the fair market value of the stock at such time and the
exercise price paid by the holder for the stock. Subsequently realized changes
in the value of the stock generally would be treated as long-term or short-term
capital gain or loss, depending on the length of time the shares were held
prior to disposition of such shares. In general terms, if a holder were to make
an 83(b) election under Section 83(b) of the Internal Revenue Code upon the
exercise of the unvested option, the holder would recognize ordinary income on
the date of the exercise of such option, and we would be entitled to a
deduction, equal to:
. the fair market value of the stock received pursuant to such
exercise as though the stock were not subject to a substantial
risk of forfeiture or transferable, minus
. the exercise price paid for the stock.
If an 83(b) election were made, there would generally be no tax
consequences to the holder upon the vesting of the stock, and all subsequent
appreciation in the stock would generally be eligible for capital gains
treatment.
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Additional special tax rules may apply to those option holders who are
subject to the rules set forth in Section 16 of the Securities Exchange Act of
1934. The foregoing tax discussion is a general description of certain expected
federal income tax results under current law, and all affected individuals
should consult their own advisors if they wish any further details or have
special questions.
Section 162(m). Section 162(m) of the Internal Revenue Code may preclude
us from claiming a federal income tax deduction if we pay total remuneration in
excess of $1 million to the chief executive officer or to any of the other four
most highly compensated officers in any one year. Total remuneration would
generally include amounts received upon the exercise of stock options granted
under the plan and the value of shares received when restricted shares become
transferable or such other time when income is recognized. An exception does
exist, however, for performance-based compensation which includes amounts
received upon the exercise of stock options pursuant to a plan approved by
shareholders that meets certain requirements. The 1999 Equity Compensation Plan
is intended to make grants of stock options and stock appreciation rights that
meet the requirements of performance-based compensation. Other awards have been
structured with the intent that such awards may qualify as such performance
based compensation if so determined by the compensation committee.
Internet Capital Group, Inc. Equity Compensation Loan Program
In accordance with the 1998 Equity Compensation Plan, the 1999 Equity
Compensation Plan and the applicable employee option agreements, and in
consideration of certain restrictive covenants regarding the use of
confidential information and non-competition, we have offered to loan some
employees who have been awarded non-qualified stock options under the 1999
Equity Compensation Plan an amount necessary to pay the exercise price of their
outstanding options and an amount to pay some portion of the income tax that
these employees will owe upon the exercise of such options. These loans will
generally be available to those eligible employees who elect to exercise their
options on or prior to a date to be determined by us. The loans will be full
recourse, will bear interest at the Applicable Federal Rate, and will be for
five-year terms. In addition, each eligible employee will pledge the number of
shares acquired pursuant to the exercise of the applicable option as collateral
for the loan. If an eligible employee sells any shares acquired pursuant to the
option exercise, such eligible employee is obligated under the terms of the
loan to use the proceeds of such sale to repay that percentage of the original
balance of the loan which is equal to the percentage determined by dividing the
number of shares sold by the number of shares acquired pursuant to the exercise
of the applicable option. If the eligible employee's employment by us is
terminated for any reason, such eligible employee must repay the full
outstanding loan balance to us within 90 days of the termination. Also, if we
determine that a grantee breaches any of the terms of the restrictive
covenants, the eligible employee must immediately repay any outstanding loan
balance to us.
Internet Capital Group, Inc. Long-Term Incentive Plan
Our long-term incentive plan supports our growth strategy since the plan
permits participants to share directly in the growth of our partner companies.
Each year, we will allocate up to 12% of each acquisition made during the year
for the benefit of the participants in the long-term incentive plan. The plan
permits the compensation committee to award grants in the form of interests in
limited partnerships established by us to hold the interests acquired by us in
a given year. Grants may be made to any of our employees. We intend primarily
to grant limited partnership interests to plan participants to more closely
align the participants' interests with our interests. All grants are subject to
the attainment of specified threshold levels, but the compensation committee
can accelerate payout.
Internet Capital Group, Inc. 401(k) Plan
We sponsor the Internet Capital Group, Inc. 401(k) Plan, a defined
contribution plan that is intended to qualify under Section 401(k) of the Code.
All employees who are at least 21 years old and have been employed
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by us for one month are eligible to participate in our 401(k) Plan. An eligible
employee of the Company may begin to participate in our 401(k) Plan on the
first day of the plan quarter after satisfying our 401(k) Plan's eligibility
requirements. A participating employee may make pre-tax contributions of a
percentage (not less than 1.0% and not more than 15.0%) of his or her eligible
compensation, subject to the limitations under the federal tax laws. Employee
contributions and the investment earnings thereon are fully vested at all
times. We may make discretionary contributions to the 401(k) Plan but we have
never done so.
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CERTAIN TRANSACTIONS
Walter W. Buckley, III and Kenneth A. Fox, two of our executive officers,
and Safeguard Scientifics, Inc., one of our principal stockholders, were all
involved in our founding and organization and may be considered our promoters.
Under our Membership Profit Interest Plan, we issued 5,136,000 shares of Common
Stock to Mr. Buckley in March 1996 and 2,573,100 shares of Common Stock to Mr.
Fox in September 1996. In December 1998, each of Mr. Buckley and Mr. Fox
received an incentive stock option grant under our 1998 Equity Compensation
Plan to purchase 2,600,000 and 2,500,000 shares of Common Stock, respectively.
In May 1999, each of Mr. Buckley and Mr. Fox received an incentive stock option
grant under our 1999 Equity Compensation Plan to purchase 2,000,000 and
1,800,000 shares of Common Stock, respectively. In addition, Safeguard
Scientifics, Inc., through its affiliates Safeguard Scientifics (Delaware),
Inc. and Safeguard 98 Capital L.P., and Mr. Buckley and Mr. Fox, have purchased
Common Stock from us. The following table sets forth the number of shares of
our Common Stock purchased by Mr. Buckley, Mr. Fox and Safeguard Scientifics,
Inc. through Safeguard Scientifics (Delaware), Inc. and Safeguard 98 Capital
L.P., the date of each purchase and the amounts received by us from each of
these purchasers of our Common Stock.
<TABLE>
<CAPTION>
Amount Received
Shares of Common Date of by Internet
Name Stock Purchased Purchase Capital Group
---- ---------------- ------------- ---------------
<S> <C> <C> <C>
Walter W. Buckley, III......... 500,000 April 1996 $ 250,000
500,000 November 1996 250,000
500,000 April 1997 250,000
500,000 November 1997 250,000
Kenneth A. Fox................. 500,000 May 1996 $ 250,000
500,000 November 1996 250,000
500,000 June 1997 250,000
500,000 December 1997 250,000
Safeguard Scientifics
(Delaware), Inc............... 12,278,148 May 1996 $6,139,074
721,852 November 1996 360,926
6,500,000 April 1997 3,250,000
6,500,000 November 1997 3,250,000
Safeguard 98 Capital L.P....... 8,125,000 June 1998 $8,125,000
8,125,000 February 1999 8,125,000
</TABLE>
During 1998 and 1999, we leased our corporate offices in Wayne,
Pennsylvania from Safeguard Scientifics. From January 31, 1998 to December 31,
1999, our monthly lease payments to Safeguard Scientifics totaled approximately
$70,200. From January 1, 2000 to March 24, 2000, our payments to Safeguard
Scientifics for lease payments totaled approximately $6,200. Prior to this
offering, Safeguard Scientifics, beneficially owned about 13.7% of our common
stock. We believe that our lease in Wayne with Safeguard Scientifics is on
terms no less favorable to us than those that would be available to us in an
arm's-length transaction with a third party.
During 1998 and 1999, we paid Safeguard Scientifics for telephone and
accounting services, health and general insurance coverage, and other services.
From January 31, 1998 to December 31, 1999, our payments to Safeguard
Scientifics totaled approximately $269,000 for these services. From January 1,
2000 to March 24, 2000, our payments to Safeguard Scientifics for these
services totaled approximately $86,000. We believe that the services provided
to us are on terms no less favorable to us than those that would be available
to us in an arm's-length transaction with a third party.
Each of Comcast ICG, Inc., CPQ Holdings, Inc., General Electric Capital
Corporation, IBM Corporation, Internet Assets, Inc., Safeguard Scientifics
Inc., Technology Leaders II L.P. and Technology
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Leaders II Offshore C.V. has the right to demand on no more than two occasions
that we register the shares of our Common Stock held by them at the time of our
initial public offering and all shares of our Common Stock held by them after
exercise of any warrants issued to these shareholders at the time of our
initial public offering.
In January 1998, we loaned Douglas A. Alexander, one of our Managing
Directors, $117,669. Mr. Alexander used the proceeds from the loan to purchase
a portion of our interest in VerticalNet at our cost. Mr. Alexander agreed to
pay the principal amount of the loan with interest at an annual rate equal to
the prime rate plus 1% within 30 days of the date we request payment. On
January 5, 1999, Mr. Alexander paid us $128,820, representing the outstanding
principal amount of the loan plus accrued interest.
In January 1997, we granted Christopher H. Greendale, one of our Managing
Directors, a ten year option to purchase shares of Series A Preferred Stock
convertible into 58,500 shares of common stock of Benchmarking Partners, Inc.,
which we currently own. The option is exercisable at a purchase price of $2.85
per share and vests in four annual installments of 14,625 shares beginning one
year after the date of grant. Vesting is contingent upon Mr. Greendale's
continued service to us. In August 1999, we loaned Mr. Greendale $600,000. Mr.
Greendale used these funds to purchase shares of our common stock in connection
with our initial public offering. Mr. Greendale agreed to pay the principal
amount of the loan with interest at an annual rate equal to 4.98% on August 10,
2000. The loan was secured by 200,000 shares of our common stock. On November
30, 1999, Mr. Greendale paid us $608,677, representing the outstanding
principal amount of the loan plus interest.
In October 1998, we sold our 100,000 shares of Series B Preferred Stock
of Who?Vision Systems, Inc. for $300,000 to Comcast.
In January 1999, we sold our convertible notes of VerticalNet for
$2,083,221 to Comcast Corporation. At the time of this sale to Comcast, the
outstanding principal amount of these convertible notes was $2,083,221.
In March 1999, we sold our convertible notes of PrivaSeek for $571,659 to
Comcast and the assumption by Comcast of one of our notes payable in the
outstanding principal amount of $428,341. At the time of this sale to Comcast,
the outstanding principal amount of these convertible notes was $1 million.
In April 1999, in connection with our obtaining a bank credit facility,
Safeguard Scientifics, Inc. delivered a letter to the agent for the banks
stating that it intends to take any action that may in the future be necessary
to promptly cure certain defaults that could occur under our bank credit
facility.
In May 1999, we issued $90 million principal amount of three-year
convertible notes to our largest shareholders, directors, executive officers,
certain members of the immediate families of our executive officers and others
in a round of financing led by Comcast ICG. Based on our initial public
offering price of $6.00 per share, the notes have automatically converted into
14,999,732 shares of our common stock, and all accrued interest has been
waived. We issued warrants to the holders of these notes to purchase shares of
our common stock. As of December 31, 1999, these warrant holders are entitled
to purchase 2,215,717 shares of our common stock. The warrants expire in May
2002.
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The following table sets forth the names of the holders of certain
convertible notes and warrants, their relationship to us and the amounts of
each of their convertible notes. All convertible notes converted into Common
Stock at a rate of $6.00 per share in connection with our initial public
offering on August 5, 1999.
<TABLE>
<CAPTION>
Relationship to Amount of
Name of Holder Internet Capital Group Convertible Note
- --------------------------- ---------------------------------- ----------------
<S> <C> <C>
Ann B. Alexander........... family member of executive officer $ 63,000
Bradley Alexander.......... family member of executive officer 155,000
Douglas E. Alexander....... family member of executive officer 160,000
Susan R. Buckley........... family member of executive officer 55,000
Walter W. Buckley, Jr. .... family member of executive officer 200,000
Walter W. Buckley, III..... executive officer and director 600,000
Comcast ICG, Inc. ......... principal shareholder 15,000,000
E. Michael Forgash......... former director 100,000
Kenneth A. Fox............. executive officer and director 1,000,000
David D. Gathman........... executive officer 25,000
Thomas P. Gerrity.......... director 77,000
Internet Assets, Inc. ..... principal shareholder 1,525,000
Robert E. Keith, Jr. ...... director 46,000
Henry N. Nassau............ executive officer 36,000
Robert A. Pollan........... executive officer 31,000
Peter A. Solvik............ director 1,068,000
</TABLE>
In May 1999, some of our officers and directors exercised options to
purchase our common stock. Instead of paying us in cash, the officers and
directors delivered promissory notes to us in the aggregate amount of
$21,765,000. The promissory notes bear interest at the rate of 5.22%, mature on
or about May 5, 2004 and are secured by 17,820,000 shares of our Common Stock.
The following table sets forth the names of the makers of the promissory notes,
their relationship to us and the amounts owed to us by each of these makers.
<TABLE>
<CAPTION>
Relationship to Amount of
Name of Maker Internet Capital Group Promissory Note
- ---------------------------------- ---------------------------- ---------------
<S> <C> <C>
Douglas A. Alexander.............. officer $2,500,000
executive officer and
Walter W. Buckley, III............ director 2,600,000
Richard G. Bunker................. officer 1,350,000
executive officer and
Kenneth A. Fox.................... director 2,500,000
David D. Gathman.................. executive officer 1,300,000
Thomas P. Gerrity................. director 400,000
Christopher H. Greendale.......... officer 300,000
Victor S. Hwang................... officer 4,005,000
Henry N. Nassau................... officer 3,660,000
John N. Nickolas.................. officer 800,000
Robert A. Pollan.................. officer 2,650,000
</TABLE>
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In January 2000, Dr. Gerrity repaid the Company $80,000, leaving a
principal amount of $320,000 owed under the above-listed promissory note.
In June 1999, some of our executive officers exercised options to
purchase our common stock. Instead of paying us cash, the officers and
directors delivered promissory notes to us in the aggregate amount of
$14,783,223. The promissory notes bear interest at the rate of 5.37%, mature on
or about June 4, 2004 and are secured by 4,495,500 shares of our common stock.
The following table sets forth the names of the makers of the promissory notes,
their relationship to us and the amounts owed to us by each of these makers.
<TABLE>
<CAPTION>
Relationship to Amount of
Name of Maker Internet Capital Group Promissory Note
- ---------------------------------- ---------------------------- ---------------
<S> <C> <C>
Richard G. Bunker................. officer $1,358,000
Richard S. Devine................. officer 7,114,223
Gregory W. Haskell................ officer 6,311,000
</TABLE>
In July 1999, some of our officers and directors exercised options to
purchase our Common Stock. Instead of paying us cash, the officers and
directors delivered promissory notes to us in the aggregate amount of
$39,304,000. The promissory notes bear interest at the rate of 5.82%, mature on
or about July 7, 2004 and are secured by 10,950,000 shares of our common stock.
The following table sets forth the names of the makers of the promissory notes,
their relationship to us and the amounts owed to us by each of these makers.
<TABLE>
<CAPTION>
Relationship to Amount of
Name of Maker Internet Capital Group Promissory Note
- --------------------------------- ---------------------------- ---------------
<S> <C> <C>
Douglas A. Alexander............. executive officer $3,395,000
executive officer and
Walter W. Buckley, III........... director 6,790,000
executive officer and
Kenneth A. Fox................... director 6,111,000
Todd G. Hewlin................... officer 2,430,000
Sam Jadallah..................... officer 10,125,000
Mark J. Lotke.................... officer 7,058,000
Robert A. Pollan................. officer 3,395,000
</TABLE>
In May 1999, some of our officers and directors incurred tax liabilities
as a result of exercising their options to purchase our common stock. These
directors and officers borrowed money from us to pay these tax liabilities. The
loans are evidenced by promissory notes delivered by these officers and
directors to us in the aggregate principal amount of $7,463,307. The promissory
notes bear interest at a rate of 5.22% and mature on May 5, 2004. The following
table sets forth the names of the makers of the promissory notes, their
relationship to us and the amounts owed to us by each of these makers.
<TABLE>
<CAPTION>
Relationship to Amount of
Name of Maker Internet Capital Group Promissory Note
- ---------------------------------- ---------------------------- ---------------
<S> <C> <C>
Douglas A. Alexander.............. executive officer $1,161,000
executive officer and
Walter W. Buckley, III............ director 1,207,440
Richard G. Bunker................. officer 272,835
executive officer and
Kenneth A. Fox.................... director 1,395,000
David D. Gathman.................. executive officer 603,720
Christopher H. Greendale.......... officer 66,552
Victor S. Hwang................... officer 973,092
John N. Nickolas.................. officer 371,520
Robert A. Pollan.................. officer 1,478,700
</TABLE>
In January 1999, while a limited liability company, we paid a
distribution to some of our officers, directors and principal stockholders who
were members of Internet Capital Group, L.L.C. The following table sets forth
the names of the recipients of the distribution, their relationships to us and
the amount paid by us to the recipient.
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<TABLE>
<CAPTION>
Relationship to Amount Paid
Name of Recipient Internet Capital Group to Recipient
- ----------------------------------- ---------------------------- ------------
<S> <C> <C>
Douglas A. Alexander............... executive officer $ 249,702
executive officer and
Walter W. Buckley, III............. director 685,092
executive officer and
Kenneth A. Fox..................... director 514,597
Thomas P. Gerrity.................. director 6,100
Christopher H. Greendale........... executive officer 37,304
Henry N. Nassau.................... executive officer 305
Robert A. Pollan................... executive officer 2,440
Peter A. Solvik.................... director 29,216
Comcast ICG, Inc. ................. principal shareholder 1,401,198
Internet Assets, Inc. ............. principal shareholder 122,007
Safeguard Scientifics (Delaware),
Inc. ............................. principal shareholder 2,602,424
Safeguard Capital 98 LP............ principal shareholder 198,262
</TABLE>
On November 16, 1999 we acquired an interest in eMerge Interactive, Inc.
pursuant to a Securities Purchase Agreement among us, eMerge Interactive and J
Technologies, LLC, a South Dakota limited liability company.
Pursuant to the Securities Purchase Agreement, we acquired from eMerge
Interactive 4,555,556 shares of eMerge Interactive series D preferred stock and
a warrant to purchase 911,111 shares of eMerge Interactive class B common
stock. Pursuant to the Securities Purchase Agreement, we also purchased
1,000,000 shares of eMerge Interactive class A common stock from J
Technologies. The aggregate purchase price for the stock and the warrant was
$50,000,000, composed of $27,000,000 in cash and a promissory note for
$23,000,000. The cash portion of the purchase price was funded from our
existing cash. The promissory note is non interest-bearing and is due and
payable one year after issuance.
Each share of eMerge Interactive series D preferred stock converted into
one share of eMerge Interactive class B common stock upon completion of an
initial public offering of eMerge Interactive's common stock. Each of our
shares of eMerge Interactive class B common stock will convert into one share
of class A common stock upon transfer to a person that is not affiliated with
us. Each share of eMerge Interactive class B common stock is entitled to two
and one half votes. Each share of eMerge Interactive class A common stock is
entitled to one vote. We currently have beneficial ownership of 30.7% of the
eMerge Interactive common stock and have 45.9% of the voting power with respect
to eMerge Interactive. We may exercise the warrant during the three-year period
beginning on February 8, 2000. The exercise price is $15.00 per share.
We have entered into a Joint Venture Agreement with Safeguard Scientifics
pursuant to which we and Safeguard Scientifics have agreed, among other things,
to vote our respective shares of eMerge Interactive to elect two designees of
ours and two designees of Safeguard Scientifics to the board of directors of
eMerge Interactive and to attempt to agree on mutually beneficial courses of
action. Additionally, the Joint Venture Agreement provides for rights of first
refusal with respect to certain sales securities of eMerge Interactive.
In connection with the Securities Purchase Agreement, we also entered
into a Stockholder Agreement with eMerge Interactive and certain stockholders
of eMerge Interactive, including Safeguard Scientifics and certain of its
affiliates. The Stockholder Agreement provides for, among other things,
restrictions on the transferability of securities and co-sale, drag-along and
preemptive rights. The Stockholders Agreement terminates upon an initial public
offering of eMerge Interactive's common stock. We and eMerge Interactive are
also parties to a Registration Rights Agreement in which eMerge Interactive
granted us certain demand and piggyback registration rights.
Douglas A. Alexander and Anthony Ibarguen, two of our Managing Directors
are members of the Board of Directors of eMerge Interactive.
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<PAGE>
PRINCIPAL SHAREHOLDERS OF INTERNET CAPITAL GROUP
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of March 24, 2000, and as adjusted to reflect
the issuance of shares offered hereby by:
. each person (or group of affiliated persons) who is known by us to
own more than five percent of the outstanding shares of our Common
Stock;
. each of our directors and our executive officers named in the
summary compensation table; and
. all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Unless otherwise noted, we believe that all
persons named in the table have sole voting and sole investment power with
respect to all shares beneficially owned by them. All figures include shares of
our Common Stock issuable upon exercise of warrants, shares of our Common Stock
issuable upon the conversion of Convertible Notes and shares of Common Stock
issuable upon the exercise of other options or warrants exercisable within 60
days of March 24, 2000. These options and warrants are deemed to be outstanding
and to be beneficially owned by the person holding them for the purpose of
computing the percentage ownership of that person but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person.
<TABLE>
<CAPTION>
Percent of
Options, Number of Shares Shares Outstanding
Warrants and Beneficially Owned -------------------------
5% Beneficial Owners, Convertible Notes Including Options and Before After
Directors, Named Exercisable Warrants Exercisable the Exchange the Exchange
Officers Within 60 Days Within 60 Days Offer Offer
- --------------------- ----------------- --------------------- ------------ ------------
<S> <C> <C> <C> <C>
Comcast ICG, Inc. (1)... 633,998 22,008,996 8.3% 8.0%
c/o Comcast Corporation
1500 Market Street
Philadelphia,
Pennsylvania 19102
Safeguard Scientifics, -- 36,289,456 13.7 13.2
Inc. (2)...............
435 Devon Park Drive
Wayne, Pennsylvania
19087
Douglas A. Alexander -- 6,132,748 2.3 2.2
(3)....................
Julian A. Brodsky (4)... 784 10,784 * *
Walter W. Buckley, III 21,833 11,963,999 4.5 4.3
(5)....................
Kenneth A. Fox (6)...... 37,146 11,878,066 4.5 4.3
David D. Gathman (6).... 200,000 1,524,999 * *
Dr. Thomas P. Gerrity 2,566 935,247 * *
(7)....................
Robert E. Keith, Jr. 1,533 298,941 * *
(8)....................
Warren V. Musser........ 2,033 413,040 * *
Henry N. Nassau (9)..... 1,200 1,550,500 * *
Peter A. Solvik (10).... 35,600 1,056,672 * *
All executive officers
and directors as a
group (10 persons) (3)
(4) (5) (6) (7) (8) (9)
(10)................... 302,695 35,764,996 13.5 13.0
</TABLE>
- --------
* Represents less than 1%
(1) Includes 416,666 shares of Common Stock and warrants to purchase 83,333
shares of Common Stock held by Comcast Interactive Investments, Inc. as to
which Comcast ICG, Inc. disclaims beneficial ownership.
114
<PAGE>
(2) Private equity funds affiliated with Safeguard Scientifics, Inc. own an
additional 5,026,667 shares of Common Stock and warrants to purchase
45,333 shares of Common Stock.
(3) Includes shares of restricted Common Stock that have not vested pursuant
to the Membership Profit Interest Plan and the 1999 Equity Compensation
Plan. See "Management--Employee Benefit Plans" for a description of the
Membership Profit Interest Plan and the 1999 Equity Compensation Plan.
Also includes 500,000 shares of Common Stock held by the Douglas A.
Alexander Qualified Grantor Annuity Trust and 8,000 shares of Common Stock
held by two trusts for the benefit of certain of Mr. Alexander's
relatives, each trust holding 4,000 shares of Common Stock. Mr. Alexander
disclaims beneficial ownership of shares held by the trusts for the
benefit of his relatives.
(4) Includes 3,500 shares of Common Stock held by the Julian A. and Lois G.
Brodsky Foundation, of which Mr. Brodsky is Chairman. Mr. Brodsky
disclaims beneficial ownership of shares held by the Julian A. and Lois G.
Brodsky Foundation. Mr. Brodsky is also a Director and Vice-Chairman of
Comcast Corporation. Mr. Brodsky disclaims beneficial ownership of shares
held by Comcast ICG, Inc., a subsidiary of Comcast Corporation.
(5) Includes shares of restricted Common Stock that have not vested pursuant
to the Membership Profit Interest Plan and the 1999 Equity Compensation
Plan. Also includes 294,166 shares of Common Stock and warrants to
purchase 1,833 shares of Common Stock held by Susan R. Buckley, wife of
Walter W. Buckley, III, and 250,000 shares of Common Stock held by two
trusts for the benefit of certain of Mr. Buckley's relatives, each trust
holding 125,000 shares of Common Stock, of which Mr. Buckley disclaims
beneficial ownership.
(6) Includes shares of restricted Common Stock that have not vested pursuant
to the Membership Profit Interest Plan and the 1999 Equity Compensation
Plan.
(7) Includes shares of restricted Common Stock that have not vested pursuant
to the 1999 Equity Compensation Plan. Also includes 80,000 shares of
Common Stock held by the Thomas P. Gerrity Generation Skipping Trust U/A
3/17/92. Also, includes 12,018 shares of Common Stock held by Technology
Leaders Advisers IV, Inc., of which Dr. Gerrity is the sole shareholder.
(8) Includes 2,000 shares of Common Stock held by Susan Keith, 8,500 shares
held by the Keith 1999 Irrevocable Trust and 20,000 shares held by Leslie
Hulsizer of which Mr. Keith disclaims beneficial ownership. Also includes
10,000 shares of Common Stock held by Robert E. Keith, III, of which Mr.
Keith disclaims beneficial ownership.
(9) Includes shares of Restricted Common Stock that have not vested pursuant
to the 1999 Equity Compensation Plan. Also includes 300,000 shares of
Common Stock held by a trust for the benefit of certain of Mr. Nassau's
relatives. Mr. Nassau disclaims beneficial ownership of the shares held by
the trust. Also includes 20,000 shares of Common Stock held by Catharine
Nassau, wife of Henry N. Nassau, of which Mr. Nassau disclaims beneficial
ownership.
(10) Includes 178,000 shares of Common Stock held by the Peter A. Solvik
Annuity Trust u/i dtd. July 30, 1999, 178,000 shares of Common Stock held
by the Patricia A. Solvik Annuity Trust u/i dtd. July 30, 1999 and 3,000
shares of Common Stock held by two trusts for the benefit of certain of
Mr. Solvik's relatives, each trust holding 1,500 shares of Common Stock.
Mr. Solvik disclaims beneficial ownership of shares held by the Patricia
A. Solvik Annuity Trust u/i dtd. July 30, 1999 and by the trusts for the
benefit of his relatives.
115
<PAGE>
SECURITY OWNERSHIP OF eCREDIT.COM PRINCIPAL STOCKHOLDERS
AND eCREDIT.COM MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of eCredit.com common stock as of March 31, 2000, and as adjusted to
reflect the acceptance by ICG on the closing date of the tender of eCredit.com
Shares in this Exchange Offer, by:
. each person or entity we know to own beneficially more than 5% of
eCredit.com common stock;
. each of the eCredit.com directors;
. each of the eCredit.com executive officers; and
. all directors and executive officers as a group.
Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power, or shares such power with his or her
spouse, with respect to all shares of capital stock listed as owned by such
person or entity.
As of March 31, 2000, there were 21,648,020 shares of common stock
outstanding, not giving effect to eCredit.com Shares authorized under the stock
incentive plans or eCredit.com Shares issuable under outstanding warrants. The
number of shares beneficially owned by each stockholder is determined under
rules promulgated by the Securities and Exchange Commission and is not
necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the
stockholder has sole or shared voting power or investment power and any shares
as to which the stockholder has the right to acquire beneficial ownership
within 60 days after March 31, 2000 through the exercise of any stock option,
warrant or other right, such as the acceleration of certain options pursuant to
the Exchange Offer Agreement. The inclusion in the following table of those
shares, however, does not constitute an admission that the named stockholder is
a direct or indirect beneficial owner of those shares. These options, warrants
and other rights are deemed to be outstanding for the purpose of computing the
percentage ownership of that person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
The information provided below assumes that, pursuant to the terms of the
Exchange Offer, each of the stockholders of eCredit.com validly tenders and
does not withdraw exactly 30% of its shares of eCredit.com, on a fully diluted
basis. Under the terms of the Exchange Offer Agreement, non-employee
stockholders of eCredit.com may tender more than 30% of their shares of
eCredit.com.
116
<PAGE>
<TABLE>
<CAPTION>
Shares
Beneficially Shares Beneficially
Owned Prior Owned After
to the Offering the Offering
------------------ -----------------------
Number
Name of Beneficial Owner Number Percent (16) Percent (17)
- ------------------------ ---------- ------- ---------- ------------
<S> <C> <C> <C> <C>
5% Stockholders
Bain Capital Funds (1)................... 3,864,650 17.48% 2,705,255 11.27%
Two Copley Place
Boston, MA 02116
Battery Ventures (2)..................... 5,783,578 24.5 4,048,505 15.88
20 Williams Street
Wellesley, MA 02481
Draper Funds (3)......................... 1,301,839 5.95 911,287 3.84
50 California Street
Suite 2925
San Francisco, CA 94111
Internet Capital Group................... 0 0 9,239,559 39.27
435 Devon Park Drive, 600 Building
Wayne, PA 19087
J.P. Morgan Investment Corporation (4)... 1,394,921 6.44 976,444 4.15
60 Wall Street
New York, NY 10260-0060
Venkat Srinivasan (5).................... 3,703,996 17 2,527,172 10.68
c/o eCredit.com, Inc.
20 CareMatrix Drive
Dedham, MA 02026
Other Directors and Executive Officers
Oliver D. Curme (6)...................... 5,848,957 24.77 4,094,269 16.06
William H. Draper (7).................... 1,367,218 6.25 957,052 4.03
John B. Fullerton (8).................... 1,414,534 6.5 976,444 4.15
Venetia Kontogouris (9).................. 1,540,630 7.12 1,078,441 4.58
Mark E. Nunnelly (10).................... 3,930,029 17.77 2,751,020 11.47
Mahantesh S. Kothiwale (11).............. 78,000 * 0 0
Peter McKay (12)......................... 1,016,879 4.7 711,815 3.03
Louis J. Paglia (13)..................... 127,500 * 0 0
Deepak Verma (14)........................ 376,532 1.73 222,622 *
All current executive officers and
directors as a group (10 persons) (15).. 19,404,278 78.46 13,318,835 50.47
</TABLE>
- --------
* Less than 1%
(1) Includes 192,189 shares held by BCIP Associates, a Delaware general
partnership of which W. Mitt Romney is a general partner and member of the
Management Committee, 55,149 shares held by BCIP Trust Associates, L.P., a
Delaware limited partnership of which W. Mitt Romney is a general partner
and member of the Management Committee and 3,153,363 shares held by
Information Partners Capital Fund, L.P., whose general partner is
Information Partners, a Massachusetts general partnership, and whose
managing general partner is Bain Capital Partners IV, L.P., the sole
general partner of which is Bain Capital Investors, Inc., a Delaware
corporation wholly owned by W. Mitt Romney. Also includes 430,545 shares
subject to presently exercisable warrants held by Information Partners
Capital Fund and 33,404 shares subject to presently exercisable warrants
held by BCIP Associates. Mark E. Nunnelly, a member of the eCredit.com
board of directors, is a general partner of BCIP Associates and of BCIP
Trust Associates, L.P. Mr. Nunnelly is a general partner of Information
Partners, which is the general partner of Information Partners Capital
Fund, L.P. Mr. Nunnelly disclaims beneficial ownership of all shares and
117
<PAGE>
shares subject to presently exercisable warrants held by BCIP Associates,
BCIP Trust Associates, L.P. and Information Partners Capital Fund, L.P.
(2) Comprised of 57,241 shares held by Battery Investment Partners IV LLC and
3,758,947 shares held by Battery Ventures IV, L.P. Also includes 29,509
shares subject to presently exercisable warrants held by Battery
Investment Partners IV LLC and 1,937,881 shares subject to presently
exercisable warrants held by Battery Ventures IV, L.P. Oliver D. Curme, a
member of the eCredit.com board of directors, is a general partner of
Battery Ventures, which is the general partner of these entities. Mr.
Curme disclaims beneficial ownership of all shares held by Battery
Investment Partners IV LLC and Battery Ventures IV, LP. Excludes 65,379
shares held by Mr. Curme as described in note 6 below.
(3) Comprised of 976,340 shares held by Draper International India, L.P.,
1,395 shares held by Draper Richards Management Company and 92,065 shares
held by the William Draper Revocable Trust. William H. Draper, a member
of the eCredit.com board of directors, is managing director of Draper
International India, L.P. and President of Draper Richards Management
Company. Also includes 232,039 shares subject to presently exercisable
warrants held by Draper International India. Mr. Draper disclaims
beneficial ownership of all shares held by Draper International India,
L.P. and Draper Richards Management Company. Excludes 65,379 shares held
by Mr. Draper as described in note 7 below.
(4) Comprised of 1,255,429 shares held by J.P. Morgan Investment Corporation
and 139,492 shares held by Sixty Wall Street SBIC Fund, L.P. John B.
Fullerton, a member of the eCredit.com board of directors, is a managing
director of J.P. Morgan, which is an affiliate of J.P. Morgan Investment
Corporation and a managing director of Sixty Wall Street SBIC
Corporation, the general partner of Sixty Wall Street SBIC Fund, L.P. Mr.
Fullerton disclaims beneficial ownership of all shares held by J.P.
Morgan Investment Corporation and Sixty Wall Street SBIC Fund L.P.
(5) Includes 137,650 shares subject to outstanding stock options held by Dr.
Srinivasan that are exercisable within the 60-day period following March
31, 2000. Also includes 292,000 shares held in certain trusts for the
benefit of members of Dr. Srinivasan's family. Dr. Srinivasan disclaims
beneficial ownership of all such trusts.
(6) Includes shares held or subject to warrants held by Battery Investment
Partners IV LLC and Battery Ventures IV, L.P. as described in note 2
above.
(7) Includes shares held or subject to warrants held by Draper International
India, L.P, Draper Richards L.P. and the William Draper Revocable Trust
as described in note 3 above.
(8) Comprised of 19,613 shares subject to outstanding stock options held by
Mr. Fullerton that are exercisable within the 60-day period following
March 31, 2000 and shares held by J.P. Morgan Investment Corporation and
Sixty Wall Street SBIC Fund L.P. as described in note 4 above.
(9) Includes 638,298 shares held by Enterprise Associates, Inc. and 836,953
shares held by Trident Capital Fund-IV, L.P. Ms. Kontogouris is an
advisor of Enterprise Associates Inc. and a managing director of Trident
Capital, which is the general partner of Trident Capital Fund-IV, L.P.
Ms. Kontagouris disclaims beneficial ownership of all shares held by
Enterprise Associates Inc. and Trident Capital Fund-IV, L.P.
(10) Includes shares held or subject to warrants held by BCIP Associates, a
Delaware general partnership of which Mr. Nunnelly is a general partner,
BCIP Trust Associates, L.P., a Delaware limited partnership of which Mr.
Nunnelly is a general partner and Information Partners Capital Fund, L.P.
whose general partner is Information Partners, a Massachusetts General
Partnership, of which Mr. Nunnelly is a general partner, as described in
note 1 above. Mr. Nunnelly disclaims beneficial ownership of all such
shares except to the extent of his pecuniary interest therein.
(11) Includes 78,000 shares subject to outstanding stock options held by Mr.
Kothiwale that are exercisable within the 60-day period following March
31, 2000.
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<PAGE>
(12) Includes 22,840 shares held by family members or in trust for a family
member. Mr. McKay disclaims beneficial ownership of all such shares.
(13) Includes 127,500 shares subject to outstanding stock options held by Mr.
Paglia that are exercisable within the 60-day period following March 31,
2000.
(14) Includes 58,500 shares subject to outstanding stock options held by Mr.
Verma that are exercisable within the 60-day period following March 31,
2000.
(15) Includes 421,263 shares of eCredit.com subject to outstanding stock
options held by eCredit.com current executive officers and directors that
are exercisable within the 60-day period following March 31, 2000. Also
includes shares owned by entities affiliated with certain of eCredit.com
directors as described in the notes above.
(16) The outstanding eCredit.com Shares are deemed to have been increased by
the exercise of 30% of the aggregate number of shares subject to exercise
under the eCredit.com option plans in connection with the Exchange Offer.
(17) The percentage assumes that each stockholder of eCredit.com duly tenders
and does not withdraw 30% of the shares it holds, calculated on a fully
diluted basis, in the Exchange Offer and that eCredit.com has not been
required to issue additional shares to Internet Capital Group pursuant to
the terms of the Exchange Offer.
119
<PAGE>
SECURITY OWNERSHIP OF RIGHTWORKS PRINCIPAL STOCKHOLDERS
AND RIGHTWORKS MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our Common Stock as of April 1, 2000:
. each person (or group of affiliated persons) who is known by us to
own more than five percent of the outstanding shares of our common
stock;
. each of our directors and our executive officers named in the
summary compensation table; and
. all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Unless otherwise noted, we believe that all
persons named in the table have sole voting and sole investment power with
respect to all shares beneficially owned by them. All figures include shares of
our common stock issuable upon exercise of a warrant to purchase an additional
197,683 shares at a weighted average exercise price of $.72085 per share and
shares of common stock issuable upon the exercise of other options or warrants
exercisable within 60 days of April 1, 2000. These options and warrants are
deemed to be outstanding and to be beneficially owned by the person holding
them for the purpose of computing the percentage ownership of that person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. The following assumptions were made to arrive at
the post-offering numbers: (i) all warrants were exercised by all except
strategic investors, and (ii) Internet Capital Group purchased $22 million of
Series B Preferred Shares and preferred shares are tendered to Internet Capital
Group.
<TABLE>
<CAPTION>
Number of Shares Percent of Shares
Beneficially Owned Outstanding
Options and Including Options -------------------------
5% Beneficial Owners, Warrants and Warrants Before After
Directors, Named Exercisable Exercisable the Exchange the Exchange
Officers Within 60 Days Within 60 Days Offer Offer
- --------------------- -------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C>
Lehman Brothers......... -- 3,125,000 10.34% *
Sequoia Capital......... -- 6,677,023 22.09% 11.65%
Internet Capital Group,
Inc. .................. -- 19,549,000 -- 60.7%
Suhas Patil(1).......... 231,266 3,584,269 11.86% *
Vani Kola(2)............ 3,090,931 3,102,092 10.26% 9.56%
Elizabeth Gasper(3)..... 300,000 311,161 1.03% *
Rich Gerould(4)......... 350,000 350,000 1.16% 1.09%
Bob McDonald(5)......... 437,500 437,500 1.45% 1.36%
Ramesh Patil(6)......... 197,600 304,194 1.01% *
Mark Diamond(7)......... 300,000 300,000 * *
John West(8)............ 400,000 411,161 1.36% 1.24%
Ian Williams(9)......... 400,000 411,161 1.36% 1.24%
Bob Jurkowski(10)....... 550,000 550,000 1.82% 1.71%
David Furth(11)......... 250,000 250,500 * *
Douglas M. Leone(12).... -- 6,677,023 22.09% 11.65%
Joe Prang(13)........... 125,000 157,435 * *
Jeff Carr(14)........... 900,000 900,000 2.98% 2.72%
</TABLE>
- --------
* Less than 1%.
(1) Shares beneficially owned includes 167,913 shares issuable pursuant to the
early exercise of options within 60 days of April 1, 2000 and the exercise
of warrants to purchase 197,683 shares of preferred stock within 60 days
of April 1, 2000.
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<PAGE>
(2) Shares beneficially owned includes 2,991,331 shares issued pursuant to the
early exercise of options.
(3) Shares beneficially owned includes 300,000 shares issued pursuant to the
early exercise of options.
(4) Shares beneficially owned includes 350,000 shares issued pursuant to the
early exercise of options.
(5) Shares beneficially owned includes 437,500 shares issued pursuant to the
early exercise of options.
(6) Shares beneficially owned includes 197,600 shares issued pursuant to the
early exercise of options.
(7) Shares beneficially owned includes 300,000 shares issued pursuant to the
early exercise of options.
(8) Shares beneficially owned includes 400,000 shares issued pursuant to the
early exercise of options.
(9) Shares beneficially owned includes 400,000 shares issued pursuant to the
early exercise of options.
(10) Shares beneficially owned includes 550,000 shares issued pursuant to the
early exercise of options.
(11) Shares beneficially owned includes 250,000 shares issued pursuant to the
early exercise of options.
(12) Shares beneficially owned includes 6,677,023 shares held by entities
associated with Sequoia Capital. Mr. Leone, a director of the Company, is
a general partner of Sequoia Capital. Mr. Leone may be deemed to have
voting and investment power over the shares held by the entities
associated with Sequoia Capital. He disclaims such beneficial ownership
except to the extent of his pecuniary interest therein.
(13) Shares beneficially owned includes 125,000 shares issued pursuant to the
early exercise of options.
(14) Shares beneficially owned includes 900,000 shares issuable pursuant to the
early exercise of options.
121
<PAGE>
DESCRIPTION OF INTERNET CAPITAL GROUP CAPITAL STOCK
General
Our authorized capital stock consists of 300,000,000 shares of Common
Stock, and 10,000,000 shares of preferred stock, par value $.01 per share. Upon
completion of these Exchange Offers, we will have approximately 275,547,968
shares of Common Stock issued and outstanding and no shares of preferred stock
issued and outstanding.
The following is qualified in its entirety by reference to our
certificate of incorporation and bylaws, copies of which are filed as exhibits
to the Registration Statement of which this Prospectus is a part.
Common Stock
As of March 24, 2000, there were 264,349,826 shares of our Common Stock
outstanding and 24,436,699 shares of our Common Stock were reserved for
issuance under our 1999 Equity Compensation Plan and our Membership Profit
Interest Plan. Upon completion of these Exchange Offers there will be
275,547,968 shares of Common Stock outstanding.
The holders of our Common Stock are entitled to dividends as our board of
directors may declare from funds legally available, subject to the preferential
rights of the holders of our preferred stock, if any. The holders of our Common
Stock are entitled to one vote per share on any matter to be voted upon by
shareholders. Our certificate of incorporation does not provide for cumulative
voting in connection with the election of directors, and accordingly, holders
of more than 50% of the shares voting will be able to elect all of the
directors. No holder of our Common Stock will have any preemptive right to
subscribe for any shares of capital stock issued in the future.
Upon any voluntary or involuntary liquidation, dissolution, or winding up
of our affairs, the holders of our Common Stock are entitled to share ratably
in all assets remaining after payment of creditors and subject to prior
distribution rights of our preferred stock, if any. All of the outstanding
shares of Common Stock are, and the shares offered by us will be, fully paid
and non-assessable.
Preferred Stock
No shares of our preferred stock will be outstanding. Our certificate of
incorporation provides that our board of directors may by resolution establish
one or more classes or series of preferred stock having such number of shares
and relative voting rights, designation, dividend rates, liquidation, and other
rights, preferences, and limitations as may be fixed by them without further
shareholder approval. The holders of our preferred stock may be entitled to
preferences over common shareholders with respect to dividends, liquidation,
dissolution, or our winding up in such amounts as are established by our board
of directors resolutions issuing such shares.
The issuance of our preferred stock may have the effect of delaying,
deferring or preventing a change in control of Internet Capital Group without
further action by the shareholders and may adversely affect voting and other
rights of holders of our Common Stock. In addition, issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could make it more difficult for a
third party to acquire a majority of the outstanding shares of voting stock. At
present, we have no plans to issue any shares of preferred stock.
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<PAGE>
Registration Rights
The holders of 101,879,300 shares of our Common Stock and warrants
exercisable for 586,433 shares of our Common Stock are entitled to demand
registration of their shares under the Securities Act. In connection with our
follow-on offering in December, 1999, the holders of 58,507,579 shares of our
Common Stock and warrants exercisable for 351,860 shares of our common stock
have further agreed not to demand registration of these securities until June
13, 2000 without the prior written consent of Merrill Lynch, lead underwriter
for the follow-on offering. After this 180-day period, any one of these holders
may require us, on not more than two occasions, to file a registration
statement under the Securities Act with respect to at least 25.0% of his, her
or its shares eligible for demand rights if the gross offering price would be
expected to exceed $5 million. We are required to use our best efforts to
effect the registration, subject to certain conditions and limitations. In
addition, if 180 days after the date of this offering, we prepare to register
any of our securities under the Securities Act, for our own account or the
account of our other holders, we will send notice of this registration to
holders of the shares eligible for demand and piggy-back registration rights.
Subject to certain conditions and limitations, they may elect to register their
eligible shares. If we are able to file a registration statement on Form S-3,
the holders of shares eligible for demand rights may register their Common
Stock along with that registration. The expenses incurred in connection with
such registrations will be borne by us, except that we will pay expenses of
only one registration on Form S-3 at a holder's request per year.
Section 203 of the Delaware General Corporation Law; Anti-Takeover, Limited
Liability and Indemnification Provisions
Section 203 of the Delaware General Corporation Law
The following is a description of the provisions of the Delaware General
Corporation Law, and our certificate of incorporation and bylaws that we
believe are material to you. This summary does not purport to be complete and
is qualified in its entirety by reference to the Delaware General Corporation
Law, and our certificate of incorporation and bylaws.
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an "interested stockholder," unless the business combination is approved
in a prescribed manner. A "business combination" includes some types of
mergers, asset sales, and other transactions resulting in a financial benefit
to the "interested stockholder." Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15% of the corporation's voting stock.
Some provisions of our certificate of incorporation and bylaws could have
anti-takeover effects. These provisions are intended to enhance the likelihood
of continuity and stability in the composition of our corporate policies
formulated by our Board of Directors. In addition, these provisions also are
intended to ensure that our Board of Directors will have sufficient time to act
in what the Board of Directors believes to be in the best interests of us and
our shareholders. These provisions also are designed to reduce our
vulnerability to an unsolicited proposal for our takeover that does not
contemplate the acquisition of all of our outstanding shares or an unsolicited
proposal for the restructuring or sale of all or part of Internet Capital
Group. The provisions are also intended to discourage certain tactics that may
be used in proxy fights. However, these provisions could delay or frustrate the
removal of incumbent directors or the assumption of control of us by the holder
of a large block of Common Stock, and could also discourage or make more
difficult a merger, tender offer, or proxy contest, even if such event would be
favorable to the interest of our shareholders.
123
<PAGE>
Classified Board of Directors
Our certificate of incorporation provides for our Board of Directors to
be divided into three classes of directors, with each class as nearly equal in
number as possible, serving staggered three-year terms (other than directors
who may be elected by holders of preferred stock). As a result, approximately
one-third of our Board of Directors will be elected each year. The classified
board provision will help to assure the continuity and stability of our Board
of Directors and our business strategies and policies as determined by our
Board of Directors. The classified board provision could have the effect of
discouraging a third party from making an unsolicited tender offer or otherwise
attempting to obtain control of us without the approval of our Board of
Directors. In addition, the classified board provision could delay shareholders
who do not like the policies of our Board of Directors from electing a majority
of our Board of Directors for two years.
No Shareholder Action by Written Consent; Special Meetings
Our certificate of incorporation and bylaws provide that shareholder
action can only be taken at an annual or special meeting of shareholders and
prohibits shareholder action by written consent in lieu of a meeting. Our
bylaws provide that special meetings of shareholders may be called only by our
Chief Executive Officer or the Chairman or Vice Chairman of the Board of
Directors upon vote by a majority of the members of the Board. Our shareholders
are not permitted to call a special meeting of shareholders or to require that
our Board of Directors call a special meeting.
Advance Notice Requirements for Shareholder Proposals and Director Nominees
Our bylaws establish an advance notice procedure for our shareholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of our shareholders. The advance notice
procedure provides that only persons who are nominated by, or at the direction
of, our Board of Directors or its Chairman, or by a shareholder who has given
timely written notice to our Secretary or any Assistant Secretary prior to the
meeting at which directors are to be elected, will be eligible for election as
our directors. The advance notice procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, our Board of Directors or its Chairman or
by a shareholder who has given timely written notice to our Secretary of that
shareholder's intention to bring such business before such meeting. Under the
advance notice procedure, if a shareholder desires to submit a proposal or
nominate persons for election as directors at an annual meeting, the
shareholder must submit written notice to Internet Capital Group not less than
90 days nor more than 120 days prior to the first anniversary of the previous
year's annual meeting. In addition, a shareholder's notice to Internet Capital
Group proposing to nominate a person for election as a director or relating to
the conduct of business other than the nomination of directors must contain
specified information. In the event that the number of directors to be elected
is increased and there is no public announcement naming all of the nominees or
specifying the size of the increase at least 100 days before the first
anniversary of the preceding year's annual meeting, the notice as it relates to
nominees will be considered timely if it is delivered on the tenth day
following the day on which the public announcement is first made by Internet
Capital Group. If the chairman of a meeting determines that business was not
properly brought before the meeting, in accordance with the advance notice
procedure, such business shall not be discussed or transacted.
Number of Directors; Removal; Filling Vacancies
Our certificate of incorporation and bylaws provide that our Board of
Directors will consist of not less than 5 nor more than 9 directors (other than
directors elected by holders of our preferred stock), the exact number to be
fixed from time to time by resolution adopted by our directors. Further,
subject to the rights of the holders of any series of our preferred stock, if
any, our certificate of incorporation and bylaws authorize our Board of
Directors to elect additional directors under specified circumstances and fill
any vacancies that occur in our Board of Directors by reason of death,
resignation, removal, or otherwise. A director so elected by our
124
<PAGE>
Board of Directors to fill a vacancy or a newly created directorship holds
office until the next election of the class for which the director has been
chosen and until his successor is elected and qualified. Subject to the rights
of the holders of our preferred stock, if any, our certificate of incorporation
and bylaws also provide that directors may be removed only for cause and only
by the affirmative vote of holders of a majority of the combined voting power
of the then outstanding stock of Internet Capital Group. The effect of these
provisions is to preclude a shareholder from removing incumbent directors
without cause and simultaneously gaining control of our Board of Directors by
filling the vacancies created by such removal with its own nominees.
Indemnification
We have included in our certificate of incorporation and bylaws
provisions to eliminate the personal liability of our directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware General Corporation Law, and to indemnify our directors and
officers to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, including circumstances in which indemnification is otherwise
discretionary. We believe that these provisions are necessary to attract and
retain qualified persons as directors and officers.
Certificate of Incorporation
The provisions of our certificate of incorporation that could have anti-
takeover effects as described above are subject to amendment, alteration,
repeal, or rescission by the affirmative vote of the holder of not less than
two-thirds (66 2/3%) of the outstanding shares of voting securities. This
requirement makes it more difficult for shareholders to make changes to the
provisions in our certificate of incorporation which could have anti-takeover
effects by allowing the holders of a minority of the voting securities to
prevent the holders of a majority of voting securities from amending these
provisions of our certificate of incorporation.
Bylaws
Our certificate of incorporation provides that our bylaws are subject to
adoption, amendment, alteration, repeal or rescission either by our Board of
Directors without the assent or vote of our shareholders, or by the affirmative
vote of the holders of not less than two-thirds (66 2/3%) of the outstanding
shares of voting securities. This provision makes it more difficult for
shareholders to make changes in our bylaws by allowing the holders of a
minority of the voting securities to prevent the holders of a majority of
voting securities from amending our bylaws.
Transfer Agent and Registrar
The transfer agent and registrar for our Common Stock is ChaseMellon
Shareholder Services. The Transfer Agent's address is P.O. Box 3301, South
Hackensack, NJ, and its telephone number is (800) 777-3674.
125
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of our Common Stock, including our
Common Stock issued upon exercise of outstanding options and warrants, in the
public market after this offering could adversely affect market prices
prevailing from time to time and could impair our ability to raise capital
through the sale of equity securities.
Upon completion of both exchange offers covered by the registration
statement of which this Prospectus forms a part, there will be 275,547,968
shares of our Common Stock outstanding. This calculation assumes that the
Exchange Ratio for the eCredit.com Exchange Offer is .51, that the shareholders
of eCredit.com, Inc. will tender an aggregate of 30% of the outstanding shares
of eCredit.com on a fully diluted basis, and that [describe assumptions
relating to other exchange offer]. Of these shares, 122,204,543 shares are
freely transferable without restriction or further registration under the
Securities Act, except for any shares held by an existing "affiliate" of
Internet Capital Group, as that term is defined by the Securities Act, which
shares will be subject to the resale limitations of Rule 144 adopted under the
Securities Act. The shares of common stock issuable upon conversion of the
convertible notes sold in the concurrent note offering will be fully tradeable
in a similar manner.
Upon completion of both exchange offers covered by the registration
statement of which this Prospectus is a part, approximately 27,199,275
"restricted shares" as defined in Rule 144 will be outstanding. None of these
shares will be eligible for sale in the public market as of the date of this
Prospectus.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who owns shares that were purchased from us (or
any affiliate) at least one year previously, including a person who may be
deemed our affiliate, is entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of our common stock
(approximately 2,755,480 shares immediately after the offering)
or;
. the average weekly trading volume of our common stock on the
Nasdaq National Market during the four calendar weeks preceding
the date on which notice of the sale is filed with the Securities
and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about us. Any person (or persons whose shares are aggregated) who
is not deemed to have been our affiliate at any time during the 90 days
preceding a sale, and who owns shares within the definition of "restricted
securities" under Rule 144 under the Securities Act that were purchased from us
(or any affiliate) at least two years previously, would be entitled to sell
such shares under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements.
Prior to this Exchange Offer, the holders of 131,872,442 shares of our
Common Stock and warrants exercisable for 569,451 shares of our Common Stock
have agreed not to sell any of these securities until June 13, 2000 without the
prior written consent of Merrill Lynch.
The holders of 58,507,579 shares of our common stock and warrants
exercisable for 351,860 shares of our common stock that have demand rights have
further agreed not to demand registration of these securities until June 13,
2000 without the prior written consent of Merrill Lynch. After this period, if
any of these holders cause a large number of shares to be registered and sold
in the public market, or if any shares of our common stock are issued pursuant
to any registration statement on Forms S-4 or S-8 that have become effective in
connection with acquisitions of interests in any entity or business or other
business combinations or stock option or employee benefit plans, those sales
could have an adverse effect on the market price for the common stock.
126
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered by us hereby will be passed upon
for us by Dechert Price & Rhoads, Philadelphia, Pennsylvania. Dechert Price &
Rhoads beneficially owns 41,666 shares of our common stock and warrants
exercisable at $6.00 per share to purchase 8,333 shares of our common stock.
Members of and attorneys associated with Dechert Price & Rhoads beneficially
own an aggregate of 12,554 shares of our common stock and warrants exercisable
at $6.00 per share to purchase 1,111 shares of our common stock.
EXPERTS
The consolidated financial statements of Internet Capital Group, Inc. as
of December 31, 1998 and 1999 and for each of the years in the three-year
period ended December 31, 1999 have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of eCredit.com, Inc. as of December
31, 1998 and 1999 and for the two years ended December 31, 1999 appearing in
this Prospectus and registration statement have been audited by Ernst & Young
LLP, independent auditors, as set forth on their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of said firm as experts in auditing and accounting.
The consolidated statements of operations, of redeemable convertible
preferred stock and stockholders' deficit and of cash flows of eCredit.com,
Inc. for the year ended December 31, 1997 included in this Prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of RightWorks Corporation as of December 31,
1998 and 1999 and for the three years then ended included in this prospectus
and elsewhere in this registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included in this prospectus in reliance upon the
authority of said firm as experts in given said reports.
The consolidated financial statements of eMerge Interactive, Inc. as of
December 31, 1997 and 1998 and September 30, 1999 and for each of the years in
the three-year period ended December 31, 1998 and the nine months ended
September 30, 1999 have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
The financial statements of JusticeLink, Inc. (formerly LAWPlus, Inc.) as
of December 31, 1998 and 1999, and for the two years ended December 31, 1999
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of MetalSite General Partner, LLC
as of December 31, 1998 and for the period from Inception (November 15, 1998)
through December 31, 1998 included in this registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Reference is made to
said report which includes an explanatory paragraph with respect to the
uncertainty regarding MetalSite General Partner, LLC's ability to continue as a
going concern as discussed in Note 2 to the consolidated financial statements.
127
<PAGE>
The financial statement of MetalSite as Component of Weirton Steel
Corporation for the period from January 1, 1998 to November 15, 1998 and for
the year ended December 31, 1997 included in this registration statement has
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
The financial statements of Syncra Software, Inc. as of December 31, 1998
and for the period from February 11, 1998 (inception) through December 31, 1998
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of USgift.com Corporation as of September 30,
1999 and for the period from inception (April 27, 1999) to September 30, 1999
included herein and in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.
The consolidated financial statements of VerticalNet, Inc. as of December
31, 1998 and 1999 and for each of the years in the three-year period ended
December 31, 1999 have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act and we file reports, proxy and information statements and other
information with the Commission. You may read and copy all or any portion of
the reports, proxy and information statements or other information we file at
the Commission's principal office in Washington, D.C., and copies of all or any
part thereof may be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center, 13th
Floor, New York, New York 10048 after payment of fees prescribed by the
Commission. Please call the Commission at 1-800-SEC-0330 for further
information on operation of the public reference rooms. The Commission also
maintains a World Wide Web site which provides online access to reports, proxy
and information statements and other information regarding registrants that
file electronically with the Commission at the address http://www.sec.gov.
We have filed with the Commission a Registration Statement on Form S-4
under the Securities Act with respect to the Common Stock to be exchanged in
this offering. This Prospectus does not contain all of the information set
forth in the registration statement and the exhibits to the registration
statement. For further information with respect to Internet Capital Group and
our common stock offered hereby, reference is made to the Registration
Statement and the exhibits filed as a part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any contract
or any other document are not necessarily complete; reference is made in each
instance to the copy of such contract or any other document filed as an exhibit
to the registration statement. Each such statement is qualified in all respects
by such reference to such exhibit. The registration statement, including
exhibits thereto, may be inspected without charge at the locations described
above, or obtained upon payment of fees prescribed by the Commission.
128
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERNET CAPITAL GROUP, INC.
Report of Independent Auditors........................................... F-4
Consolidated Balance Sheets.............................................. F-5
Consolidated Statements of Operations.................................... F-6
Consolidated Statements of Shareholders' Equity.......................... F-7
Consolidated Statements of Comprehensive Income (Loss)................... F-8
Consolidated Statements of Cash Flows.................................... F-9
Notes to Consolidated Financial Statements............................... F-10
eCREDIT.COM, INC.
Reports of Independent Accountants....................................... F-39
Consolidated Balance Sheets.............................................. F-41
Consolidated Statements of Operations.................................... F-42
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Deficit................................................... F-43
Consolidated Statements of Cash Flows.................................... F-44
Notes to Consolidated Financial Statements............................... F-46
RIGHTWORKS CORPORATION
Report of Independent Public Accountants................................. F-60
Balance Sheets........................................................... F-61
Statements of Operations and Comprehensive Loss.......................... F-62
Statement of Shareholders' Equity........................................ F-63
Statements of Cash Flows................................................. F-64
Notes to Financial Statements............................................ F-65
EMERGE INTERACTIVE, INC.
Independent Auditors' Report............................................. F-76
Consolidated Balance Sheets.............................................. F-77
Consolidated Statements of Operations.................................... F-78
Consolidated Statements of Stockholders' Equity (Deficit)................ F-79
Consolidated Statements of Cash Flows.................................... F-80
Notes to Consolidated Financial Statements............................... F-81
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
JUSTICELINK, INC.
Report of Independent Auditors.......................................... F-95
Balance Sheets.......................................................... F-96
Statements of Operations................................................ F-97
Statements of Mandatory Redeemable Convertible Stock and Other Capital.. F-98
Statements of Cash Flows................................................ F-99
Notes to Financial Statements........................................... F-100
METALSITE GENERAL PARTNER LLC
Report of Independent Public Accountants................................ F-114
Consolidated Balance Sheets............................................. F-115
Consolidated Statement of Operations.................................... F-116
Consolidated Statement of Changes in Partners' Capital (Deficit)........ F-117
Consolidated Statement of Cash Flows.................................... F-118
Notes to Consolidated Financial Statements.............................. F-119
METALSITE AS A COMPONENT OF WEIRTON STEEL CORPORATION
Report of Independent Public Accountants................................ F-129
Statements of Costs and Expenses........................................ F-130
Notes to Financial Statements........................................... F-131
SYNCRA SOFTWARE, INC.
Report of Independent Accountants....................................... F-132
Balance Sheet........................................................... F-133
Statement of Operations................................................. F-134
Statement of Changes in Redeemable Preferred Stock and Stockholders'
Deficit................................................................ F-135
Statement of Cash Flows................................................. F-136
Notes to Financial Statements........................................... F-137
USGIFT, INC.
Report of Independent Public Accountants................................ F-146
Balance Sheet........................................................... F-147
Statement of Operations and Accumulated Deficit......................... F-148
Statement of Cash Flows................................................. F-149
Notes to Financial Statements........................................... F-150
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
VERTICALNET, INC.
Independent Auditors' Report............................................ F-155
Consolidated Balance Sheets............................................. F-156
Consolidated Statements of Operations................................... F-157
Consolidated Statements of Shareholders' Equity (Deficit) and
Comprehensive Loss..................................................... F-158
Consolidated Statements of Cash Flows................................... F-159
Notes to Consolidated Financial Statements.............................. F-160
</TABLE>
F-3
<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
F-4
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
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.
F-5
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1997 1998 1999
------- -------- --------
(in thousands except per
share data)
<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.
F-6
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Retained Accumulated
Common Stock Additional Earnings Unamortized Notes Other
--------------- Paid-In (Accumulated Deferred Receivable-- Comprehensive
Shares Amount Capital Deficit) Compensation Shareholders Income Total
------- ------ ---------- ------------ ------------ ------------ ------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of December
31, 1996............... 51,779 $ 52 $ 15,762 $ (2,062) $ (893) $ -- $ -- $ 12,859
Issuance of common
stock.................. 40,275 40 20,097 -- -- -- -- 20,137
Issuance of restricted
stock.................. 3,546 4 414 -- (418) -- -- --
Forfeitures of
restricted stock....... (2,033) (2) (176) -- 178 -- -- --
Amortization of deferred
compensation........... -- -- -- -- 218 -- -- 218
Net loss................ -- -- -- (6,580) -- -- -- (6,580)
------- ----- ---------- -------- --------- --------- -------- ----------
Balance as of December
31, 1997............... 93,567 94 36,097 (8,642) (915) -- -- 26,634
Issuance of common
stock, net............. 38,520 38 38,167 -- -- -- -- 38,205
Issuance of stock
options to
non-employees.......... -- -- 668 -- (668) -- -- --
Net unrealized
appreciation in
available-for-sale
securities............. -- -- -- -- -- -- 1,733 1,733
Amortization of deferred
compensation........... -- -- -- -- 253 -- -- 253
Net income.............. -- -- -- 13,899 -- -- -- 13,899
------- ----- ---------- -------- --------- --------- -------- ----------
Balance as of December
31, 1998............... 132,087 132 74,932 5,257 (1,330) -- 1,733 80,724
Issuance of common
stock, net............. 78,258 78 1,072,494 -- -- -- -- 1,072,572
Issuance of common stock
and income tax benefit
upon exercise of
options................ 35,992 36 90,512 -- -- (81,148) -- 9,400
Shareholder loans
principal payments..... -- -- -- -- -- 1,358 -- 1,358
Issuance of common stock
for acquisitions....... 1,887 2 172,001 -- -- -- -- 172,003
Issuance of common stock
and waiving of accrued
interest upon
conversion of
convertible notes...... 15,000 15 91,070 -- -- -- -- 91,085
Issuance of common stock
upon exercise of
Warrants............... 784 1 3,968 -- -- -- -- 3,969
Issuance of warrants in
connection with line of
credit................. 1,030 -- -- -- -- 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 -- -- 5,699
Issuance of stock
options to
non-employees.......... -- -- 3,691 -- (3,691) -- -- --
Foreign currency
adjustment............. -- -- -- -- -- -- (1) (1)
Net unrealized
appreciation in
available-for-sale
securities............. -- -- -- -- -- -- 22,785 22,785
LLC termination (Note
2)..................... -- -- (8,657) 8,657 -- -- -- --
Distribution to former
LLC members............ -- -- -- (10,676) -- -- -- (10,676)
Other................... (429) -- (157) -- 207 -- -- 50
Net loss................ -- -- -- (29,777) -- -- -- (29,777)
------- ----- ---------- -------- --------- --------- -------- ----------
Balance as of December
31, 1999............... 263,579 $ 264 $1,513,615 $(26,539) $ (11,846) $ (79,790) $ 24,517 $1,420,221
======= ===== ========== ======== ========= ========= ======== ==========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Statements of Comprehensive Income (Loss)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Net Income (Loss)................................... $(6,580) $13,899 $(29,777)
------- ------- --------
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.
F-8
<PAGE>
INTERNET CAPITAL GROUP, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
-------- -------- ----------
(in thousands)
<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.
F-9
<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
F-10
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (Continued)
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 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.
F-11
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (Continued)
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 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.
F-12
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (Continued)
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 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.
F-13
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (Continued)
Available-for-Sale Securities
Available-for-sale securities are reported at fair value, based on quoted
market prices, with the net 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).
F-14
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (Continued)
Net Income (Loss) Per Share
Net income (loss) per share (EPS) is computed using the weighted average
number of common shares 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
F-15
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1. Significant Accounting Policies (Continued)
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).
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 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.
F-16
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
3. Net Income (Loss) per Share
The calculations of Net Income (Loss) per Share were:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1998 1999
------- ------- --------
(in thousands
except per share
amounts)
<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 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>
As of December 31, 1998 As of December 31, 1999
------------------------- -------------------------
Carrying Value Cost Basis Carrying Value Cost Basis
-------------- ---------- -------------- ----------
(in thousands)
<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
F-17
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
4. Ownership Interests in and Advances to Partner Companies (Continued)
"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.
Balance Sheets
<TABLE>
<CAPTION>
As of December
31,
----------------
1998 1999
------- --------
(in thousands)
<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 Shareholders' equity.................. $40,793 $823,878
======= ========
</TABLE>
Results of Operations
<TABLE>
<CAPTION>
Year Ended December
---------------------------
1997 1998 1999
------- -------- ---------
(in thousands)
<S> <C> <C> <C>
Revenue............................................ $18,912 $ 21,496 $ 192,759
Net income (loss).................................. $ 255 $(14,969) $(254,027)
</TABLE>
F-18
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
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, wheat and
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.
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>
Year Ended
December 31,
-----------------
1998 1999
------- --------
(Unaudited)
(in thousands)
<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.
F-19
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Fixed Assets
Fixed assets consists of the following:
<TABLE>
<CAPTION>
As of December
31,
----------------
1998 1999
------- -------
(in thousands)
<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 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,
F-20
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
7. Debt (Continued)
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>
As of
December 31,
--------------
1998 1999
----- -------
(in
thousands)
<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:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
2000....................................................... $3,000
2001....................................................... 3,158
2002....................................................... 18
2003....................................................... 6
2004....................................................... 3
------
Total.................................................... $6,185
======
</TABLE>
F-21
<PAGE>
INTERNET CAPITAL GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
As of
December 31,
-------------
1998 1999
------ ------
(in
thousands)
<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.
F-22
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
10. Segment Information (Continued)
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,
----------------------------
1997 1998 1999
------- -------- ---------
(in thousands)
<S> <C> <C> <C>
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) 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>
F-23
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
10. Segment Information (Continued)
<TABLE>
<CAPTION>
As of December 31,
------------------
1998 1999
------- ----------
(in thousands)
<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 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>
As of December 31,
------------------
1998 1999
------- ----------
(in thousands)
<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>
F-24
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
11. Parent Company Financial Information (Continued)
Parent Company Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1997 1998 1999
------- -------- ---------
(in thousands)
<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>
F-25
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
11. Parent Company Financial Information (Continued)
Parent Company Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
-------- -------- ----------
(in thousands)
<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)
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>
F-26
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
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
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.
F-27
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
12. Shareholders' Equity (Continued)
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 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.
F-28
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
13. Stock Option Plans (Continued)
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 canceled/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
$50.01--$ 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
</TABLE>
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.
F-29
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
13. Stock Option Plans (Continued)
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>
Year Ended December 31,
----------------------------------------
1997 1998 1999
------------- --------------------------
(in thousands except per share amounts)
<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:
<TABLE>
<S> <C>
Volatility........................................................... 101.5%
Average expected option life......................................... 5 years
Risk-free interest rate.............................................. 5.5%
Dividend yield....................................................... 0.0%
</TABLE>
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
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.
F-30
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
14. Income Taxes (Continued)
The Company's net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
As of
December 31, 1999
-----------------
(in thousands)
<S> <C>
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
========
</TABLE>
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:
<TABLE>
<CAPTION>
Year ended
December 31, 1999
-----------------
<S> <C>
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)%
=====
</TABLE>
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.
F-31
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
15. Related Parties (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.
F-32
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
18. Other Income
Other income consists of the following:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------
1998 1999
------- -------
(in thousands)
<S> <C> <C>
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.................................................... -- (252)
------- -------
$30,483 $67,384
======= =======
</TABLE>
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.
F-33
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
18. Other Income (Continued)
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.
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.
F-34
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
19. Commitments and Contingencies (Continued)
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:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
2000.......................... $ 1,640
2001.......................... 1,641
2002.......................... 1,531
2003.......................... 1,329
2004.......................... 1,161
Thereafter.................... 10,205
</TABLE>
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 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 agreements 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.
F-35
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Consolidated Financial Statements--(Continued)
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>
Fiscal 1998 Quarter Ended Fiscal 1999 Quarter Ended
---------------------------------- -------------------------------------
Mar. 31 Jun.30 Sep. 30 Dec. 31 Mar. 31 Jun. 30 Sep. 30 Dec. 31
------- ------- ------- ------- ------- -------- -------- --------
(in thousands)
<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 December 31, 1999; and Animated Images, Inc. 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%.
F-36
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Nonsolidated Financial Statements--(Continued)
21. Fiscal 2000 Events (Unaudited) (Continued)
In March, 2000, Universal Access completed its initial public offering
(IPO), selling 11,000,000 newly issued shares of its common stock at $14 per
share. The Company's ownership following the offering was approximately 25%.
During the period from January 1, 2000 through March 24, 2000 we utilized
$387.6 million to acquire interests in or make advances to new and existing
partner companies. These companies included: Arbinet Communications,
AsseTRADE.com, AUTOVIA, Benchmarking Partners, BuyMedia, Centrimed,
ClearCommerce, Collabria, Commerce Quest, ComputerJobs.com, CourtLink, e-
Chemicals, Entegrity Solutions, eumediX, Eu Supply, FarmingOnLine, FreeBorders,
Industrial America, Internet Healthcare Group, iSky, LinkShare, Logistics.com,
Inc., eMetra, NetVendor, ONVIA.com, Servicesoft Technologies, Simplexis,
StarCite!, 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 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
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.
In February 2000, the Company 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, the Company 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.
F-37
<PAGE>
INTERNET CAPITAL GROUP, INC.
Notes to the Nonsolidated Financial Statements--(Continued)
21. Fiscal 2000 Events (Unaudited) (Continued)
In March, 2000, the Company 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, the Company 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. Upon completion of the acquisition, and under the terms of a separate
agreement, a third party affiliated with Hutchison Whampoa Ltd. would, at the
request of ICG and subject to the approval by the Stock Exchange of Hong Kong
Limited and the Securities & Futures Commission, be required to purchase the
operating subsidiaries of ICG AsiaWorks Limited at a fixed price for a two-year
period from the closing date of the acquisition, including assets and
liabilities arising subsequent to the closing date of the acquisition. 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.
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 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.
In March, 2000, the Company entered into an agreement to increase the
amount available under our bank credit facility to $250 million.
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.
F-38
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of eCredit.com, Inc.
We have audited the accompanying consolidated balance sheets of eCredit.com,
Inc. and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company'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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of eCredit.com, Inc.
and subsidiaries at December 31, 1998 and 1999 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Ernst & Young LLP
March 6, 2000
Boston, Massachusetts
F-39
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholders of eCredit.com, Inc.
In our opinion, the accompanying consolidated statements of operations,
of redeemable convertible preferred stock and stockholders' deficit and of cash
flows present fairly, in all material respects, the results of operations and
cash flows of eCredit.com, Inc. and its subsidiary for the year ended December
31, 1997, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above. We have
not audited the consolidated financial statements of eCredit.com, Inc. for any
period subsequent to December 31, 1997.
PricewaterhouseCoopers LLP
Boston, Massachusetts
September 30, 1998
F-40
<PAGE>
eCredit.com, Inc.
Consolidated Balance Sheets
(In Thousands, except share data)
<TABLE>
<CAPTION>
Pro Forma
December 31 December 31
1998 1999 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents...................... $ 2,312 $ 35,210 $ 38,870
Accounts receivable, net of allowance for
doubtful accounts of $36 at December 31, 1998
and 1999...................................... 1,154 4,196 4,196
Prepaid expenses............................... 16 55 55
Other current assets........................... 37 940 940
------- -------- --------
Total current assets............................ 3,519 40,401 44,061
Fixed assets, net............................... 581 2,762 2,762
Capitalized software costs...................... -- 681 681
Notes receivable from officers.................. -- 1,302 1,302
Other assets.................................... 96 668 668
------- -------- --------
Total assets.................................... $ 4,196 $ 45,814 $ 49,474
======= ======== ========
Liabilities, redeemable preferred stock and
stockholders' deficit
Current liabilities:
Current portion of note payable................ -- $ 461 $ 461
Current portion of capital lease............... $ 112 76 76
Accounts payable............................... 192 3,008 3,008
Accrued expenses............................... 661 3,199 3,199
Deferred revenue............................... 442 907 907
Billings in excess of cost and estimated
earnings on uncompleted contracts............. 351 787 787
------- -------- --------
Total current liabilities....................... 1,758 8,438 8,438
Capital lease obligations, net of current por-
tion........................................... 99 69 69
Notes payable, net of current portion........... -- 1,172 1,172
------- -------- --------
Total liabilities............................... 1,857 9,679 9,679
Commitments and contingencies
Redeemable convertible preferred stock:
Series A Redeemable convertible preferred
stock, $.001 par value; 946,808 shares
authorized, issued and outstanding at December
31, 1998 and 1999 issued for $2,225........... 5,597 68,171 --
Series B Redeemable convertible preferred
stock, $.001 par value; 184,432 shares
authorized, issued and outstanding at December
31, 1998 and 1999 issued for $1,540........... 1,639 19,923 --
Series C Redeemable convertible preferred
stock, $.001 par value; 1,297,076 shares
authorized, 757,156 issued and outstanding at
December 31, 1998 and 1999 issued for $6,205.. 7,421 90,410 --
Series D Redeemable convertible preferred
stock, $.001 par value; 6,695,618 shares
authorized, issued and outstanding at December
31, 1999 issued for $23,876................... -- 160,695 --
Series E Redeemable convertible preferred
stock, $.001 par value; 1,914,053 shares
authorized, 1,435,535 issued and outstanding
at December 31, 1999 issued for $23,899....... -- 34,453 --
Common stock, $.001 par value; 16,935,842 and
33,962,013 shares authorized at December 31,
1998 and 1999, respectively, 2,550,000 and
6,513,648 shares issued at December 31, 1998
and 1999, respectively, 2,100,000, 6,063,648
and 23,212,123 shares outstanding at December
31 1998, 1999 and 1999 Pro Forma,
respectively.................................. 3 7 31
Additional paid-in capital..................... 394 41,844 905,390
Accumulated deficit............................ (12,490) (341,042) (836,125)
Notes receivable............................... -- (3,095) (3,095)
Deferred compensation.......................... -- (35,006) (26,181)
Common stock held in treasury, 450,000 shares
at cost....................................... (225) (225) (225)
------- -------- --------
Total stockholders' equity (deficit)............ (12,318) (337,517) 39,795
------- -------- --------
Total liabilities, redeemable preferred stock
and stockholders' equity (deficit)............. $ 4,196 $ 45,814 $ 49,474
======= ======== ========
</TABLE>
See accompanying notes.
F-41
<PAGE>
eCredit.com, Inc.
Consolidated Statements of Operations
(In Thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
December 31 December 31
------------------------------- -----------
1997 1998 1999 1999
--------- --------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues
Software licenses and related
implementation................. $ 3,358 $ 3,763 $ 6,702 $ 6,702
Services and software support... 585 1,061 1,699 1,699
--------- --------- --------- ----------
Total revenues................... 3,943 4,824 8,401 8,401
--------- --------- --------- ----------
Cost of revenues
License and related
implementation (1999 and Pro
Forma excludes $351 and $17,371
stock compensation,
respectively).................. 2,153 1,987 5,230 5,230
Services (1999 and Pro Forma
excludes $72 and $3,563 stock
compensation, respectively).... 440 708 1,195 1,195
--------- --------- --------- ----------
Total cost of revenues........... 2,593 2,695 6,425 6,425
--------- --------- --------- ----------
Gross profit..................... 1,350 2,129 1,976 1,976
Operating expenses
Selling and marketing (1999 and
Pro Forma excludes $613 and
$30,339 stock compensation,
respectively).................. 1,151 2,262 11,225 11,225
Research and development (1999
and Pro Forma excludes $23 and
$1,138 stock compensation,
respectively).................. 419 472 823 823
General and administrative (1999
and Pro Forma excludes $1,227
and $60,724 stock compensation,
respectively).................. 1,598 1,802 4,159 4,159
Stock compensation.............. -- -- 2,286 113,135
--------- --------- --------- ----------
Total operating expenses......... 3,168 4,536 18,493 129,342
--------- --------- --------- ----------
Loss from operations............. (1,818) (2,407) (16,517) (127,366)
Interest income.................. -- 27 185 185
Interest expense................. (128) (147) (72) (72)
Other income..................... -- -- 31 31
--------- --------- --------- ----------
Net loss......................... (1,946) (2,527) (16,373) (127,222)
Accretion of preferred stock..... -- (5,081) (312,179) --
--------- --------- --------- ----------
Net loss attributable to common
stockholders.................... $ (1,946) $ (7,608) $(328,552) $ (127,222)
========= ========= ========= ==========
Basic and diluted net loss per
share........................... $ (0.93) $ (3.62) $ (110.02) $ (5.48)
========= ========= ========= ==========
Weighted average shares used in
computing basic and diluted net
loss per common share........... 2,100,000 2,100,000 2,986,305 23,212,123
========= ========= ========= ==========
</TABLE>
See accompanying notes.
F-42
<PAGE>
F-43
eCredit.com, Inc.
Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Deficit
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Series A Series B Series C Series D Series E
Redeemable Redeemable Redeemable Redeemable Redeemable
Convertible Convertible Convertible Convertible Convertible
Preferred Preferred Preferred Preferred Preferred
Stock Stock Stock Stock Stock Common Additional
--------------- --------------- --------------- ------------------ ----------------- Stock Par Paid-in
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares value capital
------- ------- ------- ------- ------- ------- --------- -------- --------- ------- --------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1996 946,808 $ 2,225 2,550,000 $ 3
Issuance of
Series B
redeemable
convertible
preferred
stock.......... 184,432 $ 1,540
Net loss........
Balance,
December 31,
1997 946,808 2,225 184,432 1,540 2,550,000 3
Issuance of
Series C
convertible
preferred stock
with warrants,
net of issuance
costs of $117.. 757,156 $ 5,811
Issuance of
warrants....... $ 394
Accretion of
redeemable
preferred stock
to redemption
value.......... 3,372 99 1,610
Net loss........
Balance,
December 31,
1998 946,808 5,597 184,432 1,639 757,156 7,421 2,550,000 3 394
Issuance of
Series D
convertible
preferred
stock, net of
issuance costs
of $124........ 6,695,618 $ 23,876
Issuance of
Series E
convertible
preferred stock
with warrants,
net of issuance
costs of $102.. 1,435,535 $22,940
Issuance of
warrants....... 959
Issuance of
restricted
stock to
officers and
directors...... 3,924,273 4 3,152
Issuance of
common stock in
connection with
the exercise of
stock options.. 39,375 47
Expenses
associated with
remeasurement
of employee
stock option... 111
Deferred
compensation
related to
stock awards
and option
grants......... 37,181
Amortization of
deferred
compensation...
Repayment of
officers
notes..........
Accretion of
redeemable
preferred stock
to redemption
value.......... 62,574 18,284 82,989 136,819 11,513
Net loss........
------- ------- ------- ------- ------- ------- --------- -------- --------- ------- --------- --- -------
Balance,
December 31,
1999 946,808 $68,171 184,432 $19,923 757,156 $90,410 6,695,618 $160,695 1,435,535 $34,453 6,513,648 $ 7 $41,844
======= ======= ======= ======= ======= ======= ========= ======== ========= ======= ========= === =======
<CAPTION>
Total
Accumulated Notes Deferred Treasury Stockholders'
deficit receivable compensation stock deficit
----------- ---------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C>
Balance,
December 31,
1996 $ (2,936) $(225) $ (3,158)
Issuance of
Series B
redeemable
convertible
preferred
stock..........
Net loss........ (1,946) (1,946)
Balance,
December 31,
1997 (4,882) (225) (5,104)
Issuance of
Series C
convertible
preferred stock
with warrants,
net of issuance
costs of $117..
Issuance of
warrants....... 394
Accretion of
redeemable
preferred stock
to redemption
value.......... (5,081) (5,081)
Net loss........ (2,527) (2,527)
Balance,
December 31,
1998 (12,490) (225) (12,318)
Issuance of
Series D
convertible
preferred
stock, net of
issuance costs
of $124........
Issuance of
Series E
convertible
preferred stock
with warrants,
net of issuance
costs of $102..
Issuance of
warrants....... 959
Issuance of
restricted
stock to
officers and
directors...... $(3,104) 52
Issuance of
common stock in
connection with
the exercise of
stock options.. 47
Expenses
associated with
remeasurement
of employee
stock option... 111
Deferred
compensation
related to
stock awards
and option
grants......... $(37,181) -
Amortization of
deferred
compensation... 2,175 2,175
Repayment of
officers
notes.......... 9 9
Accretion of
redeemable
preferred stock
to redemption
value.......... (312,179) (312,179)
Net loss........ (16,373) (16,373)
----------- ---------- ------------ -------- -------------
Balance,
December 31,
1999 $(341,042) $ (3,095) $(35,006) $(225) $(337,517)
=========== ========== ============ ======== =============
</TABLE>
See accompanying notes.
<PAGE>
eCredit.com, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activi-
ties
Net loss........................................... $(1,946) $(2,527) $(16,373)
Depreciation and amortization...................... 173 221 479
Amortization of stock compensation................. -- -- 2,286
Loss on disposal of fixed assets................... 10 -- 4
Changes in assets and liabilities
Accounts receivable............................... 13 (135) (3,042)
Prepaid expenses and other current assets......... 129 (4) (942)
Other assets...................................... -- (64) (572)
Accounts payable.................................. 382 (306) 2,816
Accrued expenses.................................. 344 (192) 2,538
Deferred revenue.................................. 6 263 465
Billings in excess of cost and estimated earnings
on uncompleted contracts......................... (413) 324 436
------- ------- --------
Net cash used in operating activities.............. (1,302) (2,420) (11,905)
------- ------- --------
Cash flows used in investing activities
Purchases of fixed assets.......................... (157) (369) (2,601)
Capitalized software additions..................... -- -- (681)
------- ------- --------
Net cash used in investing activities.............. (157) (369) (3,282)
------- ------- --------
Cash flows provided by (used in) financing activi-
ties
Borrowings under bridge financing arrangement from
stockholders...................................... -- 1,300 3,000
Proceeds received from note payable................ -- -- 1,655
Principal payments made on note payable............ (13) (974) (22)
Notes receivable from officers..................... -- -- (1,302)
Proceeds on repayment of officer notes receivable.. -- -- 9
Payments on capital lease obligations.............. (104) (140) (129)
Proceeds from issuance of Series B redeemable con-
vertible preferred stock, net of issuance costs... 1,540 -- --
Proceeds from issuance of Series C redeemable con-
vertible preferred stock and preferred stock war-
rants, net of issuance costs...................... -- 4,905 --
Proceeds from issuance of Series D redeemable con-
vertible preferred stock, net of issuance costs... -- -- 20,876
Proceeds from issuance of Series E redeemable con-
vertible preferred stock and common stock war-
rants, net of issuance costs...................... -- -- 23,899
Proceeds from exercise of stock options............ -- -- 47
Proceeds from issuance of restricted stock......... -- -- 52
------- ------- --------
Net cash provided by financing activities.......... 1,423 5,091 48,085
------- ------- --------
</TABLE>
See accompanying notes.
F-44
<PAGE>
eCredit.com, Inc.
Consolidated Statements of Cash Flows (continued)
(In Thousands)
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1997 1998 1999
-------------- --------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents... $ (36) $ 2,302 $ 32,898
Cash and cash equivalents, beginning of period......... 46 10 2,312
----- ------- --------
Cash and cash equivalents, end of period............... $ 10 $ 2,312 $ 35,210
===== ======= ========
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 128 $ 147 $ 72
Supplemental disclosure of non-cash investing and fi-
nancing activities:
Additions to capital lease obligations for purchases
of fixed assets..................................... $ 214 $ 96 $ 63
Conversion of note payable to stockholders into
redeemable convertible preferred stock.............. -- 1,300 3,000
</TABLE>
See accompanying notes
F-45
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
1. Nature of Business
eCredit.com, Inc. (the "Company" or "eCredit") is a provider of Internet
and client server-based credit management and financing solutions for business-
to-business and business-to-consumer commerce. The Company's principal market
is the United States. The Company manages its business as a single segment.
The Company is subject to risks common to technology-based companies
including, but not limited to, the development of new technology, development
of markets and distribution channels, and dependence on key personnel.
The Company has experienced operating losses since inception and through
December 31, 1999. Such losses resulted from the Company's lack of substantial
revenue in addition to costs incurred in the development of the Company's
services and in the establishment of the Company's market presence. For the
foreseeable future the Company expects to continue to experience significant
growth in its operating expenses in order to execute its business plan,
particularly engineering and development, and sales and general and
administrative expenses.
eCredit expects to seek additional financing through further rounds of
private equity financing or an initial public offering. In the event that the
Company were to be unable to raise further financing to meet its anticipated
cash needs for working capital and capital expenditures, eCredit would reduce
its current growth plans. Management believes, if required, it is able to
reduce its cost structure and therefore meet its working capital requirements
for the next 12 months.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, SRR Solutions (India) Private Limited, a
company incorporated under the laws of India and eCredit.com Limited, a company
incorporated in the United Kingdom. At December 31, 1999, the Company owned 99%
and 100% of the subsidiaries, respectively; amounts pertaining to the minority
interest are insignificant. All intercompany accounts and transactions have
been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents include money market funds at December 31, 1998 and 1999. The
carrying value of these instruments approximates their fair values.
Advertising Expenses
The Company expenses advertising costs as incurred. Advertising costs
were approximately $82,000, $92,000 and $2,940,000 for the years ended December
31, 1997, 1998 and 1999, respectively.
F-46
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
2. Summary of Significant Accounting Policies--(continued)
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets. Equipment held
under capital lease is stated at the lower of the fair value of the equipment
or the present value of the minimum lease payments at the inception of the
lease and is amortized on a straight-line basis over the shorter of the
estimated lives of the related assets or the lease term.
Stock Split
On October 1, 1999, the Company authorized a three-for-one stock split of
its common stock. As a result, all common stock share data included in the
accompanying consolidated financial statements and notes have been
retroactively restated for this split.
Research and Development
The Company's products are highly technical in nature and require a large
and continuing research and development effort. All research and development
costs are expensed as incurred.
Costs associated with the development of computer software that is to be
sold to customers are accounted for in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed" (FAS 86) and are expensed as incurred
prior to establishing technological feasibility. Technological feasibility is
demonstrated by a working model. Software development costs are capitalized
thereafter until the product is available for general release. Software
development costs qualifying for capitalization under FAS 86 were not
significant during the years ended December 31, 1997, 1998, and 1999.
Capitalized Software Development Costs
Capitalized software costs consist of costs incurred in the development
of the Company's internet-based technology. Such costs consist of salaries and
personnel costs for the design, deployment and enhancement of the Company's
technology. The Company capitalizes such costs under Statement of Position 98-
1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). Under SOP 98-1, costs of internal use software are
expensed during the preliminary project and post- implementation stages. Costs
are capitalized during the application development stage. Capitalization ends
when the project is substantially complete and the software is ready for its
intended use. The Company adopted SOP 98-1 on January 1, 1999. There has been
no amortization of cost to date.
The carrying value of the Company's software costs are reviewed on a
quarterly basis for the existence of facts and circumstances both internally
and externally that may suggest impairment. If an impairment is indicated, the
Company will adjust the carrying value of its capitalized software costs,
accordingly.
Revenue Recognition
The Company's software systems are sold for a one-time perpetual license
fee. The license fee is recognized upon the delivery of the software when the
system does not require significant customization, modification, integration or
installation services (collectively, "related implementation services"), and
fees for
F-47
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
2. Summary of Significant Accounting Policies--(continued)
services are recognized as the services are performed provided that the related
contract is executed, fees are fixed and determinable and collection is
probable. When significant implementation services are required, the license
fee and fees for these services are recognized as the services are performed
utilizing the percentage of completion method based on cost incurred in
relation to expected total cost upon completion. Service revenues consist of
consulting fees not related to initial deliveries of systems and revenues for
software support contracts. Consulting fees are recognized as the services are
performed. Revenues from software support contracts are deferred and recognized
on a straight-line basis over the contract period, which is typically one year.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations. Accordingly, compensation
expense is recorded for stock options awarded to employees and directors to the
extent that the option exercise prices are less than the common stock's fair
market value on the date of grant, where the number of shares and exercise
price are fixed. The difference between the fair value of the Company's common
stock and the exercise price of the stock option, if any, is recorded as
deferred compensation and is amortized to compensation expense over the vesting
period of the underlying stock option. The Company follows the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123). All stock-based awards to
non-employees are accounted for at their fair value in accordance with FAS 123.
Net Loss Per Share
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128
requires the calculation and presentation of basic and diluted earnings per
share. Basic earnings per share is calculated based on the weighted-average
number of common shares outstanding, and excludes any dilutive effects of
warrants, stock options, or other types of securities. Diluted earnings per
share is calculated based on the weighted-average number of common shares
outstanding and the dilutive effect of stock options, warrants, and related
securities. Dilutive securities are excluded from the diluted earnings per
share calculation if their effect is antidilutive.
Concentration of Credit Risk and Major Customers
Financial instruments which potentially subject the Company to
concentrations of credit risk include cash, cash equivalents and accounts
receivable. The Company invests its excess cash in money market funds of major
financial institutions that, in management's opinion, are subject to minimal
credit and market risk.
The Company sells its products primarily to Fortune 500 corporate
customers located domestically. Concentrations of credit risk with respect to
trade receivables are limited due to the stability of the customers comprising
the Company's customer base. The Company performs ongoing evaluations of its
customers' financial condition and, consistent with industry practice, does not
generally require collateral. The Company monitors its accounts receivable
credit risk as a matter of policy, and losses on accounts receivable have
historically been within the Company's estimates. At December 31, 1998, three
customers accounted for 14%, 13%, and 12% of the Company's accounts receivable.
At December 31, 1999, one customer accounted for 63% of the Company's accounts
receivable.
F-48
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
2. Summary of Significant Accounting Policies--(continued)
For the year ended December 31, 1997, two customers accounted for 25% and
15% of the Company's total revenue. For the year ended December 31, 1998, one
customer accounted for 11% of the Company's total revenue. For the year ended
December 31, 1999, one customer accounted for 45% of the Company's total
revenue.
Foreign Currency Translation
The functional currency for the Company's foreign operations is the U.S.
dollar. Assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at exchange rates in effect as of the balance
sheet date and nonmonetary assets and liabilities are translated at historical
exchange rates. Results of operations are translated at the average exchange
rates for the period. Foreign exchange gains and losses, which are
insignificant, are included in the Company's results of operations.
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 reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Components particularly subject to
estimation include revenue recognized under the percentage-of-completion method
and the corresponding deferred revenue amount. Actual results could differ from
these estimates.
Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, which include
cash and cash equivalents accounts receivable, notes receivable, accounts
payable, accrued expenses and notes payable approximate their fair values at
December 31, 1998 and 1999.
Accounts Receivable
At December 31, 1998 and 1999, accounts receivable included unbilled
amount of approximately $79,000 and $477,000, respectively.
Notes Receivable from Officers
Notes receivable from officers are full-recourse notes with certain of
the Company's executive officers. The notes bear interest at market rates and
are due on December 30, 2005.
Income Taxes
Deferred taxes are determined based on the difference between financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Valuation
allowances are provided, if, based upon the weight of available evidence, it is
more likely than not some or all of the deferred tax assets will not be
realized.
F-49
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
2. Summary of Significant Accounting Policies--(continued)
Segment Reporting
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (FAS 131). This statement requires
companies to report information about operating segments consistent with
management's internal view of the Company. The Company adopted FAS 131
effective for its fiscal year ended December 31, 1998. The Company operates in
a single segment: retail domestic sales and related services. As of December
31, 1999, the Company has no organizational structure dictated by product
lines, geography or customer type.
Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in financial statements. The adoption of FAS 130 did not impact the
Company's financial statements as the Company had no items of other
comprehensive income during the years ended December 31, 1997, 1998 and 1999.
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued Statement of
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 provides guidance regarding
when software developed or obtained for internal use should be capitalized. SOP
98-1 is effective for fiscal years beginning after December 15, 1998.
eCredit.com adopted SOP 98-1 on January 1, 1999, resulting in capitalization of
$681,000 through December 31, 1999 related to the Global Financing Network.
In December 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position 98-9 (SOP 98-9), "Modification of SOP No. 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 (as amended by SOP 98-4) to require recognition of revenue
using the "residual method" in circumstances outlined in SOP 98-9. Under the
residual method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related
to the delivered elements. SOP 98-9 is effective for transactions entered into
in fiscal years beginning after March 15, 1999 (calendar 2000 for the Company).
Also, the provisions of SOP 97-2 that were deferred by SOP 98-4 will
continue to be deferred until the date SOP 98-9 becomes effective. The Company
does not expect that the adoption of SOP 98-9 will have a significant impact on
its results of operations or financial position.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (FAS
133) which establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company, to date, has
not engaged in derivative and hedging activities, and accordingly does not
believe that
F-50
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
2. Summary of Significant Accounting Policies--(continued)
the adoption of FAS 133 will have a material impact on its financial reporting
and related disclosures. The Company will adopt FAS 133 as required by FAS 137,
"Deferral of the Effective Date of the FASB Statement No. 133," in fiscal year
2001.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB101), "Revenue Recognition in Financial
Statements." SAB101 summarizes the application of generally accepted accounting
principles to revenue recognition in financial statements. On March 24, 2000,
the SEC issued an amendment to SAB101 delaying the effective date for certain
companies. The Company will adopt SAB101 in the second quarter of fiscal 2000
and is presently analyzing the impact that SAB101 will have on its financial
statements. Based on the Company's review to date, SAB101 is not expected to
materially impact the Company's financial position or operating results.
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Estimated December 31
useful life --------------
(years) 1998 1999
------------- --------------
(in thousands)
<S> <C> <C> <C>
Furniture and fixtures............................ 5-7 $ 166 $ 607
Computer equipment................................ 3-5 1,096 2,971
Leasehold improvements............................ Term of lease 87 427
------ -------
1,349 4,005
Less accumulated depreciation and amortization.... 768 1,243
------ -------
$ 581 $ 2,762
====== =======
</TABLE>
At December 31, 1998 and 1999, assets held under capital lease totaled
approximately $626,000 and $677,000, respectively. Amortization expense of
equipment held under capital lease approximated $97,000, $120,000 and $112,000
for the years ended December 31, 1997, 1998, and 1999 respectively. Related
accumulated amortization of assets held under capital lease totaled
approximately $427,000 and $538,000 at December 31, 1998 and 1999,
respectively.
4. Accrued Expenses
Accrued liabilities consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
---------------
(in thousands)
<S> <C> <C>
Consulting and professional.................................... $ 110 $ 1,225
Legal.......................................................... 33 549
Vacation....................................................... 246 458
Bonus.......................................................... 162 443
Other.......................................................... 110 524
------ --------
Total.......................................................... $ 661 $ 3,199
====== ========
</TABLE>
F-51
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
5. Note Payable and Lines-of-Credit
On October 31, 1997 borrowings under a prior line-of-credit were replaced
by a $1,000,000 demand note payable (the "Note") secured by the Company's
accounts receivable and intangible assets. The Note originally expired on
December 31, 1997 and was extended to June 30, 1998. In May 1998, the Company
entered into a line-of-credit agreement (the "Line") with another bank to
provide maximum borrowings of $1,500,000; borrowings under the Line were used
to repay the Note in the amount of $973,800. The Line was scheduled to expire
in January 2000. At December 31, 1998, there were no borrowings outstanding
under the Line. In July 1999 the Company amended and restated its Line entered
into in May 1998. The amended facility provides for maximum borrowings of
$2,500,000 under a revolving line and $500,000 under an equipment line of
credit, subject to a limit of $1,500,000 until the Company closes equity
financing. In November 1999, as a result of equity financing, the Company
amended its line-of-credit entered into in July 1999. The amended facility
provides maximum borrowings of $3,000,000 under a revolving line and $2,000,000
under an equipment line. The ability to draw on the revolving line and the
equipment line expires in July 2000 and September 2000, respectively. Repayment
of amounts drawn on the lines occurs based on the maturity schedule as defined
in the agreement, through 2003. Interest is payable monthly at the prime rate
plus 0.75% for the revolving line and at the prime rate plus 1.0% for the
equipment line. The Company is required to comply with certain financial
covenants including maintaining certain financial statement ratios. At December
31 1999, there were no borrowings outstanding under the revolving line-of-
credit and $1,633,000 outstanding under the equipment line. Borrowing under the
revolving line-of-credit and equipment line are secured by substantially all
business assets.
Scheduled principal repayments on long-term debt are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Year end December 31:
2000............................................................. $ 461
2001............................................................. 568
2002............................................................. 531
2003............................................................. 73
------
$1,633
======
</TABLE>
6. Redeemable Convertible Preferred Stock
In September 1993, the Company issued 425,532 shares of Series A
redeemable convertible preferred stock (the "Series A preferred stock") at a
price of $2.35 per share for total cash proceeds of $1,000,000. In June 1995,
bridge loans totaling $650,000 were converted into 276,595 shares of Series A
preferred stock, and 244,681 shares of Series A preferred stock were sold for
total cash proceeds of $575,000.
In May 1997, the Company issued 184,432 shares of Series B redeemable
convertible preferred stock (the "Series B preferred stock") at a price of
$8.35 per share for total cash proceeds of $1,540,000.
In September 1998, the Company issued 598,802 shares of Series C
redeemable convertible preferred stock (the "Series C preferred stock") at a
price of $8.35 per share for total cash proceeds of $4,905,000. In addition,
bridge loans issued during 1998 totaling $1,300,000 were converted into 158,354
shares of Series C preferred stock at a price of $8.35 per share. In
conjunction with the issuance of Series C preferred stock, the Company issued
warrants for the purchase of 539,920 additional shares of Series C preferred
stock at a price of $8.35 per share. The Company ascribed a value of $394,000
to these warrants which is included in additional
F-52
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
6. Redeemable Convertible Preferred Stock--(continued)
paid in capital at December 31, 1999. The warrants expire on the earlier of
September 21, 2003 or the date on which the Company completes a qualifying
public offering of its common stock, as defined in the agreement.
On October 22, 1999 and November 12, 1999, the Company issued 3,989,473
and 1,869,192 shares, respectively, of Series D redeemable convertible
preferred stock (the "Series D preferred stock") at a price of $3.58 per share
for net proceeds of $20,876,000. Also, on October 22, 1999, the Company issued
836,953 shares of Series D preferred in exchange for the conversion of a
$3,000,000 bridge note payable.
On December 22, 1999, the Company issued 1,435,535 shares of Series E
Redeemable convertible preferred stock (the "Series E preferred stock") at a
price of $16.72 per share for net proceeds of $23,899,000. In conjunction with
the Series E preferred stock issuance, the Company issued warrants for the
purchase of 191,378 shares of its common stock at a price of $25.08 per share.
The Company ascribed a value of $959,000 to these warrants, which is included
in additional paid in capital at December 31, 1999. These warrants expire on
the earlier of December 22, 2001 or the sale of the Company. In conjunction
with the issuance of Series C preferred stock, certain rights of the Series A
and Series B preferred stock were conformed with the Series C preferred stock.
The Series A, Series B, Series C, Series D and Series E preferred stock have
the following characteristics:
Conversion Rights
The Series A, Series B, Series C, Series D and Series E preferred stock
is convertible into the Company's common stock, at any time, at the rate of
3.0, 4.5, 5.0, 1.0 and 1.0 shares of common stock, respectively, for each share
of preferred stock, adjustable for certain dilutive events, as defined by the
agreement.
The Series A, Series B, Series C, Series D and Series E preferred stock
is automatically converted into 3.0, 4.5, 5.0, 1.0 and 1.0 shares of common
stock, respectively, upon the closing of an initial public offering in which
proceeds to the Company equal or exceed $20,000,000 and in which the price to
the public is at least $8.35 per common share.
Liquidation Preference
Upon liquidation of the Company, the Series E preferred stockholders
shall first be entitled to $16.72 per share. The Series D preferred
stockholders, which as a shareholder class are subordinate to the Series E
preferred stockholders, are entitled to $3.58 per share. The Series A, Series
B, and Series C preferred stockholders, which as a class are subordinate to the
Series D and Series E preferred stockholders, are entitled to $2.35, $8.35, and
$8.35, respectively, per share. If any net assets are remaining after the
preferred stock payments, they shall be distributed pro-rata among preferred
and common stockholders.
Voting Rights
The holders of the preferred stock are entitled to the number of votes
equal to the number of shares of common stock into which the shares of
preferred stock could be converted at the time the vote is taken.
Protective Provisions
As long as at least 50% of the collective initially issued shares of
Series A, Series B, Series C, Series D and Series E preferred stock remain
outstanding, consent of the holders of at least two-thirds of the Series A,
F-53
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
6. Redeemable Convertible Preferred Stock--(continued)
Series B, Series C, Series D and Series E preferred stock, voting together as
a single class, will be required for the approval of certain events relating
to the sale, merger, liquidation or winding up of the Company, the issuance of
additional preferred stock or significant borrowings, as defined by the
agreement.
Dividend Rights
No dividend will accrue or be paid on preferred stock unless declared by
the Board of Directors.
Redemption
Two-thirds of the Series A, Series B, Series C, Series D and Series E
preferred stock, voting together as a single class, may require the Company to
redeem the Series A, Series B Series C, Series D and Series E preferred stock
in two equal annual installments commencing on December 22, 2004, at a
redemption price equal to the greater of the fair market value or the original
purchase price per share of each Series plus any accrued and unpaid dividends.
7. Common Stock
Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of the Company's stockholders. As long as the
preferred stock is outstanding, no dividends shall be paid on the common
stock.
At December 31, 1999, the Company had 24,573,132 shares of its common
stock reserved for issuance upon conversion of preferred stock and exercise of
warrants and options.
In conjunction with the issuance of restricted common stock, the Company
received full recourse notes receivable from officers of the Company in the
amount of $2,841,000, from Advisory Directors in the amount of $100,000, and
made advances to Directors in the amount of $154,000. The notes bear interest
at 6.02% and are payable in full by October 19, 2005.
8. Stock Option Plan
In September 1993, the Company adopted the 1993 Stock Option Plan (the
"1993 Plan"). The 1993 Plan provides for issuance of nonqualified stock
options, awards of restricted stock, and direct stock purchase opportunities
to directors, officers, employees and consultants of the Company. At December
31, 1999 the total number of shares which could be issued under the 1993 Plan
was 712,941. As of December 31, 1999 no options were available for future
grant under the 1993 Plan. Nonqualified options may be granted at an exercise
price less than, equal to or greater than the fair market value on the date of
grant, as determined by the Board of Directors. Vesting of the options is over
a four year period.
In September 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for issuance of incentive stock options
to employees of the Company and non-qualified stock options, awards of
restricted stock, and direct stock purchase opportunities to directors,
officers, employees and consultants of the Company. The total number of shares
which may be issued under the 1998 Plan is 9,338,184. At December 31, 1999,
there were 4,570,236 options outstanding under the 1998 Plan and 843,675
available for future grant. Incentive stock options may not be granted at less
than the fair market value of the Company's common stock at the date of grant
and for a term not to exceed ten years. For holders of 10% or more of the
F-54
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
8. Stock Option Plan--(continued)
Company's outstanding common stock, options may not be granted at less than
110% of the fair market value of the common stock at the date of grant and the
option term may not exceed five years. Incentive stock options and nonqualified
stock options vest over a four year period.
A restricted stock award, as allowed by the 1993 Plan and 1998 Plan,
provides for the issuance of common stock to directors, officers, consultants
and other key personnel at prices determined by the Board of Directors.
Participants unvested shares are subject to repurchase by the Company at the
original purchase price plus interest accrued for up to four years.
A summary of the activity under the Company's 1993 Plan and 1998 Plan as
of December 31, 1999, and changes during the three years then ended is
presented below:
<TABLE>
<CAPTION>
Weighted-
Number of average
Shares exercise price
---------- --------------
<S> <C> <C>
Outstanding--December 31, 1996....................... 439,800 $0.78
Granted (exercise price equal to fair value)........ 375,870 1.18
Canceled............................................ (11,400) 0.78
---------- -----
Outstanding--December 31, 1997....................... 804,270 0.97
Granted (exercise price equal to fair value)........ 338,250 1.19
Granted (exercise price below fair value)........... 141,000 .78
Canceled............................................ (64,500) 0.97
---------- -----
Outstanding--December 31, 1998....................... 1,219,020 1.01
Granted (exercise price below fair value)........... 8,473,509 1.77
Exercised........................................... (3,963,648) 0.81
Canceled............................................ (445,704) 0.84
---------- -----
Outstanding--December 31, 1999....................... 5,283,177 $2.35
========== =====
</TABLE>
There were 327,450, 458,961 and 624,100 stock options that were
exercisable at December 31, 1997, 1998 and 1999, respectively.
The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Weighted-
average
remaining
Options contractual Options
outstanding life in years exercisable
Exercise price ----------- ------------- -----------
<S> <C> <C> <C>
$0.78 3,307,680 9.0 534,663
1.19 235,875 8.2 89,437
5.50 1,739,622 9.9 -
--------- -------
5,283,177 624,100
========= =======
</TABLE>
FAS 123 encourages but does not require companies to record compensation
cost for stock-based employee compensation at fair value. The Company has
chosen to account for stock-based compensation granted to employees using the
intrinsic value method prescribed in APB 25 and related interpretations.
Accordingly, deferred compensation cost for restricted stock awards and stock
options granted to employees is measured as the excess, if any, of the fair
value of the Company's stock at the date of the grant over the
F-55
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
8. Stock Option Plan--(continued)
amount that must be paid to acquire the stock. From January 1, 1999 through
December 31, 1999, the Company recorded approximately $37,181,000 in deferred
compensation for restricted stock awards and options to purchase common stock
granted at exercise prices subsequently determined to be below the fair value
of the common stock on the date of grant. Compensation expense of approximately
$2,175,000 was recognized during 1999.
Option valuation models have been developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. Such models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The fair value
of each option grant is estimated on the date of grant using the minimum value
method. The following assumptions were made for grants in 1997, 1998, and 1999,
respectively:
<TABLE>
<CAPTION>
1997 1998 1999
---- ----------- -----------
<S> <C> <C> <C>
Dividend yield..................................... 0% 0% 0%
Expected lives of options (years).................. 5 5 5
Risk-free interest rate............................ 6.2% 4.41%-5.46% 5.25%-6.24%
Volatility......................................... -- -- --
</TABLE>
The fair value of the options granted during 1997 is estimated to be
$0.22. The fair value of the options granted during 1998 is estimated to be
$0.28 for options granted with exercise prices equal to the common stock fair
value and $1.10 for options granted with exercise prices below the common stock
fair value. The fair value of the options granted during 1999 is estimated to
be $4.73. Had the Company accounted for stock options to employees under the
fair value method prescribed under FAS 123, pro forma net losses attributable
to common stockholders, and basic diluted net loss per share would have been as
follows (the effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts):
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ -------------
(in thousands except per share data)
<S> <C> <C> <C>
Net loss attributable to common
stockholders (as reported).......... $ (1,946) $ (7,608) $ (328,552)
Stock compensation................... (18) (114) (2,583)
----------- ----------- -------------
Pro forma net loss attributable to
common stockholders................. $ (1,964) $ (7,722) $ (331,135)
=========== =========== =============
Pro forma basic and diluted net loss
per share........................... $ (0.94) $ (3.68) $ (110.88)
</TABLE>
F-56
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
9. Income Taxes
A reconciliation of the Company's income tax provision to the statutory
federal provision is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
------- ------- --------
(in thousands)
<S> <C> <C> <C>
Statutory federal income tax provision............... $ (662) $ (860) $ (5,567)
State income taxes net of federal tax benefit........ (121) (157) (1,136)
Change in deferred tax asset valuation allowance..... 778 1,010 7,617
Stock compensation expense........................... -- -- (970)
Other................................................ 5 7 56
------ ------ --------
Income tax provision................................. $ -- $ -- $ --
====== ====== ========
</TABLE>
At December 31, 1999, the Company had unused net operating loss
carryforwards of approximately $24,956,000 available to reduce federal and
state taxable income, these loss carryforwards expire through 2019. Due to the
degree of uncertainty related to the use of the loss carryforwards, the Company
has fully reserved this tax benefit. Additionally, the future utilization of
the net operating loss carryforwards may be subject to limitations under the
change in stock ownership rules of the Internal Revenue Service.
Significant components of the Company's deferred tax assets are as
follows:
<TABLE>
<CAPTION>
1998 1999
------ -------
(in thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $2,670 $ 9,975
Other......................................................... 7 338
Tax credit carryforwards...................................... 153 134
------ -------
Total deferred tax assets...................................... 2,830 10,447
Valuation allowance............................................ (2,830) (10,447)
------ -------
Net deferred tax assets........................................ $ -- $ --
====== =======
</TABLE>
The valuation allowance increased by $1,010,000 and $7,617,000 during
1998 and 1999, respectively, due primarily to the increase in net operating
loss carryforwards.
10. Employee Benefit Plan
In 1995, the Company established a savings plan for its employees which
is designed to be qualified under Section 401(k) of the Internal Revenue Code.
Eligible employees are permitted to contribute to the 401(k) plan within
statutory and plan limits. The Company has not contributed to the savings plan
to date.
F-57
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
11. Commitments
Leases
The Company leases its operating facilities and certain computer
equipment and furniture and fixtures under noncancelable operating and capital
lease agreements. Rent expense for the years ended December 31 1997, 1998 and
1999 was $137,000, $311,000, and $505,000, respectively. Future minimum lease
commitments at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Lease Leases
Year ending December 31: --------- -------
(in thousands)
<S> <C> <C>
2000.......................................................... $1,111 $ 97
2001.......................................................... 559 39
2002.......................................................... 556 21
2003.......................................................... 556 21
2004.......................................................... 555 11
Thereafter.................................................... 1,657 --
------ ----
Total minimum lease payments.................................. $4,994 189
======
Less amount represent interest................................ (44)
----
Present value of minimum lease payments....................... $145
====
</TABLE>
The Company's obligations on one of its operating leases is
collateralized by a $780,000 letter-of-credit with a commercial bank. The
letter of credit is collateralized by a $520,000 certificate of deposit held by
eCredit. The certificate of deposit has been classified as a component of Other
Assets at December 31, 1999.
Employment Agreements
During 1994, the Company entered into a separation agreement with an
officer and stockholder. Pursuant to the terms of the separation agreement, the
Company repurchased 450,000 shares of common stock for $225,000 and entered
into a stock call option agreement. Pursuant to the stock call option, the
Company may purchase an additional 300,000 shares held by the former officer at
fair market value on the date of exercise. The call option terminates upon the
earlier of June 26, 2000 or immediately subsequent to a public offering of
common stock, or a sale, liquidation or merger of the Company, as defined by
the agreement.
In April 1999, the Company entered into a separation agreement with an
officer of the Company. Pursuant to the terms of the separation agreement, the
Company repriced the then vested options to allow the officer to acquire 81,666
shares of common stock at $0.78 per share. Accordingly, under the Proposed
Interpretation of APB 25, the Company will be required to recognize
compensation expense on July 1, 2000 for the effect of the repricing.
F-58
<PAGE>
eCredit.com, Inc.
Notes to Consolidated Financial Statements--(Continued)
12. Subsequent Events--Pro Forma Balance Sheet, Statement of Operations and Net
Loss Per Share (Unaudited)
On February 24, 2000 the Company signed a definitive exchange offer
agreement with Internet Capital Group, Inc ("ICG"). ICG will offer to purchase
from existing stockholders 30% of eCredit common stock, including authorized
but unallocated options, on a fully diluted basis. Upon the closing of the
exchange offer, ICG will exchange that number of shares of ICG common stock
equal to $450,000,000 divided by the average closing share price of ICG common
stock on the three consecutive days preceding the second trading day preceding
the close of the transaction. The implied price per eCredit common share is
$48.68. Prior to the expiration of the exchange offer, eCredit preferred stock
will convert into common stock.
eCredit will grant ICG a warrant to purchase up to 5% of eCredit common
stock on a fully-diluted basis, which is exercisable over a period of 48 months
following an initial public offering at an aggregate price of $300,000,000
during the first 18 months and $400,000,000 thereafter until expiration. The
value of the warrant approximates $40,000,000.
The unaudited pro forma balance sheet is stated as if the transaction
occurred at December 31, 1999, the unaudited pro forma statement of operations
is stated as if the transaction occurred at January 1, 1999. The pro forma
balance sheet and statement of operations reflect the following:
* Conversion of all its outstanding shares of preferred stock into a total of
15,568,622 shares of common stock
* Acceleration and exercise of 1,579,853 common stock options at a weighted
average exercise price of $2.32. Such acceleration and exercise, in
conjunction with the issuance of the warrant results in a stock compensation
charge of $62,000,000, and acceleration of deferred compensation of
$8,800,000. This assumes an implied price per eCredit common share of
$48.68.
* Issuance of warrants to ICG, valued at approximately $40,000,000, in
connection with the purchase of eCredit's shares. Such warrants are
exercisable upon an initial public offering of shares of eCredit.
F-59
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To RightWorks Corporation:
We have audited the accompanying balance sheets of RightWorks Corporation (a
California corporation) as of December 31, 1999 and 1998, and the related
statements of operations and comprehensive loss, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company'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 financial statements referred to above present fairly, in
all material respects, the financial position of RightWorks Corporation as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
April 11, 2000
F-60
<PAGE>
RIGHTWORKS CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents........................... $11,921,721 $3,948,840
Accounts receivable, net of allowance for doubtful
accounts of $30,000 and $0, respectively........... 3,162,920 58,500
Prepaid expenses and other current assets........... 128,960 44,930
Deferred debt costs, current portion................ 41,779 --
----------- ----------
Total current assets............................... 15,255,380 4,052,270
Property and Equipment, net......................... 412,683 175,515
Other Assets........................................ 24,432 27,825
Deferred debt costs, less current portion........... 76,596 --
----------- ----------
Total assets....................................... $15,769,091 $4,255,610
=========== ==========
Liabilities And Shareholders' Equity
Current Liabilities:
Accounts payable.................................... $ 634,518 $ 204,196
Accrued payroll..................................... 866,094 250,682
Accrued professional services....................... 317,155 --
Deferred revenue.................................... 1,760,583 58,500
Other current liabilities........................... 273,780 --
Capital leases, current portion..................... 106,471 --
Notes payable, current portion...................... 576,706 --
----------- ----------
Total current liabilities.......................... 4,535,307 513,378
Capital leases, less current portion................. 206,111 --
Notes payable, less current portion.................. 2,423,294 --
----------- ----------
Total liabilities.................................. 7,164,712 513,378
----------- ----------
Commitments (Note 4)
Shareholders' Equity:
Convertible preferred stock, $0.001 par value;
Series A:
Authorized--3,000,000 shares
Outstanding--3,000,000 shares in 1999 and 1998;
liquidation preference of $150,000................ 3,000 3,000
Series B:
Authorized--4,946,000 shares
Outstanding--4,946,000 shares in 1999 and 1998;
liquidation preference of $525,018................ 4,946 4,946
Series C:
Authorized--9,139,485 shares
Outstanding--9,139,485 shares in 1999 and 1998;
liquidation preference of $1,902,110.............. 9,139 9,139
Series D:
Authorized--7,838,085 shares
Outstanding--7,838,085 shares in 1999 and 1998;
liquidation preference of $2,250,000.............. 7,838 7,838
Series E:
Authorized--14,417,093 shares
Outstanding--12,700,370 shares in 1999 and 1998;
liquidation preference of $1,831,012.............. 12,701 12,701
Series F:
Authorized--35,000,000 shares
Outstanding--34,681,280 shares in 1999 and 1998;
liquidation preference of $5,000,000.............. 34,681 34,681
Series G:
Authorized--1,000,000 shares
Outstanding--935,616 shares in 1999 and no shares
in 1998; liquidation preference of $748,493....... 936 --
Series H:
Authorized--8,428,935 shares
Outstanding--5,845,938 shares in 1999 and no shares
in 1998; liquidation preference of $13,094,901.... 5,846 --
Series H-1:
Authorized--6,621 shares
Outstanding--no shares in 1999 and 1998; liquida-
tion preference of $0............................. -- --
Series I:
Authorized--3,500,000 shares
Outstanding--162,179 shares in 1999 and no shares
in 1998; liquidation preference of $501,663....... 162 --
Common stock, $0.001 par value:
Authorized--100,000,000 shares
Outstanding--4,409,885 shares in 1999 and 1,855,152
shares in 1998.................................... 4,410 1,855
Warrants............................................. 567,495 161,293
Additional paid-in capital........................... 28,946,240 11,583,708
Notes receivable from shareholders................... (367,667) --
Deferred compensation................................ (3,239,420) --
Accumulated deficit.................................. (17,385,928) (8,076,929)
----------- ----------
Total shareholders' equity........................... 8,604,379 3,742,232
----------- ----------
Total liabilities and shareholders' equity........... $15,769,091 $4,255,610
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
RIGHTWORKS CORPORATION
Statements Of Operations And Comprehensive Loss
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Product license...................... $ 2,149,757 $ -- $ --
Services............................. 273,667 75,000 19,160
Discount related to warrant.......... (271,887) -- --
----------- ----------- -----------
Total revenue...................... 2,151,537 75,000 19,160
Cost of Revenue........................ 429,960 -- --
----------- ----------- -----------
Gross Profit....................... 1,721,577 75,000 19,160
----------- ----------- -----------
Operating Expenses:
Research and development............. 3,344,721 2,262,607 1,200,707
Sales and marketing.................. 6,061,872 2,261,838 312,691
General and administrative........... 1,543,769 1,036,573 551,936
Amortization of deferred compensa-
tion................................ 150,578 -- --
----------- ----------- -----------
Total operating expenses........... 11,100,940 5,561,018 2,065,334
----------- ----------- -----------
Loss from operations................... (9,379,363) (5,486,018) (2,046,174)
Interest and Other Income (Expense),
net................................... 70,364 (135,547) 29,337
----------- ----------- -----------
Net Loss and Comprehensive Loss........ $(9,308,999) $(5,621,565) $(2,016,837)
=========== =========== ===========
Basic and diluted net loss per common
share................................. $ (5.05) $ (3.48) $ (1.44)
=========== =========== ===========
Shares used in computing basic and di-
luted net loss per common share....... 1,845,000 1,615,000 1,402,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
RIGHTWORKS CORPORATION
Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
------------------ -----------------
Notes
Additional Receivable
Paid-In From Deferred Accumulated
Shares Amount Shares Amount Warrants Capital Shareholders Compensationt Deficit Total
- ---------------- ---------- ------- --------- ------ -------- ----------- ------------ ------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1996........... 7,946,000 $ 7,946 1,289,833 $1,290 $ -- $ 688,648 $ -- $ -- $ (438,527) $ 259,357
Issuance of
Series C
convertible
preferred,
net............ 9,139,485 9,139 -- -- -- 1,892,161 -- -- -- 1,901,300
Exercise of
stock options.. -- -- 226,555 227 -- 9,192 -- -- -- 9,418
Exercise of
options issued
in conjunction
with bridge
financing...... -- -- 152,000 152 -- 7,448 -- -- -- 7,600
Net loss........ -- -- -- -- -- -- -- -- (2,016,837) (2,016,837)
---------- ------- --------- ------ -------- ----------- --------- ----------- ------------ ----------
Balances at
December 31,
1997........... 17,085,485 17,085 1,668,388 1,668 -- 2,597,449 -- -- (2,455,364) 160,838
Issuance of
Series D
convertible
preferred
stock, net..... 7,838,085 7,838 -- -- -- 2,225,559 -- -- -- 2,233,437
Issuance of
Series E
convertible
preferred,
net............ 12,700,370 12,701 -- -- -- 1,802,423 -- -- -- 1,815,124
Issuance of
Series F
convertible
preferred,
net............ 34,681,280 34,681 -- -- -- 4,926,529 -- -- -- 4,961,210
Issuance of
warrants to
purchase Series
E convertible
preferred
stock.......... -- -- -- -- 161,293 -- -- -- -- 161,293
Exercise of
stock options.. -- -- 263,564 264 -- 35,471 -- -- -- 35,735
Repurchase of
common stock... -- -- (76,800) (77) -- (3,763) -- -- -- (3,840)
Net loss........ -- -- -- -- -- -- -- -- (5,621,565) (5,621,565)
---------- ------- --------- ------ -------- ----------- --------- ----------- ------------ ----------
Balances at
December 31,
1998........... 72,305,220 72,305 1,855,152 1,855 161,293 11,583,708 -- -- (8,076,929) 3,742,232
Issuance of
Series G
convertible
preferred stock
in exchange for
technology..... 935,616 936 -- -- -- 133,952 -- -- -- 134,888
Issuance of
Series H
convertible
preferred
stock, net..... 5,845,938 5,846 -- -- -- 13,018,440 (16,667) -- -- 13,007,619
Issuance of
Series I
convertible
preferred
stock, net..... 162,179 162 -- -- -- 432,163 -- -- -- 432,325
Issuance of
warrants to
purchase
convertible
preferred
stock.......... -- -- -- -- 406,202 -- -- -- -- 406,202
Exercise of
stock options.. -- -- 254,907 255 -- 43,758 -- -- -- 44,013
Repurchase of
common stock... -- -- (40,174) (40) -- (4,439) -- -- -- (4,479)
Exercise of
options via
promissory
note........... -- -- 2,340,000 2,340 -- 348,660 (351,000) -- -- --
Deferred
Compensation... -- -- -- -- -- 3,389,998 -- (3,389,998) -- --
Amortization of
deferred
compensation... -- -- -- -- -- -- -- 150,578 -- 150,578
Net loss........ -- -- -- -- -- -- -- -- (9,308,999) (9,308,999)
---------- ------- --------- ------ -------- ----------- --------- ----------- ------------ ----------
Balances at
December 31,
1999........... 79,248,953 $79,249 4,409,885 $4,410 $567,495 $28,946,240 $(367,667) $(3,239,420) $(17,385,928) $8,604,379
========== ======= ========= ====== ======== =========== ========= =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
RIGHTWORKS CORPORATION
Statements Of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss............................... $(9,308,999) $(5,621,565) $(2,016,837)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for bad debt................ 30,000 -- --
Depreciation and amortization......... 306,048 100,490 59,948
Conversion of accrued interest to pre-
ferred stock......................... -- 26,012 --
Warrants issued in conjunction with
bridge financing..................... -- 161,293 --
Valuation of warrants issued in
connection with revenue contracts and
lease lines.......................... 406,202 -- --
Write off of abandoned technology
exchanged for preferred stock........ 134,888 -- --
Changes in operating assets and lia-
bilities:
Accounts receivable.................. (3,134,420) (58,500) 34,457
Prepaid expenses and other current
assets.............................. (84,030) (44,689) 6,825
Other assets......................... 3,393 -- (23,623)
Deferred debt costs.................. (118,325) -- --
Accounts payable and accrued liabili-
ties................................ 1,636,669 244,565 192,089
Deferred revenue..................... 1,702,083 58,500 (10,000)
----------- ----------- -----------
Net cash used in operating activi-
ties............................... (8,426,541) (5,133,894) (1,757,141)
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment..... (60,817) (120,550) (142,246)
----------- ----------- -----------
Net cash used in investing activi-
ties............................... (60,817) (120,550) (142,246)
----------- ----------- -----------
Cash Flows from Financing Activities:
Advances from related party............ -- -- 500,000
Proceeds from bridge financing......... -- 1,650,000 --
Proceeds from issuance of common
stock................................. 44,013 35,735 17,018
Repurchase of common stock............. (4,479) (3,840) --
Proceeds from issuance of preferred
stock, net............................ 13,439,944 6,833,759 1,901,300
Repayments of capital lease obliga-
tions................................. (19,239) -- --
Proceeds from issuance of note pay-
able.................................. 3,000,000 -- --
----------- ----------- -----------
Net cash provided by financing ac-
tivities........................... 16,460,239 8,515,654 2,418,318
----------- ----------- -----------
Net Increase In Cash and Cash Equiva-
lents.................................. 7,972,881 3,261,210 518,931
Cash and Cash Equivalents, Beginning of
Period................................. 3,948,840 687,630 168,699
----------- ----------- -----------
Cash and Cash Equivalents, End of Peri-
od..................................... $11,921,721 $ 3,948,840 $ 687,630
=========== =========== ===========
Supplemental Schedule of Noncash Financ-
ing Activities:
Warrants issued in conjunction with
bridge financing...................... $ -- $ 161,293 $ --
=========== =========== ===========
Write off of abandoned technology ex-
changed for preferred stock........... $ 134,888 $ -- $ --
=========== =========== ===========
Notes receivable from officer in ex-
change for preferred stock............ $ 16,667 $ -- $ --
=========== =========== ===========
Notes receivable from officers for
exercise of common stock options...... $ 351,000 $ -- $ --
=========== =========== ===========
Equipment purchased under capital
leases................................ $ 331,821 $ -- $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements
1. Organization:
RightWorks Corporation (the "Company" or "RightWorks") was incorporated
in California in September 1994 to develop and market Web-based enterprise-
class electronic procurement solutions.
The Company has financed its operations primarily through the sale of
convertible preferred stock. In February 1999, the Company released and shipped
the production version of its initial product and emerged from the development
stage. However, the Company continues to be subject to the risks and challenges
associated with companies in a comparable stage of development, including:
dependence on key employees for technology development and support, dependence
on a limited number of customers, rapidly changing technology, potential
competition from larger, more established companies, the successful development
and marketing of its products and the ability to obtain adequate financing to
support its growth.
The Company incurred a net loss of $9.3 million for the year ended
December 31, 1999 and, as of December 31, 1999, has an accumulated deficit of
$17.4 million. During February 2000 the Company raised approximately $7.1
million in gross proceeds from the sale of its Series I preferred stock. In
March 2000, Internet Capital Group entered into an agreement, with tendering
preferred shareholders of the Company, to acquire a majority interest in the
Company. The Company expects to incur additional losses in the future.
Management anticipates funding future operations through additional equity
financing, as required, and successful operations; however, there is no
assurance that such efforts will be successful.
2. Significant Accounting Policies:
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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.
Statements of Cash Flows
For purposes of the statements of cash flows, RightWorks considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents. Cash equivalents consist of amounts on deposit at
a commercial bank.
Concentration of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, to date, have not been material.
Receivables due from significant customers as a percentage of total
accounts receivable were as follows:
<TABLE>
<CAPTION>
As of
December 31,
---------------
1999 1998
------ ------
<S> <C> <C>
Customer A................................................ * 100%
Customer B................................................ 56% *
Customer C................................................ 13% *
</TABLE>
* Represents less than 10% for the indicated period.
F-65
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
Sales to significant customers as a percentage of total revenues were as
follows:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Customer B.................................................. 86% * *
Customer D.................................................. * * 49%
Customer E.................................................. * * 51%
Customer F.................................................. * 67% *
Customer G.................................................. * 33% *
</TABLE>
--------
* Represents less than 10% for the indicated period.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives of the assets, which
is generally three years. Depreciation expense is included in operating
expenses.
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Computer equipment................................... $ 592,240 $ 279,062
Furniture and fixtures............................... 136,933 69,370
Purchased software................................... 24,397 12,500
--------- ---------
753,570 360,932
Accumulated depreciation and amortization............ (340,887) (185,417)
--------- ---------
Property and equipment, net.......................... $ 412,683 $ 175,515
========= =========
</TABLE>
Software Development Costs
Under the criteria set forth in Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," capitalization of software development
costs begins upon the establishment of technological feasibility of the
product, which the Company defines as establishment of a working model and is
further defined as a beta version of the software. The period of time
commencing when a product achieves beta status and ending when a product is
offered for sale is typically very short. Accordingly, amounts that could have
been capitalized under SFAS No. 86 after consideration of the above factors and
overall recoverability of capitalizable amounts were immaterial and, therefore,
no software development costs have been capitalized by the Company to date.
Stock-Based Compensation
The Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation," in October 1995. This accounting
standard permits the use of either a fair value based method of accounting or
the method defined in Accounting Principles Board Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees" to account for stock-based
compensation arrangements. Companies that elect to employ the method prescribed
by APB 25 are required to disclose the pro forma net income (loss) that would
have resulted from the use of the fair value based method. RightWorks has
elected to
F-66
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
continue to account for its stock-based compensation arrangements under the
provisions of APB 25, and accordingly, has included in Note 6 the pro forma
disclosures required under SFAS No. 123.
Revenue Recognition
The Company did not complete development of its principal product until
February 1999 and, accordingly, had no product revenue in 1998. Revenue
recognized in the years ended December 31, 1998 and 1997 related to royalties
and services.
RightWorks' revenues for 1999 are derived from two sources; license fees
and services. Services include software maintenance and support, training and
system implementation consulting.
Fees from licenses are recognized as revenue upon contract execution,
provided all shipment obligations have been met, fees are fixed or
determinable, collection is probable, and vendor specific objective evidence
exists to allocate the total fee between all elements of the arrangement. If an
acceptance period is required, revenue is recognized upon the earlier of
customer acceptance or the expiration of the acceptance period.
Maintenance revenue is recognized ratably over the term of the
maintenance contract, which is typically twelve months. If maintenance is
included in an arrangement which includes a license agreement, amounts related
to maintenance are unbundled from the license fee based on vendor specific
objective evidence. Consulting and training revenue is recognized when the
services are performed.
Cost of revenue consists of compensation and related overhead costs for
persons engaged in consulting, training and maintenance for our customers.
Advertising Costs
The Company expenses all advertising costs as incurred. The Company does
not incur any direct-response advertising costs.
Comprehensive Income (Loss)
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which RightWorks adopted beginning on January 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS No. 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period other than transactions with shareholders ("comprehensive income").
Comprehensive income is the total of net income and all other non-owner changes
in equity. For each of the three years ended December 31, 1999, RightWorks'
comprehensive loss was equal to net loss.
F-67
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
Computation of Basic and Diluted Net Loss Per Share
Basic and diluted net loss per common share are presented in conformity
with SFAS No. 128, "Earnings Per Share," for all periods presented. In
accordance with SFAS No. 128, basic net loss per common share has been computed
using the weighted average number of shares of common stock outstanding during
the period, less shares subject to repurchase (in thousands, except per share
amounts).
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss......................................... $ (9,309) $ (5,622) $ (2,017)
-------- -------- --------
Basic and diluted:
Weighted average shares of common stock out-
standing...................................... 2,511 1,852 1,534
Less: Weighted average shares subject to repur-
chase........................................... (666) (224) (133)
-------- -------- --------
Weighted average shares used in computing basic
and diluted net loss per common share......... 1,845 1,615 1,402
-------- -------- --------
Basic and diluted net loss per common share...... $ (5.05) $ (3.48) $ (1.44)
======== ======== ========
</TABLE>
RightWorks has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options, and shares subject to
repurchase from the calculation of diluted net loss per common share because
all such securities are antidilutive for all periods presented. The total
number of shares excluded from the calculations of diluted net loss per share
were approximately 84,500,000, 75,100,000, and 17,500,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. See notes 5 and 6 for further
information on these securities.
Segment Reporting
During 1998, RightWorks adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 requires a new basis of
determining reportable business segments (i.e., the management approach). This
approach requires that business segment information used by management to
assess performance and manage company resources be the source for segment
information disclosure. On this basis, Rightworks is organized and operates as
one business segment; the design, development, and marketing of software
solutions.
During the years ended December 31, 1999, 1998 and 1997, Rightworks did
not generate revenues in foreign countries and had no assets in foreign
countries.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In June 1999, the
FASB issued SFAS No. 137, "Accounting For Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (or January 1, 2001 for RightWorks). Management
believes that this statement will not have a material impact on the financial
condition or results of the operations of RightWorks.
F-68
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
In December 1998, the AICPA issued Statement of Position ("SOP") 98-9,
"Modification of SOP97-2, Software Revenue Recognition, with Respect to
Certain Transactions." SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the
deferral of the application of certain provisions of SOP 97-2 amended by SOP
98-4 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years beginning after March 15, 1999. RightWorks does not anticipate that this
statement will have a material impact on its statement of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the application of generally accepted
accounting principles to revenue recognition in financial statements. On March
24, 2000, the SEC issued an amendment to SAB 101 delaying the effective date
for certain companies. The Company will adopt SAB 101 in the second quarter of
fiscal 2000 and is presently analyzing the impact that SAB 101 will have on
its financial statements. Based on the Company's review to date, SAB 101 is
not expected to materially impact the Company's financial position or
operating results.
3. Borrowings:
In June 1999, the Company entered into a convertible subordinated note
agreement with a financing company totaling $3,000,000, secured by the assets
of the Company. The note bears interest at 10%, is payable, initially, in
twelve monthly installments of interest only. Beginning July 2000, principal
and interest is payable in twenty-four equal monthly installments. The Company
is required to maintain compliance with certain financial covenants, including
minimum tangible net worth and liquidity coverage. Until 45 days prior to an
initial public offering of the Company's common stock, 30% of the note is
convertible into preferred stock of the Company at a conversion rate equal to
the lower of the price per share of preferred stock representing a $20 million
valuation or the price per share of preferred stock at the next financing
round. None of the note was converted during the year ended December 31, 1999.
In conjunction with the agreement, the Company issued a warrant to purchase
143,916 shares of Series H preferred stock at an exercise price of $2.24 per
share (see note 5).
Future maturities of principal on these note agreements as of December
31, 1999 are as follows:
<TABLE>
<S> <C>
2000............................................................ $ 576,706
2001............................................................ 1,485,761
2002............................................................ 937,533
----------
$3,000,000
==========
</TABLE>
In June 1999, the Company entered into a note payable agreement with a
leasing company. The note accrues interest monthly at 3.09 % and matures in
June 2002. The note is secured by the equipment acquired with the proceeds
from this note. The principal amount outstanding at December 31, 1999 under
this note is $312,582. In conjunction with the agreement, the Company issued a
warrant to purchase 23,986 shares of Series H preferred stock at an exercise
price of $2.24 per share (see note 5).
Included in property and equipment are assets acquired under capital
leases. Future minimum lease payments on capital leases are as follows at
December 31, 1999:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
2000............................................................ $ 139,088
2001............................................................ 139,088
2002............................................................ 119,877
---------
Total minimum lease payments.................................... 398,053
Less: Imputed interest (7.0%)................................... (85,471)
---------
Present value of payments under capital lease................... 312,582
Less: Current portion........................................... (106,471)
---------
Long-term capital lease obligations............................. $ 206,111
=========
</TABLE>
F-69
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
4. Commitments:
RightWorks leases its facilities under operating lease agreements. The
facility leases expire at various dates in 2000. As of December 31, 1999,
future minimum payments required under RightWorks' operating leases in 2000
were $130,810.
In April 2000, RightWorks entered into an operating lease agreement for a
new office facility. the term of the lease is eight years and expires in March
2008. Future minimum lease payments under the lease are as follows:
<TABLE>
<S> <C>
2000............................................................ $ 914,359
2001............................................................ 1,044,732
2002............................................................ 1,044,732
2003............................................................ 1,044,732
2004............................................................ 1,044,732
Thereafter...................................................... 3,395,379
----------
$8,488,666
==========
</TABLE>
Rent expense was $240,898, $197,470 and $112,030 for the years ended
December 31, 1999, 1998 and 1997, respectively.
5. Preferred Stock:
At December 31, 1999, the Company has authorized 87,276,219 shares of
preferred stock, of which 3,000,000 shares have been designated as Series A
Preferred Stock ("Series A"); 4,946,000 shares have been designated Series B
Preferred Stock ("Series B"); 9,139,485 shares have been designated as Series C
Preferred Stock ("Series C"); 7,838,085 shares have been designated as Series D
Preferred Stock ("Series D"); 14,417,093 shares have been designated as Series
E Preferred Stock ("Series E"); 35,000,000 shares have been designated as
Series F Preferred Stock ("Series F"); 1,000,000 shares have been designated as
Series G Preferred Stock ("Series G"); 8,435,556 shares have been designated as
Series H Preferred Stock ("Series H"); and 3,500,000 shares have been
designated as Series I Preferred Stock ("Series I"). Significant rights,
restrictions and preferences of the preferred stock are as follows:
. Each share of preferred stock is entitled to receive dividends at a
rate of $0.005 to $0.3083 per share, payable in preference and
priority to payment of any dividend on common stock, when, and if,
declared by the board of directors of the Company. The right to
dividends on the preferred stock shall not be cumulative. No
dividends have been declared as of December 31, 1999.
. In the event of liquidation, dissolution, or winding up of the
Company, either voluntary or involuntary, the holders of preferred
stock shall be entitled to receive, pari passu with each other and in
preference to any distribution to holders of common stock, an amount
per share ranging from $0.05 to $3.083. If the assets and funds are
not sufficient to permit the payment of these amounts, then the
entire assets and funds of the corporation shall be distributed
ratably among the holders of preferred stock in proportion to the
number of shares of each series of preferred stock held by each such
holder. Any remaining assets will be distributed proportionally among
the holders of common stock and preferred stock on an as-converted
basis.
Each share of preferred stock is convertible at the option of the
holder into one share of common stock (subject to adjustments for
events of dilution). The shares will be converted into common shares
immediately prior to the closing of a public stock offering which
meets certain criteria. The shares will also be automatically
converted into common shares upon written consent of the holders of
not less than 66.67% of the then outstanding preferred shares.
F-70
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
. Each share of preferred stock is entitled to vote in an amount
equivalent to the number of common shares into which it is
convertible.
Series G Preferred Stock
In 1999, the Company entered into an agreement with another company to
exchange certain technology for Series G. In conjunction with this agreement,
the Company agreed to issue 935,616 shares of Series G, valued at $134,888,
which has similar rights and preferences as other series of preferred stock as
noted above. The Company anticipated using the technology to incorporate into
their product to sell to companies desiring to purchase an internal procurement
software product. During 1999, the Company abandoned the use of the technology
as it re-focused its efforts on selling software to companies establishing
digital marketplaces on the internet. The write-off of the technology is
included in research and development in the accompanying statements of
operations.
Series I Preferred Stock
In January 2000, the Company issued an additional 2,287,228 shares of
Series I at $3.083 per share. Total proceeds from the additional issuance
amounted to approximately $4,700,000.
Warrants
In August and October 1998, the Company issued $1,150,000 and $500,000,
respectively, of Convertible Promissory Notes (the "Notes") pursuant to Note
and Warrant Purchase Agreements. The Notes bore interest at 8.5%, and the
principal of $1,650,000 and accrued interest of $26,012 were converted into
Series E Preferred Stock at a conversion price of $0.14417.
In conjunction with this bridge financing, the Company issued warrants to
purchase 1,716,723 shares of Series E Preferred Stock at an exercise price of
$0.14417. The warrants were exercisable after the closing of the Series E
financing and expire in August 2003. The fair value of the warrants on the date
of grant was estimated using the Black-Scholes model using the following
assumptions: risk-free interest rate of 5.46%, expected life of 5 years, and
expected volatility of 75%, and was determined to be $161,293. This amount has
been recognized as additional interest expense in the accompanying statement of
operations.
In conjunction with four software and value added reseller arrangements,
the Company issued warrants to purchase 2,400,536 shares of the Company's
preferred stock at exercise prices ranging from $2.24 to $3.083 per share, the
fair value of the underlying preferred stock on the dates of the agreements.
The warrants have terms ranging from December 31, 2002 to December 31, 2004 and
will be earned over their terms as certain performance milestones are achieved.
Warrants for 150,000 shares were earned during 1999 and the fair value of these
warrants was determined to be approximately $281,000 and was estimated using
the Black-Scholes option pricing model with the following assumptions: risk-
free interest rate of 6%; expected lives of three to five years; and expected
volatility of 70%. This amount was recognized as a reduction of revenue on the
accompanying statements of operations and comprehensive loss. The residual
2,250,536 warrants were unearned at December 31, 1999.
In conjunction with the note agreements (see note 3), the Company issued
167,902 warrants to purchase series H preferred stock at exercise prices of
$2.24 per share which are exercisable until either June 25, 2006 or three years
from the Company's initial public offering. The fair value of these warrants
was
F-71
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
determined to be approximately $125,000 and was estimated using the Black-
Scholes option pricing model with the following assumptions: risk-free interest
rate of 6%; expected life of seven years; and expected volatility of 70%. This
amount, net of amortization for 1999, was recorded as debt issuance costs in
other assets and is being amortized to interest expense over the one year term
of the agreement.
6. Common Stock:
Reserved for Future Issuance
As of December 31, 1999, the Company has reserved the following shares of
authorized but unissued common stock:
<TABLE>
<S> <C>
Series A........................................................ 3,000,000
Series B........................................................ 4,946,000
Series C........................................................ 9,139,485
Series D........................................................ 7,838,085
Series E........................................................ 12,700,370
Series F........................................................ 34,681,280
Series G........................................................ 935,616
Series H........................................................ 5,845,938
Series I........................................................ 162,179
Warrants to purchase preferred stock............................ 4,285,160
Stock options................................................... 4,372,667
----------
87,906,780
==========
</TABLE>
Stock-Based Compensation
In connection with the grant of certain stock options to employees during
the year ended December 31, 1999, the Company recorded deferred compensation of
$3,389,998, representing the difference between the deemed value of the common
stock for accounting purposes and the option exercise price or stock sale price
at the date of the option grant or stock sale. Such amount is presented as a
reduction of shareholders' equity and amortized over the vesting period of the
applicable options. Approximately $150,578 was expensed during the year ended
December 31, 1999. Compensation expense is decreased in the period of
forfeiture for any accrued but unvested compensation arising from the early
termination of an option holder's services.
1996 Stock Option Plan
In August 1996, the board of directors approved the 1996 Stock Option
Plan (the "Plan"). Under the Plan, incentive and nonqualified stock options to
purchase up to 7,258,093 shares of common stock may be granted to employees,
directors, and consultants to the Company. The option price per share shall not
be less than the fair value, as determined by the board of directors, for
incentive stock option grants or not less than 85% of the fair value for
nonqualified stock options. Any options granted to a shareholder with more than
10% of the voting power (a "ten-percent owner") shall not have an option price
of less than 110% of the fair value. Options become exercisable as determined
by the board of directors, which is generally over four years. Options
generally expire ten years after the date of grant, or five years for greater
than ten-percent owners.
F-72
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
Year Ending Year Ending Year Ending
December 31, 1999 December 31, 1998 December 31, 1997
--------------------- ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 887,763 $0.25 300,865 $0.05 116,459 $0.05
Granted............... 5,710,835 $0.17 917,287 $0.25 381,006 $0.10
Exercised............. (2,594,907) $0.15 (263,564) $0.15 (126,555) $0.05
Cancelled............. (1,291,348) $0.21 (66,825) $0.30 (70,045) $0.05
---------- -------- --------
Outstanding at end of
year................... 2,712,343 $0.18 887,763 $0.25 300,865 $0.05
========== ======== ========
Exercisable at end of
year................... 260,157 $0.13 275,830 $0.10 205,828 $0.05
========== ======== ========
</TABLE>
RightWorks accounts for its stock option plans pursuant to APB 25 whereby
the difference between the exercise price and the fair value at the date of
grant is recognized as compensation expense. Had compensation expense for stock
option plans been determined consistent with SFAS No. 123, net losses would
have increased to the following pro forma amounts (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net loss as reported............................. $ (9,309) $ (5,622) $ (2,017)
Net loss pro forma............................... $ (9,378) $ (5,626) $ (2,082)
Net loss per common share as reported............ $ (5.05) $ (3.48) $ (1.44)
Net loss per common share pro forma.............. $ (5.08) $ (3.48) $ (1.49)
</TABLE>
The weighted average fair value of options granted during the years ended
1999, 1998, and 1997 was $0.05, $0.05 and $0.02, respectively. The fair value
of each option grant was estimated on the date of grant using the Black-Scholes
option pricing model using the following assumptions: risk-free interest rates
ranging from 4.22% to 5.99%; expected dividend yield of zero percent for all
three periods; an average expected life of 2.5 years; and expected volatility
of 0.001% for all periods.
The following table summarizes the stock options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options Vested
Options Outstanding And Exercisable
---------------------------- ----------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Remaining Exercise Exercise
Prices Number Years Price Number Price
-------- --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.05........................ 61,671 6.9 $0.05 54,658 $0.05
$0.10........................ 98,003 7.6 $0.10 82,837 $0.10
$0.15........................ 1,342,412 5.9 $0.15 75,879 $0.15
$0.22........................ 1,175,435 9.8 $0.22 36,393 $0.22
$0.50........................ 34,822 7.9 $0.50 10,390 $0.50
--------- -------
2,712,343 260,157
========= =======
</TABLE>
F-73
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
Non-Plan Stock Options
In October 1995, non-qualified stock options for a total of 99,600 shares
of common stock were granted to an employee at an exercise price of $0.025 per
share. These options are fully vested and expire ten years from the date of
grant.
Stock Split
On June 2, 1999, Rightworks' board of directors approved a 5-for-1
reverse stock split of Rightworks' outstanding common stock. All share and per
share information relating to common stock included in these financial
statements has been retroactively adjusted to reflect this reverse stock
split.
7. Income Taxes:
The Company accounts for income taxes pursuant to the provisions of SFAS
No. 109, "Accounting for Income Taxes," which provides for an asset and
liability approach under which deferred income taxes are provided based upon
enacted tax laws and rates applicable to the periods in which the taxes become
payable. The Company has not had any taxable income or related tax liabilities
for any period. A valuation allowance has been recorded for the total deferred
tax assets as a result of uncertainties regarding realization of the assets
based upon the limited operating history of the Company, the lack of
profitability to date, and the uncertainty of future profitability.
The components of the deferred income tax asset as of December 31, 1999
and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Net operating loss carryforwards........................ $4,057,314 $2,101,786
Temporary differences................................... 646,679 46,586
Capitalized Start Up Costs.............................. 2,217,234 1,888,655
Research and development credits........................ 321,239 210,324
---------- ----------
7,244,466 4,247,351
Valuation allowance..................................... (7,244,466) (4,247,351)
---------- ----------
Net deferred income tax asset........................... $ -- $ --
========== ==========
</TABLE>
As of December 31, 1999, the Company has Federal and State net deferred
tax assets of approximately $7,244,000 consisting primarily of net operating
loss carryforwards. The Company has established a valuation allowance equal to
this net deferred tax asset. The Company has research and development credits
of approximately $287,000 and $34,000 to offset future Federal and State
taxable income, respectively. Additionally, the Company has capitalized start-
up costs of approximately $5,430,000 and has net operating loss carryforwards
of approximately $9,954,000 to offset future Federal and State taxable income.
The net operating loss carryforwards expire at various dates through the year
2019. The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss and credit carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership
interest.
8. Related Party Transactions:
On December 31, 1997 the Company received a $500,000 advance payment from
a shareholder in conjunction with the Series D financing which closed in
January 1998. Upon closure of the financing, the advance was converted into
1,741,796 shares of Series D.
F-74
<PAGE>
RIGHTWORKS CORPORATION
Notes to Financial Statements--(Continued)
During 1999, an officer of the Company was given a loan to purchase
11,121 shares of Series H at $2.24 per share and certain other officers were
given loans, with full recourse, to exercise 2,340,000 common stock options at
$0.15 per share. In April 2000, the loan for Series H was paid-in-full. The
loans for the option exercises bear interest at 6% and are due in four years.
F-75
<PAGE>
Independent Auditors' Report
To the Board of Directors of
eMerge Interactive, Inc.:
We have audited the accompanying consolidated balance sheets of eMerge
Interactive, Inc. as of December 31, 1997 and 1998 and September 30, 1999 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1998, and for the nine months ended September 30, 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of eMerge Interactive,
Inc. at December 31, 1997 and 1998 and September 30, 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, and for the nine months ended September 30,
1999 in conformity with generally accepted accounting principles.
KPMG LLP
Orlando, Florida
December 6, 1999
F-76
<PAGE>
EMERGE INTERACTIVE, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Proforma
September 30,
December 31, December 31, September 30, 1999
1997 1998 1999 (note 1(b))
------------ ------------ ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash...................... $ 400 $ 268 $ 1,650,134 $ 1,650,134
Trade accounts
receivable............... -- 368,421 2,790,427 2,790,427
Inventories (note 3)...... 635,963 706,557 655,129 655,129
Cattle deposits........... -- -- 489,760 489,760
Prepaid expenses.......... 33,642 27,837 103,242 103,242
Net assets of discontinued
operations (note 12)..... 1,066,804 2,285,341 390,336 390,336
----------- ----------- ----------- -----------
Total current assets...... 1,736,809 3,388,424 6,079,028 6,079,028
Property and equipment, net
(note 4).................. 428,140 513,837 1,711,404 1,711,404
Capitalized offering
costs..................... -- -- 341,967 341,967
Investment in Turnkey
Computer Systems, Inc.
(note 5).................. -- -- 1,822,833 1,822,833
Intangibles, net (note 6).. -- 2,699,828 6,273,309 6,273,309
----------- ----------- ----------- -----------
Total assets............ $ 2,164,949 $ 6,602,089 $16,228,541 $16,228,541
=========== =========== =========== ===========
Liabilities and
Stockholders' Equity
(Deficit)
Current liabilities:
Current installments of
capital lease obligation
with related party (note
10)...................... $ -- $ 79,852 $ 83,917 $ 83,917
Note payable (note 5)..... -- -- 500,000 500,000
Accounts payable.......... 725,369 423,946 1,633,132 1,633,132
Accrued liabilities:
Salaries and benefits..... 175,597 283,103 908,271 908,271
Other..................... 98,704 319,989 1,435,987 1,435,987
Advanced payments from
customers................ -- -- 619,270 619,270
Due to related parties
(note 10)................ 8,040,304 5,187,334 13,405,957 13,405,957
----------- ----------- ----------- -----------
Total current
liabilities.............. 9,039,974 6,294,224 18,586,534 18,586,534
Capital lease obligation
with related party,
excluding current
installments (note 10).... -- 305,018 242,673 242,673
Note payable (note 5)...... -- -- 900,000 900,000
----------- ----------- ----------- -----------
Total liabilities......... 9,039,974 6,599,242 19,729,207 19,729,207
----------- ----------- ----------- -----------
Commitments and
contingencies (notes 6, 10
and 13)
Redeemable Class A common
stock, issued and
outstanding. No shares
issued and outstanding in
1997 and 1998, 62,500
shares issued and
outstanding in 1999. No
shares issued and
outstanding pro forma
(note 5)..................... -- -- 406,000 --
----------- ----------- ----------- -----------
Stockholders' equity
(deficit) (notes 7, 9 and
14):
Preferred stock, $.01 par
value, authorized
15,000,000 shares:
Series A preferred stock,
(aggregate involuntary
liquidation preference
of $6,741,954 in 1997,
$7,386,314 in 1998 and
$7,545,198 in 1999),
designated 6,500,000
shares, issued and
outstanding 6,443,606
shares in 1997, 1998 and
1999. No shares
designated, issued and
outstanding pro forma.... 64,436 64,436 64,436 --
Series B junior preferred
stock, (aggregate
involuntary liquidation
preference of $-0- in
1997, $4,801,315 in 1998
and $4,919,671 in 1999),
designated 2,400,000
shares, issued and
outstanding -0- shares
in 1997, 2,400,000
shares in 1998 and 1999.
No shares designated,
issued and outstanding
pro forma................ -- 24,000 24,000 --
Series C preferred stock,
designated 1,300,000
shares, issued and
outstanding -0- shares
in 1997 and 1998 and
1,100,000 shares in
1999. No shares
designated, issued and
outstanding pro forma.... -- -- 11,000 --
Series D preferred stock,
designated 4,555,556
shares, no shares issued
and outstanding in 1997,
1998 and 1999. No shares
designated, issued and
outstanding pro forma.... -- -- -- --
Common stock, $.008 par
value, authorized
100,000,000 shares:
Class A common stock,
designated 92,711,110
shares, issued and
outstanding 3,258,125
shares in 1997,
5,845,625 shares in 1998
and 6,957,694 shares in
1999 and 19,449,702
shares pro forma......... 26,065 46,765 55,662 155,723
Class B common stock,
designated 7,288,890
shares; no shares issued
and outstanding in 1997,
1998, 1999 or pro
forma.................... -- -- -- --
Additional paid-in
capital.................. 1,982,986 16,648,286 23,454,170 23,859,545
Accumulated deficit....... (8,948,512) (16,780,640) (27,452,825) (27,452,825)
Unearned compensation..... -- -- (63,109) (63,109)
----------- ----------- ----------- -----------
Total stockholders'
equity (deficit)....... (6,875,025) 2,847 (3,906,666) (3,500,666)
----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity
(deficit).............. $ 2,164,949 $ 6,602,089 $16,228,541 $16,228,541
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-77
<PAGE>
EMERGE INTERACTIVE, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended December 31, September 30,
------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue................. $ -- $ -- $ 1,792,471 $ 1,106,452 $ 18,338,645
Cost of revenue
(including $0, $0,
$511,000, $388,000 and
$255,000 to related
parties--note 10)...... -- -- 2,623,447 1,628,757 18,282,330
----------- ----------- ----------- ----------- ------------
Gross profit
(loss)............. -- -- (830,976) (522,305) 56,315
----------- ----------- ----------- ----------- ------------
Operating expenses:
Selling, general and
administrative
(including $0,
$219,000, $627,000,
$507,000, and
$600,000 to related
parties--note 10).... -- 627,606 3,659,810 2,427,944 7,539,689
Research and
development
(including $0,
$51,000, $119,000,
$95,000 and $171,000
to related parties--
note 10)............. -- 727,753 1,109,382 759,434 2,756,262
----------- ----------- ----------- ----------- ------------
Total operating
expenses........... -- 1,355,359 4,769,192 3,187,378 10,295,951
----------- ----------- ----------- ----------- ------------
Profit (loss) from
continuing operations.. -- (1,355,359) (5,600,168) (3,709,683) (10,239,636)
Related party interest
expense (note 10)...... -- (141,167) (331,594) (231,000) (458,624)
Other income............ -- -- -- -- 15,655
----------- ----------- ----------- ----------- ------------
Profit (loss) from
continuing
operations before
income taxes....... -- (1,496,526) (5,931,762) (3,940,683) (10,682,605)
----------- ----------- ----------- ----------- ------------
Income tax expense
(benefit) (note 8)..... -- -- -- -- --
Profit (loss) from
continuing
operations......... -- (1,496,526) (5,931,762) (3,940,683) (10,682,605)
Discontinued operations
(note 12):
Income (loss) from
operations of
discontinued
transportation
segment (including
$468,000, $814,000,
$370,000, $287,000,
and $171,000 to
related parties--note
10).................. (1,719,492) (3,987,097) (1,808,951) (1,721,060) 10,420
Loss on disposal of
transportation
segment.............. -- -- (91,415) -- --
----------- ----------- ----------- ----------- ------------
Net profit (loss)....... $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185)
=========== =========== =========== =========== ============
Profit (loss) from
continuing operations
per common share--basic
and diluted............ $ -- $ (3.91) $ (1.36) $ (0.67) $ (1.59)
=========== =========== =========== =========== ============
Net profit (loss) per
common share--basic and
diluted................ $ (9.24) $ (14.34) $ (1.80) $ (0.97) $ (1.59)
=========== =========== =========== =========== ============
Weighted average number
of common shares
outstanding--basic and
diluted................ 186,096 382,273 4,356,926 5,845,625 6,709,854
=========== =========== =========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-78
<PAGE>
EMERGE INTERACTIVE, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Preferred Stock Preferred Stock Preferred Stock Preferred Stock Common Stock Common Stock
Series A Series B Series C Series D Class A Class B
----------------- ----------------- ----------------- ----------------- ----------------- -------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------- --------- ------- --------- ------- ------- ------- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1995............ -- $ -- -- $ -- -- $ -- -- $ -- 1,250 $ 10 -- $--
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share........... -- -- -- -- -- -- -- -- 248,750 1,990 -- --
Issuance of
common stock for
cash at $.008
per share....... -- -- -- -- -- -- -- -- 175,000 1,400 -- --
Exercise of
stock options
for cash at
$.008 per
share........... -- -- -- -- -- -- -- -- 25,000 200 -- --
Net profit
(loss).......... -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- ------- ------- --------- ------- --- ---
Balances at
December 31,
1996............ -- -- -- -- -- -- -- -- 450,000 3,600 -- --
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share........... -- -- -- -- -- -- -- -- 2,808,125 22,465 -- --
Sale of Series A
preferred stock
for cash at
$1.00 per share
(note 7)........ 6,443,606 64,436 -- -- -- -- -- -- -- -- -- --
Transfer of
technology by XL
Vision, Inc.
(note 10)....... -- -- -- -- -- -- -- -- -- -- -- --
Net profit
(loss).......... -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- ------- ------- --------- ------- --- ---
Balances at
December 31,
1997............ 6,443,606 64,436 -- -- -- -- -- -- 3,258,125 26,065 -- --
Contribution of
debt to equity
by XL Vision,
Inc. (note 10).. -- -- -- -- -- -- -- -- -- -- -- --
Issuance of
Series B
preferred stock
in exchange for
contribution of
debt to equity
by XL Vision,
Inc. at $2.00
per share (notes
7 and 10)....... -- -- 2,400,000 24,000 -- -- -- -- -- -- -- --
Issuance of
common stock in
connection with
Nutri-Charge
transaction at
$0.80 per share
(note 6)........ -- -- -- -- -- -- -- -- 2,587,500 20,700 -- --
Contribution of
put rights by XL
Vision, Inc.
(note 6)........ -- -- -- -- -- -- -- -- -- -- -- --
Net profit
(loss).......... -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- ------- ------- --------- ------- --- ---
Balances at
December 31,
1998............ 6,443,606 64,436 2,400,000 24,000 -- -- -- -- 5,845,625 46,765 -- --
Exercise of
stock options
for cash at
$0.80 per
share........... -- -- -- -- -- -- -- -- 112,069 897 -- --
Issuance of
common stock in
connection with
CIN transaction
at $0.96 per
share (note 6).. -- -- -- -- -- -- -- -- 750,000 6,000 -- --
Issuance of
common stock in
connection with
Cyberstockyard
transaction at
$1.80 per share
(note 6)........ -- -- -- -- -- -- -- -- 250,000 2,000 -- --
Issuance of
Series C
preferred stock
at $5.00 per
share (note 7).. -- -- -- -- 1,100,000 11,000 -- -- -- -- -- --
Accretion to
redemption value
of Class A
common stock
issued in
connection with
the Turnkey
Computer
Systems, Inc.
(note 5)........ -- -- -- -- -- -- -- -- -- -- -- --
Net profit
(loss).......... -- -- -- -- -- -- -- -- -- -- -- --
Unearned
compensation
(note 9)........ -- -- -- -- -- -- -- -- -- -- -- --
Amortization of
unearned
compensation
(note 9)........ -- -- -- -- -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- ------- ------- --------- ------- --- ---
Balances at
September 30,
1999............ 6,443,606 $64,436 2,400,000 $24,000 1,100,000 $11,000 -- $ -- 6,957,694 $55,662 -- $--
========= ======= ========= ======= ========= ======= ======= ======= ========= ======= === ===
<CAPTION>
Additional
Paid-in Accumulated Unearned
Capital Deficit Compensation Total
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Balances at
December 31,
1995............ $ 3,816 $ (1,745,397) $ -- $(1,741,571)
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share........... -- -- -- 1,990
Issuance of
common stock for
cash at $.008
per share....... -- -- -- 1,400
Exercise of
stock options
for cash at
$.008 per
share........... -- -- -- 200
Net profit
(loss).......... -- (1,719,492) -- (1,719,492)
------------ ------------- ------------ ------------
Balances at
December 31,
1996............ 3,816 (3,464,889) -- (3,457,473)
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share........... -- -- -- 22,465
Sale of Series A
preferred stock
for cash at
$1.00 per share
(note 7)........ 6,379,170 -- -- 6,443,606
Transfer of
technology by XL
Vision, Inc.
(note 10)....... (4,400,000) -- -- (4,400,000)
Net profit
(loss).......... -- (5,483,623) -- (5,483,623)
------------ ------------- ------------ ------------
Balances at
December 31,
1997............ 1,982,986 (8,948,512) -- (6,875,025)
Contribution of
debt to equity
by XL Vision,
Inc. (note 10).. 7,500,000 -- -- 7,500,000
Issuance of
Series B
preferred stock
in exchange for
contribution of
debt to equity
by XL Vision,
Inc. at $2.00
per share (notes
7 and 10)....... 4,776,000 -- -- 4,800,000
Issuance of
common stock in
connection with
Nutri-Charge
transaction at
$0.80 per share
(note 6)........ 2,049,300 -- -- 2,070,000
Contribution of
put rights by XL
Vision, Inc.
(note 6)........ 340,000 -- -- 340,000
Net profit
(loss).......... -- (7,832,128) -- (7,832,128)
------------ ------------- ------------ ------------
Balances at
December 31,
1998............ 16,648,286 (16,780,640) -- 2,847
Exercise of
stock options
for cash at
$0.80 per
share........... 88,758 -- -- 89,655
Issuance of
common stock in
connection with
CIN transaction
at $0.96 per
share (note 6).. 714,000 -- -- 720,000
Issuance of
common stock in
connection with
Cyberstockyard
transaction at
$1.80 per share
(note 6)........ 448,000 -- -- 450,000
Issuance of
Series C
preferred stock
at $5.00 per
share (note 7).. 5,489,000 -- -- 5,500,000
Accretion to
redemption value
of Class A
common stock
issued in
connection with
the Turnkey
Computer
Systems, Inc.
(note 5)........ (6,000) -- -- (6,000)
Net profit
(loss).......... -- (10,672,185) -- (10,672,185)
Unearned
compensation
(note 9)........ 72,126 -- (72,126) --
Amortization of
unearned
compensation
(note 9)........ -- -- 9,017 9,017
------------ ------------- ------------ ------------
Balances at
September 30,
1999............ $23,454,170 $(27,452,825) $(63,109) $(3,906,666)
============ ============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-79
<PAGE>
EMERGE INTERACTIVE, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months ended
Years ended December 31, September 30,
------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net profit (loss)....... $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185)
Adjustments to reconcile
net profit (loss) to
net cash used in
operating activities:
Depreciation and
amortization.......... 1,503 122,486 438,576 230,964 1,176,431
Amortization of
unearned
compensation.......... -- -- -- -- 9,017
Changes in operating
assets and
liabilities:
Trade accounts
receivable, net....... -- -- (368,421) (138,705) (2,405,456)
Inventories............ -- (635,963) (70,594) (30,741) 51,428
Cattle deposits........ -- -- -- -- (489,760)
Prepaid expenses and
other assets.......... (1,304) (32,338) 5,805 (77,079) (75,405)
Net assets of
discontinued
operations............ (96,209) (853,501) (1,140,425) (1,477,150) --
Accounts payable....... 5,675 719,694 (301,423) (32,037) 1,038,877
Accrued liabilities.... 75,542 198,759 328,791 151,016 214,739
Advanced payments from
customers............. -- -- -- -- 619,270
----------- ----------- ----------- ----------- ------------
Net cash used by
operating
activities........... (1,734,285) (5,964,486) (8,939,819) (7,035,475) (10,533,044)
----------- ----------- ----------- ----------- ------------
Cash flows from
investing activities:
Business combinations,
net of cash acquired of
$737................... -- -- -- -- (1,799,263)
Purchases of property
and equipment.......... (56,861) (506,540) (460,290) (269,831) (1,228,432)
Purchase of
intangibles............ (100,000) -- (431,923) (431,923) --
Proceeds from
discontinued
operations............. -- -- -- -- 1,825,407
Investment in Turnkey
Computer Systems, Inc.. -- -- -- -- (22,833)
----------- ----------- ----------- ----------- ------------
Net cash used by
investing
activities........... (156,861) (506,540) (892,213) (701,754) (1,225,121)
----------- ----------- ----------- ----------- ------------
Cash flows from
financing activities:
Net borrowings from
related parties........ 1,889,101 3,810 9,447,030 7,737,227 8,218,623
Proceeds from capital
lease financing with
related party.......... -- -- 440,832 -- --
Payments on capital
lease obligations...... -- -- (55,962) -- (58,280)
Offering costs.......... -- -- -- -- (341,967)
Sale of preferred
stock.................. -- 6,443,606 -- -- 5,500,000
Sale of common stock.... 3,590 22,465 -- -- 89,655
----------- ----------- ----------- ----------- ------------
Net cash provided by
financing
activities........... 1,892,691 6,469,881 9,831,900 7,737,227 13,408,031
----------- ----------- ----------- ----------- ------------
Net increase
(decrease) in cash... 1,545 (1,145) (132) (2) 1,649,866
Cash--beginning of
period................. -- 1,545 400 400 268
----------- ----------- ----------- ----------- ------------
Cash--end of period..... $ 1,545 $ 400 $ 268 $ 398 $ 1,650,134
=========== =========== =========== =========== ============
Supplemental
disclosures:
Cash paid for interest.. $ -- $ -- $ 23,594 $ 13,517 $ 20,628
Non-cash investing and
financing activities:
Transfer of technology
by XL Vision, Inc.
(note 10)............. -- 4,400,000 -- -- --
Contribution of debt to
equity by XL Vision,
Inc. (note 10)........ -- -- 7,500,000 -- --
Issuance of preferred
stock in exchange for
contribution of debt
to equity by XL
Vision, Inc. (note
10)................... -- -- 4,800,000 -- --
Non-cash issuance of
Class A common stock
in connection with
Nutri-Charge
transaction (note 6).. -- -- 2,070,000 2,070,000 --
Contribution of put
rights by XL Vision,
Inc. (note 6)......... -- -- 340,000 340,000 --
Issuance of Class A
common stock in
connection with CIN
transaction (note 6).. -- -- -- -- 720,000
Issuance of Class A
common stock with
Cyberstockyard
transaction (note 6).. -- -- -- -- 450,000
Issuance of redeemable
Class A common stock
with Turnkey Computer
Systems, Inc.
transaction (note 5).. -- -- -- -- 400,000
Issuance of note
payable to Turnkey
Computer Systems, Inc.
(note 5).............. -- -- -- -- 1,400,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-80
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements
(Information insofar as it relates to September 30, 1998 or the nine months
ended
September 30, 1998 is unaudited)
(1) Organization
(a) Overview
eMerge Interactive, Inc. (the "Company") is a Delaware corporation that
was incorporated on September 12, 1994 as Enhanced Vision Systems, a wholly
owned subsidiary of XL Vision, Inc. ("XL Vision"). The Company's name was
changed to eMerge Vision Systems, Inc. on July 16, 1997 and to eMerge
Interactive, Inc. on June 11, 1999.
The Company was incorporated to develop and commercialize infrared
technology focused on the transportation segment. In 1997, the Company entered
a new business segment, animal sciences, by developing an infrared camera
system for use primarily by veterinarians. The Company further expanded its
operations in 1998 by licensing NutriCharge and infrared technology (see note
5) for commercialization. In December 1998, the Company's Board of Directors
decided to dispose of the transportation segment. The Company's AMIRIS thermal
imaging system, which was the sole product sold by the transportation segment,
was sold on January 15, 1999.
(b) Basis of Presentation
The consolidated financial statements include the accounts of eMerge
Interactive, Inc. and its wholly-owned subsidiaries, STS Agriventures, Ltd.
("STS"), a Canadian corporation and Cyberstockyard, Inc. ("Cyberstockyard").
All significant intercompany balances and transactions have been
eliminated upon consolidation.
The pro forma balance sheet as of September 30, 1999 assumes the
conversion of all preferred stock to Class A common stock upon the Company's
planned initial public offering ("IPO").
(c) Management's Plans
As of September 30, 1999, the Company had a working capital deficiency
of $12,507,506 and stockholders' deficit of $3,906,666. Management expects
additional working capital requirements as the Company continues its marketing
and development efforts for its products. Subsequent to September 30, 1999,
the Company obtained equity financing (see note 14). The Company also plans an
IPO. Although management believes that its IPO will be successful, there can
be no assurances that it will be completed.
(2) Summary of Significant Accounting Policies
(a) Revenue Recognition
The Company recognizes revenue in accordance with the terms of the sale
or contract, generally as products are shipped or services are provided. The
Company bears both the inventory and credit risk with respect to sales of all
of its products. In cattle sales transactions, the Company purchases cattle
from the seller, takes title at shipment and records the cattle as inventory
until delivered to and accepted by the buyer, typically a 24 to 48 hour
period. In both cattle auction and resale transactions, the Company acts as a
principal in purchasing cattle from suppliers and sales to customers so that
the Company recognizes revenue equal to the amount paid by customers for the
cattle.
F-81
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
(b) Inventories
Inventories are stated at standard cost which approximates the lower of
first-in, first-out cost or market.
(c) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Amortization of equipment under capital lease is computed
over the shorter of the lease term or the estimated useful life of the related
assets.
(d) Intangibles
Intangibles are stated at amortized cost. Amortization is computed using
the straight-line method over the estimated useful lives of the assets.
(e) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of". This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower
of their carrying amount or fair value less costs to sell.
(f) Income Taxes
The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(g) Stock-Based Compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB Opinion No. 25") and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
F-82
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
(h) Use of Estimates
The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
(i) Net Profit (Loss) Per Share
Net profit (loss) per share is computed in accordance with SFAS No. 128,
"Earnings Per Share," by dividing the net profit (loss) allocable to common
stockholders (net profit (loss) less accretion related to redeemable Class A
common stock) by the weighted average number of shares of common stock
outstanding less the 62,500 shares of redeemable Class A common stock. The
Company's stock options (338,125 at December 31, 1997, 1,632,500 at December
31, 1998 and 2,488,494 at September 30, 1999) and convertible preferred stock
(6,443,606 at December 31, 1997, 8,843,606 at December 31, 1998 and 9,943,606
at September 30, 1999), have not been used in the calculation of diluted net
profit (loss) per share because to do so would be anti-dilutive. As such, the
numerator and the denominator used in computing both basic and diluted net
profit (loss) per share allocable to common stockholders are equal.
Pursuant to Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock and common stock
equivalents issued for nominal consideration during the periods presented
herein and through the filing of the registration statement for the IPO are to
be reflected in a manner similar to a stock split or stock dividend for which
retroactive treatment is required in the calculation of net profit (loss) per
share; the Company did not have any such issuances.
(j) Estimated Fair Value of Financial Instruments
The carrying value of cash, trade accounts receivable, accounts payable,
accrued liabilities and amounts due to related parties reflected in the
consolidated financial statements approximates fair value due to the short-term
maturity of these instruments.
(k) Interim Financial Information
The consolidated financial statements for the period ended September 30,
1998 are unaudited but reflect only normal and recurring adjustments which are,
in the opinion of management, necessary for the fair presentation of financial
position and results of operations. Operating results for the nine months ended
September 30, 1999 and 1998 are not necessarily indicative of the results that
may be expected for the full year.
(3) Inventories
Inventories consist of:
<TABLE>
<CAPTION>
December 31,
----------------- September 30,
1997 1998 1999
-------- -------- -------------
<S> <C> <C> <C>
Raw materials............................. $346,335 $424,130 $594,337
Work-in-process........................... 289,628 282,427 60,792
-------- -------- --------
$635,963 $706,557 $655,129
======== ======== ========
</TABLE>
F-83
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
(4) Property and Equipment
Property and equipment consists of:
<TABLE>
<CAPTION>
December 31,
----------------- September 30, Estimated
1997 1998 1999 useful lives
-------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Engineering and
manufacturing equipment.... $258,082 $366,150 $ 634,625 5 years
Office and computer
equipment.................. 179,315 259,462 1,532,298 3 years
Furniture and fixtures...... 67,282 104,706 112,122 7 years
Leasehold improvements...... 46,865 46,865 80,430 7 years
Automobiles................. -- -- 54,717 5 years
-------- -------- ----------
551,544 777,183 2,414,192
Less accumulated
depreciation and
amortization............... 123,404 263,346 702,788
-------- -------- ----------
Property and equipment,
net........................ $428,140 $513,837 $1,711,404
======== ======== ==========
</TABLE>
Assets under capital lease amounted to $-0-, $440,832 and $440,832 as of
December 31, 1997, 1998 and September 30, 1999, respectively. Accumulated
amortization for assets under capital lease totaled approximately $-0-,
$152,300 and $217,500 as of December 31, 1997, 1998 and September 30, 1999,
respectively.
(5) Investment in Turnkey Computer Systems, Inc.
On August 16, 1999, the Company acquired 19% of the common stock of
Turnkey Computer Systems, Inc. ("Turnkey") for $1,822,833. The purchase price
consisted of 62,500 shares of the Company's redeemable Class A common stock
valued at $400,000, $1,400,000 in cash and $22,833 of transaction costs. The
$1,400,000 is payable upon the earlier of the completion of the Company's IPO
or $500,000 at December 31, 1999, $500,000 at December 31, 2000 and $400,000 at
December 31, 2001. This investment is carried on the cost method since the
Company does not have significant influence over Turnkey. The common stock
purchase agreement with Turnkey contains a put right which allows Turnkey to
have a one time right to put to the Company its 62,500 redeemable Class A
common shares with a fixed purchase price of $500,000. The put right can only
be exercised upon a change in control or after December 31, 2001, if the
Company has not completed an IPO. This redeemable Class A common stock is
classified outside of stockholders' equity (deficit). The difference between
the carrying amount and the redemption amount of $500,000 is being accreted to
redeemable Class A common stock as a charge to additional paid-in capital from
issuance to December 31, 2001 using the effective interest method.
F-84
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
(6) Intangibles
Intangibles consists of:
<TABLE>
<CAPTION>
December 31, Estimated
----------------- September 30, useful
1997 1998 1999 life
------ ---------- ------------- ---------
<S> <C> <C> <C> <C>
NutriCharge license............ $ -- $2,273,538 $2,273,538 10 years
Infrared technology license.... -- 568,385 568,385 5 years
Goodwill--CIN.................. -- -- 2,076,368 5 years
Non-compete agreement--CIN..... -- -- 100,000 5 years
Goodwill--Cyberstockyard....... -- -- 427,274 3 years
Non-compete agreement--
Cyberstockyard................ -- -- 100,000 3 years
Goodwill--PCC.................. -- -- 1,487,791 5 years
Non-compete agreement--PCC..... -- -- 100,000 4 years
------ ---------- ---------- --------
-- 2,841,923 7,133,356
Less accumulated amortization.. -- 142,095 860,047
------ ---------- ----------
Intangibles, net............... $ -- $2,699,828 $6,273,309
====== ========== ==========
</TABLE>
On July 29, 1998, the Company acquired licenses for NutriCharge and
infrared technology. The purchase price of $2,841,923 (consisting of $300,000
in cash, 2,587,500 of the Company's Class A common shares valued at $0.80 per
share, $131,923 in acquisition costs and the estimated fair value of put rights
granted by XL Vision) was allocated to the acquired NutriCharge and infrared
technology licenses based on estimated fair values determined by estimated cash
flows from the underlying licensed product. In connection with the transaction,
XL Vision granted a put right that allows the sellers to require XL Vision to
purchase up to 1,250,000 shares of the Company's Class A common stock at $3.00
per share. The fair value of the put was estimated to be $340,000 and was
credited to additional paid-in capital. The put right may only be exercised
thirty days prior to or after the fourth anniversary of the agreement. The
ultimate amount payable under the put agreement is reduced by the amount, if
any, of indemnification obligations related to the transaction. The estimated
fair value of the put was determined with the assistance of an independent,
third party valuation expert by calculating the net present value (at 10%
interest) of the product of the $2,000,000 intrinsic value of the put adjusted
for the 25% probability that the put would be exercised.
On February 24, 1999, the Company acquired substantially all of the
tangible and intangible assets of CIN, LLC d/b/a/ Cattlemen's Information
Network ("CIN") for $2,296,610. The purchase price for the assets consisted of
750,000 shares of the Company's Class A common stock valued at $720,000, the
assumption of $812,021 of liabilities, a cash payment due in October 1999 of
$357,816, and an agreement to pay the first $350,000 from Internet sales of
third party products over the Company's Web site and transaction costs of
$56,773. CIN is in the business of selling access to its cattle feedlot
performance measurements database. Immediately after the closing, CIN changed
its name to Lost Pelican, L.L.C.
On March 29, 1999, the Company acquired 100% of the stock of
Cyberstockyard, Inc. for $542,265. The purchase price consisted of 250,000
shares of the Company's Class A common stock valued at $450,000, the assumption
of $89,972 of liabilities and transaction costs of $2,293. Cyberstockyard, Inc.
is in the business of selling cattle through its proprietary auction software
over the Internet.
On May 19, 1999, the Company acquired substantially all of the tangible
and intangible assets of PCC, LLC d/b/a Professional Cattle Consultants, L.L.C.
("PCC") for $1,827,861. The purchase price consists of a
F-85
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
cash payment of $1,800,000 and an assumption of $2,861 of liabilities and
transaction costs of $25,000. PCC is in the business of providing comparative
analysis and market information for the feedlot industry. Immediately after the
closing, PCC changed its name to QDD Investment Company, L.L.C.
Each acquisition was accounted for as a purchase and the results of
operations of the acquired companies is included in the statement of operations
since the respective date of acquisition.
The aggregate purchase price of the above acquisitions was approximately
$4,666,736, which included related acquisition costs of approximately $84,000
and was allocated as follows:
<TABLE>
<S> <C>
Goodwill...................................................... $3,991,433
Non-compete agreements........................................ 300,000
Equipment..................................................... 358,016
Current assets, including cash acquired of $737............... 17,287
----------
$4,666,736
==========
</TABLE>
Unaudited pro forma information for the Company as if the acquisitions
above had been consummated as of January 1, 1998 and 1999 follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1998 1999
--------------- ----------------
<S> <C> <C>
Revenue............................... $ 1,687,077 $ 18,560,565
=============== ================
Net profit (loss)..................... $ (4,987,862) $ (11,097,329)
=============== ================
Net profit (loss) per common share.... $ (0.97) $ (1.61)
=============== ================
</TABLE>
(7) Equity
Common Stock
As of September 30, 1999, the Company had authorized the issuance of
100,000,000 shares of common stock.
Class A--In 1999, the Company designated 92,711,110 shares as Class A
common stock.
Class B--In 1999, the Company designated 7,288,890 shares as Class B
common stock. Holders of Class B common stock are entitled to two and one-half
votes for each share. The shares of Class A and Class B are identical in all
other respects.
Preferred Stock
As of September 30, 1999, the Company had authorized the issuance of
15,000,000 shares of preferred stock and had designated 6,500,000 as Series A
shares, and 2,400,000 as Series B shares, 1,300,000 as Series C shares and
4,555,556 as Series D shares. Each share of preferred stock is convertible into
1.25 shares of Class A common stock at the option of the holder or upon the
vote of holders of two-thirds of the respective preferred stock class
outstanding except for Series D shares which is convertible at the offering
price into 1.25 shares Class B common stock. Preferred stock is automatically
converted into common stock upon a qualified
F-86
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
IPO of at least $10 million with a Company valuation of at least $30 million or
upon a public rights offering of the Company to shareholders of Safeguard
Scientifics, Inc.
Series A--The Series A shares are entitled to a liquidation preference
before any distribution to common stockholders equal to the greater of (a)
$1.00 per share plus an additional $.10 per year (pro rated for partial years)
from July 16, 1997 or (b) the amount which would be distributed if all of the
preferred stock of the Company were converted to Class A common stock prior to
liquidation. The holders of Series A preferred stock are entitled to vote as a
separate class to elect two directors to the Board of Directors of the Company.
Series B--Series B shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $2.00 per
share plus an additional $.20 for each year (pro rated for partial years) from
December 31, 1998 or until the date of distribution of available assets or (b)
the amount which would be distributed if all of the preferred stock of the
Company were converted to Class A common stock prior to liquidation. Series B
shares are junior to Series A, C and D shares.
Series C--Series C shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $5.00 per
share plus an additional $.50 for each year (pro rated for partial years) from
April 15, 1999 or until the date of distribution of available assets or (b) the
amount which would be distributed if all of the preferred stock of the Company
were converted to Class A common stock prior to liquidation. Series C shares
are on parity with Series A and D shares except as to voting rights.
Series D--Series D shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $9.00 per
share plus an additional $1.00 for each year (pro rated for partial years) from
October 27, 1999 or until the date of distribution of available assets or (b)
the amount which would be distributed if all the preferred stock of the Company
were converted to Class B common stock prior to liquidation. Series D shares
are on parity with Series A and C shares except as to voting rights. Series D
stockholders are entitled to two and one-half votes per share.
(8) Income Taxes
Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liability are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.. $3,237,000 $5,967,000 $ 8,057,000
Amortization of acquired
technology from XL Vision (note
10).............................. 1,829,000 1,704,000 1,704,000
Research and experimentation tax
credits.......................... 294,000 448,000 718,000
Other............................. 125,000 596,000 1,524,000
---------- ---------- -----------
5,485,000 8,715,000 12,003,000
Less valuation allowance.......... 5,370,000 8,715,000 12,003,000
---------- ---------- -----------
Net deferred tax assets......... 115,000 -- --
Deferred tax liability:
Imputed interest.................. (115,000) -- --
---------- ---------- -----------
Net deferred tax asset
(liability).................... $ -- $ -- $ --
========== ========== ===========
</TABLE>
F-87
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
The Company has available at September 30, 1999 for federal income tax
purposes, unused net operating loss carryforwards of approximately $21,000,000
which may be applied against future taxable income and expires in years
beginning in 2010. The Company also has approximately $718,000 in research and
experimentation credits carryforwards. The research and experimentation
credits, which begin to expire in 2010, can also be used to offset future
regular tax liabilities. A valuation allowance for deferred tax assets is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
The difference between the "expected" tax benefit (computed by applying
the federal corporate income tax rate of 34% to the loss before income taxes)
and the actual tax benefit is primarily due to the effect of the valuation
allowance.
(9) Stock Plan
In January 1996, the Company adopted an equity compensation plan (the
"1996 Plan") pursuant to which the Company's Board of Directors may grant
shares of common stock or options to acquire common stock to certain directors,
advisors and employees. The Plan authorizes grants of shares or options to
purchase up to 2,168,750 shares of authorized but unissued common stock. Stock
options granted have a maximum term of ten years and have vesting schedules
which are at the discretion of the Compensation Committee of the Board of
Directors and determined on the effective date of the grant.
In May 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"). Under the 1999 Plan, an additional
1,250,000 shares of authorized, unissued shares of common stock of the Company
are reserved for issuance to employees, advisors and for non-employee members
of the Board of Directors. Option terms under the 1999 Plan may not exceed 10
years.
A summary of option transactions follows:
<TABLE>
<CAPTION>
Weighted
Range of average
exercise Weighted remaining
prices per average contractual
Shares share exercise price life (in years)
--------- ---------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance outstanding, De-
cember 31, 1996......... 3,125 $ 0.80 $0.80 4.85
====
Granted................ 335,000 0.80 0.80
--------- ---------- -----
Balance outstanding, De-
cember 31, 1997......... 338,125 0.80 0.80 9.64
====
Granted................ 1,692,500 0.80-1.60 0.84
Canceled............... (398,125) 0.80 0.80
--------- ---------- -----
Balance outstanding, De-
cember 31, 1998......... 1,632,500 0.80-1.60 .84 9.48
====
Granted................ 1,010,250 1.60-7.20 2.58
Exercised.............. (112,069) 0.80 0.80
Canceled............... (42,187) 0.80-1.60 1.04
--------- ---------- -----
Balance outstanding,
September 30, 1999...... 2,488,494 $0.80-7.20 $1.54 9.08
========= ========== ===== ====
</TABLE>
At December 31, 1997, 1998 and September 30, 1999, there were 76,719,
414,375 and 716,369 shares exercisable, respectively at weighted average
exercise prices of $0.80, $0.82 and $1.06, respectively.
F-88
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
At December 31, 1997 and 1998 and September 30, 1999, 99,375, 511,250 and
747,250 shares were available for grant, respectively.
The per share weighted-average fair value of stock options granted was $0
in 1996, $0 in 1997, $0.08 in 1998 and $0.84 in 1999 on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1996 1997 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Volatility........................................ 0% 0% 0% 0%
Dividend paid..................................... 0% 0% 0% 0%
Risk-free interest rate........................... 6.35% 6.11% 4.73% 4.99%
Expected life in years............................ 5.77 6.75 5.57 6.75
</TABLE>
No volatility was assumed due to the use of the Minimum Value Method of
computation for options issued by the Company as a private entity as prescribed
by SFAS No. 123.
All stock options granted, except as noted in the paragraph below, have
been granted to directors or employees with an exercise price equal to the fair
value of the common stock at the date of grant. The Company applies APB Opinion
No. 25 for issuances to directors and employees in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the consolidated
financial statements through December 31, 1998.
On March 19, 1999, the Company granted 360,625 stock options with an
exercise price of $1.60 and a fair value of $1.80. The Company recorded $72,126
of unearned compensation at the date of grant and is amortizing the unearned
compensation over the vesting period. Compensation expense amounted to $9,017
for the nine months ended September 30, 1999.
Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net loss
would have increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net loss as reported.... $(1,719,492) $(5,483,623) $(7,832,128) $(10,672,185)
=========== =========== =========== ============
Pro forma net loss...... $(1,719,492) $(5,483,623) $(7,865,031) $(10,887,665)
=========== =========== =========== ============
Net loss per share, as
reported:
Basic and diluted..... $ (9.24) $ (14.34) $ (1.80) $ (1.59)
=========== =========== =========== ============
Pro forma net loss per
share:
Basic and diluted..... $ (9.24) $ (14.34) $ (1.81) $ (1.62)
=========== =========== =========== ============
</TABLE>
F-89
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
(10) Related Party Transactions
Due to Related Parties
Due to related parties consist of:
<TABLE>
<CAPTION>
December 31,
--------------------- September 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
XL Vision........................... $8,029,995 $5,158,436 $ 6,057,978
Safeguard Scientifics, Inc. and
Safeguard Delaware, Inc............ 10,309 28,898 7,347,979
---------- ---------- -----------
$8,040,304 $5,187,334 $13,405,957
========== ========== ===========
</TABLE>
Amounts Due to XL Vision
Amounts due to XL Vision consist of:
<TABLE>
<S> <C>
Balance as of December 31, 1996............................ $ 3,636,494
Allocation of costs and funding of working capital to the
Company................................................. 6,318,405
Technology transfer fee.................................. 4,400,000
Interest charges on technology transferred............... 141,167
Proceeds from Series A Preferred Stock................... (6,443,606)
Issuance of Class A common stock......................... (22,465)
-----------
Balance as of December 31, 1997............................ 8,029,995
Allocation of costs and funding of working capital to the
Company................................................. 9,120,441
Interest charges on technology transferred............... 308,000
Contribution of debt to equity........................... (7,500,000)
Contribution of debt to equity in exchange for Series B
Preferred Stock......................................... (4,800,000)
-----------
Balance as of December 31, 1998............................ 5,158,436
Allocation of costs and funding of working capital to the
Company................................................. 668,542
Interest charges on technology transferred............... 231,000
-----------
Balance as of September 30, 1999........................... $ 6,057,978
===========
</TABLE>
The average outstanding balance due to XL Vision was approximately
$2,690,900 in 1996, $6,239,600 in 1997, $12,782,400 in 1998 and $7,342,435 in
1999.
On January 1, 1999, the Company signed a revolving promissory note with
XL Vision for up to $3,000,000. The revolving promissory note bears interest at
the prime rate plus 1% and is due in full when the Company completes an IPO or
sells all of its assets or stock.
Note Payable to Safeguard Delaware, Inc.
On July 21, 1999, the Company obtained a $3,000,000 revolving note
payable from Safeguard Delaware, Inc ("Safeguard"). The revolving note payable,
as amended, bears interest payable monthly at the prime rate plus 1% and is due
December 31, 1999.
F-90
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
In August, September and October 1999, the Company signed demand notes
with interest payable monthly at the prime rate plus 1% with Safeguard for
$2,500,000, $2,000,000 and $2,500,000, respectively. These notes were cancelled
in October 1999, in exchange for a $7,050,000 note due in full on October 25,
2000, the repayment of a promissory note issued concurrently with the sale of
Series D preferred stock or an IPO, whichever is earlier.
Technology Fee
On July 15, 1997, the Company entered into an agreement with XL Vision
for the transfer of certain technology that is used by the Company in the sale
of its products for a $4,400,000 note payable. The transfer was accounted for
as a distribution to XL Vision as it represented amounts paid for an asset to
an entity under common control in excess of the cost of such asset. The note
payable bears interest at 7% per annum. Interest expense was $141,167 in 1997,
$308,000 in 1998 and $231,000 in 1999.
Direct Charge Fee
Prior to April 1, 1997 personnel, and other services were provided by XL
Vision and the costs were allocated to the Company. The Company believes that
the allocation method used by XL Vision was reasonable. Effective April 1,
1997, the Company entered into a direct charge fee agreement with XL Vision
which allows for cost-based charges based upon actual hours incurred. Costs
allocated by or service fees charged by XL Vision were approximately $468,000
in 1996, $720,000 in 1997, $460,000 in 1998 and $390,000 in 1999. A portion of
the fees in 1998 and 1999 and all of the costs and fees in 1996 and 1997 were
allocated to the discontinued transportation segment.
Administrative Services Fee
Effective December 15, 1997, the Company entered into an agreement which
requires accrual of an administrative services fee based upon a percentage of
gross revenues. The fee for administrative support services, including
management consultation, investor relations, legal services and tax planning,
is payable monthly to XL Vision and Safeguard Scientifics, Inc., the largest
shareholder of XL Vision, based upon an aggregate of 1.5% of gross revenues
with such service fees to be not more than $300,000 annually. Effective August
17, 1999, the agreement was amended such that the administrative services fee
is applied to net contribution margin on cattle sales and gross revenue for all
other sales. The fee is accrued monthly but is only payable in months during
which the Company has achieved positive cash flow from operations. The
agreement extends through December 31, 2002 and continues thereafter unless
terminated by any party. Administrative service fees were approximately $10,300
in 1997, $37,200 in 1998 and $43,500 in 1999.
Leases
The Company leases equipment under a capital lease, effective April 20,
1998, with an affiliated entity, XL Realty, Inc. Future minimum lease payments,
including imputed interest at 7.53%, are $79,852 in 1999, $85,765 in 2000,
$92,684 in 2001, $100,154 in 2002 and $26,415 in 2003. Interest expense was
$23,594 in 1998 and $20,627 in 1999.
The Company rents its facility from XL Vision. Rent expense varies based
on space occupied by the Company and includes charges for base rent, repairs
and maintenance, telephone and networking expenses, real estate taxes and
insurance. Rent expense is approximately $68,000 in 1996, $354,000 in 1997,
$1,129,000 in 1998, and $528,000 in 1999.
License Agreement with XL Vision, Inc.
In February 1999, the Company signed a license agreement with XL Vision,
granting XL Vision a license to use Company software for the limited purpose of
evaluating whether the software could provide the
F-91
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
basis for a new company that would operate in the agricultural industry. The
license agreement terminated on November 30, 1999. If XL Vision forms a new
company, the Company will negotiate a long-term license agreement. In addition,
XL Vision is obligated to give the Company at least 25% of the new company. The
Company is obligated to transfer all amounts up to 25% of the company to Lost
Pelican, LLC.
(11) Segment Information
In 1998, the Company adopted SFAS No. 131, which requires the reporting
of segment information using the "management approach" versus the "industry
approach" previously required. The management approach requires the Company to
report certain financial information related to continuing operations that is
provided to the Company's chief operating decision-maker. The Company's chief
operating decision-maker receives revenue and contribution margin (revenue less
direct costs and excluding overhead) by source, and all other statement of
operations data and balance sheet on a consolidated basis. The Company's
reportable segments consist of cattle sales and animal sciences products and
services. While the Company operates entirely in the animal science
marketplace, the contribution margin associated with cattle sales and the
related prospects for this portion of the Company's business differ from the
rest of the Company's product offerings.
The following summarizes revenue, cost of revenue and gross profit and
contribution margin information related to the Company's two operating
segments:
<TABLE>
<CAPTION>
Nine months ended
-------------------------
Year ended September 30, September
December 31, 1998 1998 30, 1999
----------------- ------------- -----------
(Unaudited)
<S> <C> <C> <C>
Revenue:
Cattle........................... $ -- $ -- $17,022,862
Animal sciences.................. 1,792,471 1,106,452 1,315,783
----------- ----------- -----------
Total............................ $ 1,792,471 $ 1,106,452 $18,338,645
=========== =========== ===========
Cost of revenue:
Direct costs:
Cattle......................... $ -- $ -- $16,860,452
Animal sciences................ 900,824 603,410 492,115
----------- ----------- -----------
Total direct costs............. 900,824 603,410 17,352,567
Unallocated overhead............. 1,722,623 1,025,347 929,763
----------- ----------- -----------
Total............................ $ 2,623,447 $ 1,628,757 $18,282,330
=========== =========== ===========
Gross profit (loss):
Contribution margin:
Cattle......................... $ -- $ -- $ 162,410
Animal sciences................ 891,647 503,042 823,668
----------- ----------- -----------
Total.......................... 891,647 503,042 986,078
Unallocated overhead............. (1,722,623) (1,025,347) (929,763)
----------- ----------- -----------
Gross profit (loss).............. $ (830,976) $ (522,305) $ 56,315
=========== =========== ===========
</TABLE>
The Company's assets, and other statement of operations data are not
allocated to a segment.
F-92
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
(12) Discontinued Operations
In December 1998, the Company's Board of Directors decided to dispose of
its transportation segment. The Company's AMIRIS thermal imaging system, which
was the sole product sold in the transportation segment, was sold on January
15, 1999 to Sperry Marine, Inc. for approximately $1,900,000. The Company
received $200,000 of cash at closing and collected an additional $1,388,000
through September 30, 1999. The remaining balance of approximately $312,000 is
expected to be collected by December 31, 1999. The Company is entitled to a
royalty of 8% of net AMIRIS system sales, up to a maximum royalty of $4.3
million over a four year period or up to a maximum royalty of $5.0 million, if
$4.3 million is not received within four years.
Net assets of the discontinued transportation segment consist of:
<TABLE>
<CAPTION>
December 31,
---------------------- September 30,
1997 1998 1999
---------- ---------- -------------
<S> <C> <C> <C>
Accounts receivable...................... $ 145,500 $ 381,435 $ 419,784
Inventory, net........................... 1,076,043 2,020,625 123,093
Property and equipment, net.............. 22,650 134,098 --
Intangibles, net......................... 94,444 61,108 36,106
Accounts payable......................... (271,833) (80,510) (63,647)
Accrued liabilities including provision
for operating loss during phase out
period of $72,667 in 1998 and $18,748 in
1999.................................... -- (231,415) (125,000)
---------- ---------- ---------
Net assets........................... $1,066,804 $2,285,341 $ 390,336
========== ========== =========
</TABLE>
(13) Commitments and Contingencies
Voluntary Employee Savings 401(k) Plan
The Company established a voluntary employee savings 401(k) plan in 1997
which is available to all full time employees 21 years or older. The plan
provides for a matching by the Company of the employee's contribution to the
plan for 50% of the first 6% of the employee's annual compensation. The
Company's matching contributions were $6,300 in 1996, $38,195 in 1997, $62,108
in 1998 and $54,229 in 1999.
Royalties
In connection with the NutriCharge license, the Company is obligated to a
royalty of 5% of gross revenues from the sale of NutriCharge products and
infrared technology related to the Company's Canadian license agreement.
The Company is also obligated to a royalty of 6% of net revenues from
product or services related to technology patented by Iowa State University.
(14) Subsequent Events
Sale of Series D Preferred Stock
On October 27, 1999, the Company agreed to issue 4,555,556 shares of
Series D preferred stock and a warrant to acquire 1,138,889 shares of Class B
common stock. Each share of Series D preferred stock is convertible into 1.25
shares of Class B common stock at any time at the option of the holder or
immediately
F-93
<PAGE>
EMERGE INTERACTIVE, INC.
Notes to Consolidated Financial Statements--(Continued)
upon an IPO. The warrant is exercisable at the Company's IPO price. In the
event the Company does not complete an IPO, the warrant is exercisable at $9.00
after November 16, 2000 or earlier if the Company has an equity financing of
not less that $20,000,000 from private investors. The warrant expires on
November 16, 2002. In return for these instruments, the Company received
$18,000,000 of cash in November 1999 and a $23,000,000 non-interest, bearing
note receivable due on October 27, 2000. Imputed interest at 9.5% amounts to
$2,185,000 over the life of the note.
The net consideration of $38,815,000 was allocated to the warrant and
preferred stock as follows. The warrant was valued at $3,325,553 using the
Black-Scholes method and assuming a strike price of $11.20, expiration of three
years, 90% volatility, and 5.8% interest. The remaining proceeds were allocated
to preferred stock and amounted to $7.79 per preferred share ($6.23 per common
share). The beneficial conversion feature was calculated as the difference
between the conversion price ($6.23) and the fair value of the common stock
($7.20) multiplied by the number of Class B common shares into which the
preferred stock is convertible (5,694,445) and amounts to $5,523,612.
The note receivable will be shown as a reduction of stockholders' equity,
net of imputed interest. Interest income will be accreted over the life of the
note using the effective interest method. The value of the warrant will be
credited to additional paid-in capital. The beneficial conversion feature will
be credited to preferred stock with a corresponding charge to additional paid-
in capital at issuance. The beneficial conversion feature will reduce net
income available to common shareholders.
Stock Split
On December 6, 1999, the Board of Directors of the Company authorized a
five-for-four stock split. The stock split has been reflected in these
financial statements as if it had occurred on the first day of the first period
presented.
Legal Proceeding (Unaudited)
The Company has been named as a defendant in a lawsuit filed by Central
Biotech, Inc. on January 12, 2000 in the Queen's Bench Judicial Centre of
Regina, Providence of Saskatchewan, Canada. The complaint alleges that eMerge
and E-Y laboratories, Inc. were each subject to confidentiality agreements with
the plaintiff, and subsequently engaged in discussions concerning a potential
business arrangement in violation of such agreements. The complaint asserts
damages, including punitive damages, from the defendants in the aggregate
amount of $18,000,000 (Canadian dollars), as well as injunctive relief.
Although the Company has not yet completed its assessment of these claims, the
Company believes that there are a number of substantive and procedural defenses
that exist and intends to defend these claims vigorously.
Initial Public Offering (Unaudited)
On February 17, 2000, the Company closed on its IPO and a concurrent
private placement of common stock and raised net proceeds of approximately
$107,400,000. Approximately $12,800,000 of the proceeds were used to pay
amounts due to related parties and $900,000 was paid to Turnkey.
F-94
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
JusticeLink, Inc.
(formerly LAWPlus, Inc.)
We have audited the balance sheets of JusticeLink, Inc. (formerly LAWPlus,
Inc.) as of December 31, 1999 and 1998, and the related statements of
operations, mandatory redeemable convertible stock and other capital
(deficiency) and cash flows for the years then ended. These financial
statements are the responsibility of the Company'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 financial statements referred to above present fairly, in
all material respects, the financial position of JusticeLink, Inc. (formerly
LAWPlus, Inc.) at December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Ernst & Young
Dallas, Texas
February 18, 2000, except for the third
paragraph of Note 10, for which is March 30, 2000
F-95
<PAGE>
JusticeLink, Inc.
(formerly LAWPlus, Inc.)
Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................. $12,163 $ 14
Accounts receivable--trade................................. 68 74
Prepaids................................................... 29 27
------- -------
Total current assets....................................... 12,260 115
Property and equipment, net.................................. 2,218 747
Notes receivable, affiliates................................. -- 135
Deposits..................................................... 49 106
Debt issuance cost, net...................................... -- 91
Goodwill and other intangible assets, net of accumulated
amortization of $844........................................ 5,547 --
Other........................................................ -- 4
------- -------
Total assets................................................. $20,074 $ 1,198
======= =======
Liabilities, Mandatory Redeemable Convertible Stock and Other
Capital (Deficiency)
Current liabilities:
Accounts payable trade..................................... $ 463 $ 763
Accrued liabilities........................................ 669 401
Accrued lease cancellation fees............................ -- 161
Deferred compensation...................................... 80 546
Current portion of capital lease obligations............... 592 375
Notes payable and current portion of long-term debt........ 4,992 243
------- -------
Total current liabilities.................................... 6,796 2,489
Capital lease obligations, less current portion.............. 406 125
Long-term debt, less current portion......................... 1,000 4,927
Notes payable, long-term debt and accrued interest converted
to Series B mandatory redeemable convertible preferred stock
during 1999................................................. -- 7,563
Commitments and contingencies
Mandatory Redeemable Convertible Stock
Series B mandatory redeemable convertible preferred stock,
par value $.01 per share, 10,000,000 shares authorized,
9,461,468 shares issued and outstanding................... 19,353 --
Series C mandatory redeemable convertible preferred stock,
par value $.01 per share, 7,200,000 shares authorized,
7,108,707 shares issued and outstanding................... 14,337 --
Other Capital (Deficiency)
Series A convertible preferred stock, $.01 par value,
15,000,000 shares authorized, 3,200,000 shares issued and
outstanding ($3,809,536 aggregate liquidation value)...... -- 32
Common stock, $.05 par value, 25,000,000 shares authorized,
10,000 shares in 1999 and 683,242 shares in 1998 issued
and outstanding........................................... 1 34
Additional capital......................................... 7,942 6,157
Accumulated deficit........................................ (29,761) (20,129)
------- -------
Total other capital (deficiency)............................. (21,818) (13,906)
------- -------
Total liabilities, mandatory redeemable convertible stock and
other capital............................................... $20,074 $ 1,198
======= =======
</TABLE>
See accompanying notes.
F-96
<PAGE>
JusticeLink, Inc.
(formerly LAWPlus, Inc.)
Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
1999 1998
----------- ------------
(in thousands)
<S> <C> <C>
Revenue............................................. $ 277 $ 272
Operating expenses:
Selling and customer support...................... 2,875 2,179
Product development............................... 909 2,004
Operations........................................ 1,613 1,824
General and administrative........................ 1,726 2,249
Depreciation and amortization..................... 1,744 693
----------- ------------
8,867 8,949
----------- ------------
Loss from operations................................ (8,590) (8,677)
Interest income..................................... 71 --
Interest expense.................................... (1,113) (1,578)
----------- ------------
Net loss............................................ $ (9,632) $ (10,255)
=========== ============
</TABLE>
See accompanying notes.
F-97
<PAGE>
JusticeLink, Inc.
(formerly LAWPlus, Inc.)
Statements of Mandatory Redeemable Convertible Stock and Other Capital
(Deficiency)
<TABLE>
<CAPTION>
Mandatory Redeemable
Convertible Stock Other Capital
----------------------------- -----------------------------------------------------------------
Series B Series C Series A
Preferred Preferred Convertible Common
Stock Stock Preferred Stock Stock
-------------- -------------- ----------------- -------------- Additional Accumulated
Shares Amount Shares Amount Shares Amount Shares Amount Capital Deficit Total
------ ------- ------ ------- -------- ------- ------ ------ ---------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1998................... 3,200 $ 32 687 $ 34 $5,744 $ (9,874) $ (4,064)
Issuance of warrants
attached to Revolving
Note guarantee and 1998
Bridge Loans........... -- -- -- -- 503 -- 503
Other................... -- -- (4) -- (90) -- (90)
Net loss and
comprehensive loss..... -- -- -- -- -- (10,255) (10,255)
-------- ------ ------ ---- ------ -------- --------
Balance at December 31,
1998................... 3,200 32 683 34 6,157 (20,129) (13,906)
Exercise of warrants
issued in connection
with the 1998 and 1999
Bridge Loans........... -- -- 7,754 388 -- -- 388
Recapitalization of
LAWPlus, Inc........... 3,462 $ 6,925 (3,200) (32) (8,437) (422) 2,994 -- 2,540
Series B mandatory
redeemable preferred
stock issued in
connection with the
acquisition of
JusticeLink, Inc....... 1,187 2,375 -- -- -- -- -- -- --
Series B mandatory
redeemable preferred
stock issued in
exchange for 1999
Bridge Loans and
accrued interest....... 1,114 2,228 -- -- -- -- -- -- --
Sale of Series B
mandatory redeemable
preferred stock, net... 2,398 4,795 -- -- -- -- (583) -- (583)
Issuance of Series B
mandatory redeemable
preferred stock in
connection with Lexis-
Nexis agreement........ 1,300 2,600 -- -- -- -- -- -- --
Sale of Series C
mandatory redeemable
preferred stock, net... -- -- 7,109 $14,217 -- -- -- -- (80) -- (80)
Accrued dividends on
Series B and C
mandatory redeemable
preferred stock........ -- 430 -- 120 -- -- -- -- (550) -- (550)
Exercise of employee
stock options.......... -- -- -- -- 10 1 4 -- 5
Net loss and
comprehensive loss..... -- -- -- -- -- -- -- -- -- (9,632) (9,632)
----- ------- ----- ------- -------- ------ ------ ---- ------ -------- --------
Balance at December 31,
1999................... 9,461 $19,353 7,109 $14,337 -- $ -- 10 $ 1 $7,942 $(29,761) $(21,818)
===== ======= ===== ======= ======== ====== ====== ==== ====== ======== ========
</TABLE>
See accompanying notes.
F-98
<PAGE>
JusticeLink, Inc.
(formerly LAWPlus, Inc.)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------
1999 1998
------- --------
(in thousands)
<S> <C> <C>
Operating Activities
Net loss.................................................... $(9,632) $(10,255)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,744 693
Amortization of debt issuance costs....................... 91 26
Loss on disposal of property and equipment................ -- 434
Interest related to warrants attached to debt............. -- 503
Non-cash interest expense................................. -- 563
Bad debt expense.......................................... 5 --
Write-off of note receivable--affiliates.................. 135 --
Changes in operating assets and liabilities, net of
effects of an acquired business in 1999:
Accounts receivable trade............................... 1 (52)
Prepaids, deposits and other............................ 53 (57)
Notes receivable, affiliates............................ -- 115
Accounts payable and accrued liabilities................ (294) 489
------- --------
Net cash used in operating activities................. (7,897) (7,541)
Investing Activities
Cash acquired from merger with JusticeLink, Inc........... 1 --
Merger costs.............................................. (474) --
Purchases of property and equipment....................... (1,269) (154)
------- --------
Net cash used in investing activities................... (1,742) (154)
Financing Activities
Proceeds from the exercise of warrants for LAWPlus, Inc.
common stock............................................. 388 --
Proceeds from the exercise of stock options............... 5 --
Net proceeds from sale of Series B and Series C preferred
stock.................................................... 18,349 --
Proceeds from issuance of notes payable and long-term
debt..................................................... 3,762 6,375
Payments on notes payable and long-term debt.............. (250) (591)
Payments on capital lease obligations..................... (466) (361)
Other..................................................... -- (90)
------- --------
Net cash provided by financing activities............... 21,788 5,333
------- --------
Increase (decrease) in cash and cash equivalents............ 12,149 (2,362)
Cash and cash equivalents at beginning of year.............. 14 2,376
------- --------
Cash and cash equivalents at end of year.................... $12,163 $ 14
======= ========
Supplemental Cash Flow Information
Cash paid for interest...................................... $ 1,581 $ 527
Significant Noncash Investing and Financing Activities
Common stock, Series A preferred stock and debt converted to
Series B preferred stock (including accrued interest of
$928,000).................................................. $11,693 $ --
Series B preferred stock issued in connection with the
merger with JusticeLink, Inc............................... $ 2,375 $ --
Series B preferred stock issued in connection with the
Lexis-Nexis agreement...................................... $ 2,600 $ --
Property and equipment acquired with capital leases......... $ 967 $ --
Additional capital allocated to Series B and C preferred
stock for dividends........................................ $ 550 $ --
</TABLE>
See accompanying notes.
F-99
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements
December 31, 1999
1. Organization and Description of Business
LAWPlus, LLC, a Texas limited liability corporation was formed on April
20, 1995 (inception) and was 94% owned by COREPlus LLC. At the commencement of
operations on July 16, 1997, the members of LAWPlus, LLC exchanged their
membership units for shares of common stock of LAWPlus, Inc., a Delaware
corporation incorporated on July 9, 1997, and COREPlus, LLC transferred assets
of $25,000 and liabilities of $2,701,000, recorded at their historical basis,
to LAWPlus, Inc.
On May 25, 1999, LAWPlus, Inc. acquired all of the outstanding common
stock of JusticeLink, Inc. in exchange for 1,187,495 shares of Series B
Preferred Stock. Additionally, LAWPlus, Inc. acquired assets of $180,000 and
assumed a note payable of $1,072,000. Effective with the merger, the Company
changed its name to JusticeLink, Inc. The merger has been accounted for using
the purchase method of accounting and, accordingly, results of the acquired
operations of JusticeLink, Inc. are included in the Company's statements of
operations from the date of its acquisition. The pro forma effects on the
Company's operations for the years ended December 31, 1999 and 1998, assuming
that JusticeLink was acquired as of September 1, 1998 (its inception), would be
to increase the net loss by $1,456,000 and $1,843,000, respectively.
JusticeLink had no net revenues during either period.
The Company provides electronic document transmission and storage
services to court systems, attorneys and litigants accessed via the Internet.
The Company has executed service agreements with court systems and law firms
participating within certain court systems in the states of Texas, California,
Colorado, Alabama, and Georgia. The Company continues to pursue opportunities
to expand its services throughout the United States.
2. Summary of Significant Accounting Policies
Revenue Recognition
The Company recognizes revenue as services are provided.
Cash and Cash Equivalents
The Company considers short-term investments with original maturity dates
of 90 days or less at the date of purchase to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost. Property and equipment are
depreciated using the straight-line method over the estimated useful lives of
the related assets which range from three to five years. Leasehold improvements
and assets under capital leases are amortized over the lesser of the base lease
term or estimated useful life of the respective asset and included in
depreciation expense.
Product Development Costs
In 1998, the Company expensed all product development costs as incurred.
Product development costs represent the internal and external costs associated
with developing the Company's electronic internet applications.
F-100
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
In March 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP is effective for all
fiscal years beginning after December 15, 1998 and requires the capitalization
of certain costs incurred in connection with developing or obtaining internal
use software. SOP 98-1 does not require restatement of prior year financial
statements upon adoption. As of December 31, 1999, the Company has capitalized
$1,311,000 in connection with developing internal use software of which
$754,000 has been placed in service as of December 31, 1999. Amortization
expense for internally developed software was $84,000 for the year ended
December 31, 1999.
Intangibles
Intangible assets consist of goodwill, trademarks, customer lists,
technological capabilities and strategic relationships and are amortized using
the straight-line method over the estimated useful lives of three years.
Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Debt Issuance Costs
Debt issuance costs were carried at cost of $130,000 less accumulated
amortization of $39,000 as of December 31, 1998 which was calculated using the
interest method over the term of the debt, and are included in other assets.
During 1999, the remaining unamortized balance of $33,000 was written off in
connection with the Company's recapitalization (see Note 7).
Income Taxes
Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. Valuation allowances are provided against deferred
tax assets when the realization of the assets is not reasonably assured.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States 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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are held primarily with one financial
institution and exceed federally insured amounts. The Company has not incurred
any losses relating to such concentration and none are expected. The Company's
accounts receivable are comprised of small balances due from a large number of
customers for which collateral is generally not required. The allowance for
doubtful
F-101
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
accounts as of December 31, 1999 was $5,000 and no allowance was necessary as
of December 31, 1998. Losses on accounts receivable have historically been
within management's expectation.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. SFAS 133, as amended by SFAS 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company has not completed a thorough review of all
its contracts for embedded derivatives and, accordingly, the effects, if any,
upon adoption of SFAS 133 on its financial position or results of operations
have not been determined.
3. Property and Equipment
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Computer and data network equipment...................... $ 2,313 $ 1,513
Software................................................. 1,783 261
Office and other equipment............................... 197 154
------- -------
4,293 1,928
Less accumulated depreciation............................ (2,075) (1,181)
------- -------
Property and equipment, net.............................. $ 2,218 $ 747
======= =======
</TABLE>
Included within property and equipment are assets under capital leases of
$998,000 and $1,250,000 and related accumulated amortization of $261,000 and
$556,000 at December 31, 1999 and 1998, respectively.
F-102
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
4. Notes Payable and Long-Term Debt
Notes payable and long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
Note payable................................................. $ 1,072 $ --
Revolving Note............................................... 3,500 3,500
Senior Note.................................................. 84 334
12% Subordinated Notes....................................... -- 3,440
1998 Bridge Loans ........................................... -- 2,500
12% Senior Subordinated Notes ............................... -- 1,060
Subordinated Note ........................................... 1,000 1,000
8% Senior Subordinated Note.................................. 336 336
------- -------
5,992 12,170
Less current portion not converted to Series B mandatory
redeemable convertible preferred stock ..................... (4,992) (243)
Less, in 1998, notes payable and long-term debt converted to
Series B mandatory redeemable convertible preferred stock
during 1999................................................. -- (7,000)
------- -------
Long-term debt, less current portion......................... $ 1,000 $ 4,927
======= =======
</TABLE>
In connection with the recapitalization of LAWPlus, Inc. and the merger
with JusticeLink, Inc. in May 1999, the Company's outstanding 12% Senior
Subordinated Notes, 12% Subordinated Notes and the 1998 Bridge Loans were
converted to Series B Convertible Preferred Stock (See Note 7). These amounts
totaling $7,000,000 plus accrued interest of $563,000 at December 31, 1998 are
shown separately on the balance sheet at December 31, 1998 as Notes payable,
long-term debt and accrued interest converted to Series B mandatory redeemable
convertible preferred stock during 1999.
In July 1997, the Company assumed 12% Senior Subordinated Notes totaling
$1,060,000, a Subordinated Note of $1,000,000, and an 8% Senior Subordinated
Note of $450,000 from COREP1us, LLC.
The 12% Senior Subordinated Notes of $1,060,000 bore interest at 12%
which was payable quarterly. The principal of the notes was originally due and
payable on July 1, 2001, however, in conjunction with the 1999 recapitalization
of LAWPlus, Inc. and the merger with JusticeLink, Inc., the Senior Subordinated
Notes of $1,060,000 were converted to Series B Preferred Stock (see Note 7).
The $1,000,000 Subordinated Note is unsecured and due on March 31, 2001.
Interest accrues at prime plus 1% (9.50% at December 31, 1999) and is payable
quarterly.
The 8% Senior Subordinated Note between the Company and Southeast Texas
NETPlus, Inc. (an entity owned by stockholders who were former directors or
officers of the Company) accrues interest at 8% with principal and interest
payable quarterly. On November 20, 1997 and May 4, 1998, the terms of the 8%
Senior Subordinated Note for the then remaining principal of $436,000 and
$386,000, respectively were
F-103
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
amended to provide that interest will accrue at 8% per annum. Payment of such
interest is deferred until the closing of a private placement equity financing
at which time all such deferred interest payments shall be paid and interest
would then be paid monthly. All deferred interest was paid in connection with
the equity financing on July 1, 1999 described in Note 7. In addition, the
Company made a required principal payment of $50,000 in connection with the May
4, 1998 amendment. As of December 31, 1999 and 1998, $336,000 principal was
outstanding which is due on October 16, 2000.
In July and November 1997, the Company issued 12% Subordinated Notes to
venture capitalists for $3,440,476. The notes were originally due on June 30,
2002 with interest payable quarterly. However, in conjunction with the 1999
recapitalization of LAWPlus, Inc. and the merger with JusticeLink, Inc. (see
Note 7) the Subordinated Notes were converted to Series B Preferred Stock. As
permitted by the terms of the 12% Subordinated Notes, accrued interest was
added to the unpaid principal balance of the notes prior to the conversion.
In May 1998, the Company entered into a Substitute Revolving Note (the
"Revolving Note") with a bank under which it has borrowed $3,500,000 bearing
interest at the bank's prime rate (8.50% at December 31, 1999). Interest is
payable monthly with all outstanding principal due July 31, 2000. The
borrowings under the Revolving Note are collateralized by substantially all the
assets of the Company. In addition, the Revolving Note is guaranteed by two
investment fund limited partnerships, which held all of the Company's Series A
Preferred Stock, $5,940,000 in debt and had representatives on the Board of
Directors of the Company at December 31, 1998, in return for 435,000 warrants
to purchase an equal number of shares of common stock with an exercise price of
$.05 per share through May 4, 2008. The fair value of the warrants at the date
of grant, as determined by management, of $218,000 was recorded as additional
capital and amortized to interest expense over the period to the original
maturity date of the Revolving Note on August 31, 1998. The guarantee by the
two investment fund limited partnerships may be reduced to $1,000,000 upon
meeting conditions as to the size and valuation of an initial public offering.
In December 1997, the Company entered into a term note (the "Senior
Note") agreement with a commercial bank for $500,000 due on December 5, 2000.
Interest accrues at prime plus 2% (10.50% at December 31, 1999). Principal
payments, beginning January 5, 1998, were due in equal monthly installments of
approximately $14,000 plus interest. The Senior Note agreement contains a
penalty for prepayments and restricts the Company's ability to declare or pay
any dividends during the term of the loan. A provision of the Senior Note
required the Company to raise $10,000,000 in junior capital by March 31, 1998,
The March 31, 1998 deadline was subsequently extended to September 30, 1998. In
November 1998, the Company and the commercial bank agreed to renegotiate the
terms of the agreement which resulted in a requirement for monthly payments of
approximately $14,000 until March 5, 1999 (subsequently extended to August 5,
1999), at which time all unpaid principal and interest was due and payable. In
September 1999, the Company and the commercial bank renegotiated the Senior
Note as a six-month installment note, with monthly payments including principal
and interest of approximately $46,000, maturing on February 5, 2000. The Senior
Note is collateralized by specific equipment. This note was paid in full on
February 1, 2000.
To fund operations in 1998, the Company entered into a series of bridge
loans (the "1998 Bridge Loans") aggregating $2,500,000 at December 31, 1998.
The 1998 Bridge Loans bore interest at 9% per annum with all principal and
interest due at maturity of November 30, 1998 or March 15, 1999. In addition,
the Company issued to the lenders 3,812,160 warrants expiring May 4, 2008 for
an equal number of shares of common stock with an exercise price of $0.05 per
share. Warrants for 641,180 shares were immediately exercisable. Warrants for
1,000,000 shares became exercisable on each of December 15, 1998, January 15,
F-104
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
1999 and February 15, 1999 and 171,080 became exercisable on January 12, 1999.
If the 1998 Bridge Loans had been repaid by each of these dates or had the
Company obtained third party financing, some or all of the warrants would have
been voided. The fair value of the warrants at the date of grant, as
determined by management, of $285,000, was recorded as additional capital and
amortized to interest expense over the period from issue to the original
maturity date of the 1998 Bridge Loans.
To fund operations during 1999, the Company entered into additional
bridge loans (the "1999 Bridge Loans") for an aggregate of $3,762,000 of
borrowings, under substantially the same terms as the 1998 Bridge Loans
including immediately exercisable warrants expiring on May 4, 2008 for an
aggregate of 10,342,160 shares of common stock at an exercise price of $0.05
per share. The value of the warrants was determined by management to be
nominal.
In connection with the 1999 recapitalization of LAWPlus, Inc. and the
merger with JusticeLink, Inc. the $2,500,000 of 1998 Bridge Loans and
$1,862,000 of 1999 Bridge Loans were converted to Series B Preferred Stock
(see Note 7). Additionally, on July 1, 1999, $1,900,000 of 1999 Bridge Loans
were converted to Series B Preferred Stock at a ratio of $2.00 per share (see
Note 7).
On May 25, 1999 in connection with the merger with JusticeLink, the
Company assumed a $1,072,000 note payable to an entity which became a Series B
Preferred stockholder in the Company. The note payable bore interest at 8% per
annum. Principal and interest was due at maturity on March 12, 2000. At
December 31, 1999, $1,072,000 was outstanding with accrued interest payable of
$51,691. On February 11, 2000, the note payable was settled for $850,000 in
cash plus certain equipment and software (see Note 10).
Maturities of notes payable and long-term debt at December 31, 1999, are
as follows (in thousands):
<TABLE>
<S> <C>
2000................................................................ $4,992
2001................................................................ 1,000
------
Total........................................................... $5,992
======
</TABLE>
5. Income Taxes
No provision for income taxes has been provided for the years ended
December 31, 1999 and 1998 due to the Company's operating losses.
The differences between the actual income tax benefit and the amount
computed by applying the statutory federal tax rate to the loss before income
taxes are as follows:
<TABLE>
<CAPTION>
December 31
----------------
1999 1998
------- -------
(In thousands)
<S> <C> <C>
Benefit computed at federal statutory rate............. $(3,275) $(3,487)
Permanent differences.................................. 260 9
State income tax benefit, net of federal tax effect at
state statutory rate.................................. (263) (304)
Increase in valuation reserve.......................... 3,278 3,782
------- -------
Total.............................................. $ -- $ --
======= =======
</TABLE>
F-105
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
The components of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31
---------------
1999 1998
------ -------
(In thousands)
<S> <C> <C>
Deferred tax assets--net operating loss carryforwards.......... $9,444 $ 5,714
Valuation allowance for deferred tax assets.................... (8,959) (5,681)
------ -------
Deferred tax assets, net of valuation allowance................ 485 33
Deferred tax liabilities
Software development costs................................... (454) --
Other, net................................................... (31) (33)
------ -------
Total deferred tax liabilities................................. (485) (33)
------ -------
Deferred income taxes, net..................................... $ -- $ --
====== =======
</TABLE>
At December 31, 1999, the Company has approximately $25.6 million of
federal net operating loss carryforwards which begin to expire in 2012. The
Company has approximately $25.6 million of state net operating losses as of
December 31, 1999.
At December 31, 1999 and 1998, the Company has recorded a valuation
allowance against its net deferred tax assets because management believes that,
after considering all the available objective evidence, the realization of the
assets is not reasonably assured.
6. Commitments and Contingencies
Leases
The Company has operating and capital lease commitments for office space
and equipment with lease terms ranging from three to five years. The office
space lease agreement includes an escalation clause and renewal option to
extended the term by three years.
Capital leases require monthly payments over periods ranging from 18 to
36 months with implicit interest rates ranging from 8% to 25%.
F-106
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
Future minimum lease payments under noncancelable capital and operating
leases at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
2000........................................................ $ 592 $649
2001........................................................ 424 172
2002........................................................ 198 18
2003........................................................ -- 8
----- ----
Total minimum lease payments.............................. 1,214 $847
====
Less amount representing interest............................. 216
-----
Present value of minimum capital lease payments............... 998
Less current portion.......................................... 592
-----
Capital lease obligations, less current portion............... $ 406
=====
</TABLE>
Rent expense for noncancelable operating leases was approximately
$542,000 and $317,000 for the years ended December 31, 1999 and 1998,
respectively.
In February 1998, the Company entered into an outsourcing agreement with
a third party to provide data processing and related information technology
services for the Company's production operating system. Amounts paid to the
third party in 1998 were approximately $322,000. The agreement was terminated
in December 1998 and termination costs of approximately $161,000 were accrued.
Legal
From time to time, the Company is a party to various claims, legal
actions and complaints arising in the ordinary course of business. In the
opinion of management, the disposition of these claims, legal actions and
complaints will not have a material effect on the Company's financial position
or result of operations.
7. Recapitalization of LAWPlus, Inc.
Effective May 25, 1999, LAWPlus, Inc. recapitalized as a condition of
closing the merger with JusticeLink, Inc. In the recapitalization, LAWPlus,
Inc. issued 3,462,461 shares of Series B Preferred Stock in exchange for all of
the 12% Senior Subordinated Notes, the 12% Subordinated Notes, the 1998 Bridge
Loans, $1,862,000 of 1999 Bridge Loans, accrued interest of $600,000 on the
1998 and 1999 Bridge Loans, and all of the outstanding shares of Series A
Preferred Stock and common stock at conversion rates negotiated by the
stockholders.
The recapitalization resulted in approximately $6,925,000 being allocated
to Series B Preferred Stock at $2.00 per share and the remainder as an increase
to additional capital.
Additionally, outstanding stock options as of December 31, 1998 covering
593,068 shares were converted to options to purchase 226,223 shares of common
stock at $1.3108 per share. These options were rescinded by the board of
directors and were replaced by the June 8, 1999 stock option grant for shares
in the merged Company, described in Note 8 under "Stock Options."
F-107
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
8. Capital Stock
Reverse Stock Split
On October 29, 1998, LAWPlus, Inc. amended its Articles of Incorporation
to convert each share of its $.01 par value common stock into one-fifth of one
share of common stock, $.05 par value (reverse split). All common stock,
options and warrants to purchase common shares outstanding on October 29, 1998
were adjusted to reflect the reverse split. The impact of the reverse split has
been retroactively reflected in the accompanying financial statements.
Series A Convertible Preferred Stock
Each share of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") was convertible into one share of common stock. The Series A
Preferred Stock would automatically convert to common stock upon closing of an
initial public offering of common stock in which aggregate proceeds received by
the Company would have been at least $25 million and which represented a
valuation of the total common equity of the Company of at least $60 million.
Holders of Series A Preferred Stock were not entitled to receive dividends
prior, or in preference, to common shareholders. Holders of Series A Preferred
Stock were to receive dividends upon declaration or payment of any dividend or
distribution to common shareholders. Holders of Series A Preferred Stock had
the right to vote with common shareholders on the basis of one vote per share
of Series A Preferred Stock held. The liquidation preference of the Series A
Preferred Stock was $1.19048 per share.
In connection with the recapitalization of LAWPlus, Inc. and merger with
JusticeLink, Inc., all of the issued and outstanding Series A Preferred Stock
was exchanged for Series B Preferred Stock (see below).
Series B Mandatory Redeemable Convertible Preferred Stock
On July 1, 1999, the Company completed a sale of 2,397,500 shares of
Series B Convertible Preferred Stock (the "Series B Preferred Stock") at $2.00
per share. The Company received proceeds of $4,212,000, net of $583,000 of
offering costs. Offering costs of $583,000 have been recorded against
additional capital. In connection with arranging the offering, 234,250
immediately exercisable 10 year warrants to purchase common stock were issued
to the underwriter with a $2.00 per share exercise price.
Concurrently, on July 1, 1999, $1,900,000 of the 1999 Bridge Loans plus
accrued interest of approximately $328,000 were converted to 1,114,017 shares
of Series B Preferred Stock at $2.00 per share.
Each share of Series B Preferred Stock is convertible into the number of
shares of common stock that results from dividing the liquidation value
(initially $2.00 per share) of the Series B Preferred Stock by the conversion
price (initially $2.00 per share) for Series B Preferred Stock plus the number
of shares that results from dividing the amount of any accrued and unpaid
dividends divided by the amount equal to the fair value of the common stock.
The holders of Series B Preferred Stock will be entitled to receive cumulative
dividends at the rate of 5.0% of the original purchase price, which will be
converted into common shares upon conversion of the Series B Preferred Stock at
a conversion price equal to the fair market value of the common stock at the
time of conversion. The Series B Preferred Stock automatically converts to
common stock upon 1) the election of the holders of at least two-thirds of the
issued and outstanding Series B and Series C Preferred Stocks or 2) the closing
of an initial public offering of common stock in which aggregate proceeds are
at least $20,000,000.
F-108
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
Holders of Series B Preferred Stock vote with common shareholders on the basis
of one vote per share of Series B Preferred Stock held. In the event of
liquidation, dissolution or winding up of the Company, either voluntarily or
involuntarily, the holders of the Series B Preferred Stock have a liquidation
preference in an amount equal to three times the liquidation value of $2.00 per
share or their pro rata share if the assets of the Company are insufficient to
pay in full the respective preferential amounts (see adjustment to liquidation
preference upon issuance of Series C Preferred Stock described below).
On October 28, 1999, the Company amended the Certificate of Designation
for the Series B Preferred Stock making the Series B Preferred Stock
mandatorily redeemable upon the vote of two thirds of the combined holders of
Series B and Series C (see below) Preferred Stock. The redemption would be one
third of the shares on each of July 1, 2004, 2005 and 2006 at liquidation value
plus accrued unpaid dividends.
As of December 31, 1999, $429,776 representing the pro-rata portion of
the cumulative 5% dividend has been recorded to Series B Preferred Stock and
charged to additional capital in the absence of positive retained earnings.
Series C Mandatory Redeemable Preferred Stock
On October 28, 1999, the Company's Board of Directors authorized
7,200,000 shares of Series C Preferred Stock (the "Series C Preferred Stock")
with a par value of $0.01. The Series C Preferred Stock has essentially the
same rights and preferences as the amended Series B Preferred Stock, except in
the event of a liquidation. In the event of a liquidation where the assets
available are insufficient for payment of the entire preferred liquidation
preference, plus any cumulative but unpaid dividends, first, until the holders
of the Series C Preferred Stock have received an amount per share equal to the
liquidation value ($2.00 per share), plus any accrued dividends, sixty percent
of such assets will be allocated ratably to Series C Preferred Stock holders
and forty percent of such assets will be allocated ratably among the holders of
Series B Preferred Stock. The holders of the Series B and C Preferred Stocks
then share ratably until the holders have received an amount of three times the
liquidation value, plus any cumulative but unpaid dividends.
The Series C Preferred Stock is mandatorily redeemable upon the vote of
two-thirds of the combined holders of Series B and C Preferred Stocks. The
redemption would be one-third of the shares on each of July 1, 2004, 2005 and
2006 at liquidation value plus accrued unpaid dividends.
In November 1999, the Company sold 6,415,422 shares of Series C Preferred
Stock at $2.00 per share to Internet Capital Group, Inc. and a private
investment banking firm. The Company received gross proceeds of $12,831,000
from these offerings. The terms of the Series C Preferred Stock offering
restricted the use of the proceeds from paying debt and allowed existing
stockholders of the Company to acquire up to 750,000 shares at $2.00 per share
of which 693,285 shares have been sold as of December 31, 1999. As of December
31, 1999, the Company paid $80,000 of offering costs, which have been recorded
against additional capital.
As of December 31, 1999, $119,422 representing the pro-rata portion of
the cumulative 5% dividend has been recorded to Series C Preferred Stock and
charged to additional capital in the absence of positive retained earnings.
F-109
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
Agreement with Lexis-Nexis
On November 1, 1999, the Company and Lexis-Nexis Group, a division of
Reed Elsevier Inc. (Lexis) entered into a strategic alliance whereby the
Company will become the exclusive court electronic filing solutions partner of
Lexis. In the agreement the Company issued 1,300,000 shares of Series B
Preferred Stock in exchange for the right to pursue certain Lexis customers for
e-filing services and entering into a joint marketing agreement. The joint
marketing agreement relates to co-branding and promoting each Company's
services and listing the Company as Lexis' exclusive e-filing services
provider. Lexis will use its best efforts to transition the specified customers
to the Company's system. The shares issued are not contingent upon future
performance or services. The Company agreed to issue additional common stock to
Lexis contingent upon the level of revenue generated from these specified Lexis
former customers, if they are converted to be Company customers, for a thirty-
month period beginning after the transition period, which is expected to occur
no earlier than March 31, 2000.
Additionally, in connection with the agreement with Lexis, the Company
issued immediately exercisable 10 year warrants for 150,000 shares of common
stock at an exercise price of $2.50 per share to certain shareholders for
services performed during the transaction. The value assigned to the warrants
was nominal. The Company has recorded the $2.6 million of consideration to
intangible assets at December 31, 1999. Any additional consideration given to
Lexis related to future revenues will be charged to expense based on the fair
value of the stock to be given as of the date of the resolution of the
contingency.
Stock Warrants
As of December 31, 1999 and 1998, warrants to purchase 393,875 and
4,247,160 shares of common stock with an exercise price of $2.50 and $0.05,
respectively, were outstanding. All of the warrants outstanding at December 31,
1999 were exercisable. The warrants expire from May 4, 2008 through November 1,
2009.
In March 1999, 7,753,979 warrants of the 14,589,320 warrants issued in
connection with the 1998 and 1999 Bridge Loans were exercised as a part of the
recapitalization of LAWPlus, Inc. (see Note 7). Proceeds from the exercise
approximated $388,000. The remaining warrants issued in connection with the
1998 and 1999 Bridge Loans were voided as a condition of the merger with
JusticeLink, Inc.
Employee Stock Options
As of December 31, 1998, fully vested options granted prior to the
incorporation of LAWPlus, Inc. to purchase 15,000 shares of common stock were
outstanding with an exercise price of $0.0165 per share, exercisable through
December 31, 2010. Subsequently, with the 1999 recapitalization of LAWPlus,
Inc. and the merger with JusticeLink, Inc., these options were converted to
options to purchase 9,246 shares of common stock with an exercise price of
$0.0268 with the original expiration date.
In October 1998, the stockholders of the Company approved an Employee
Stock Option Plan authorizing 1,000,000 shares of the Company's common stock to
be reserved for the granting of incentive stock options. Stock option grants
for 593,068 shares with an exercise price of $0.50, representing the estimated
fair value at the date of grant were awarded during 1998 and subsequently
rescinded by the board of directors in December 1999. Generally, the options
vested at six to twelve months from the date of grant at a rate of 25% of the
initial grant and then pro rata each month thereafter until all options vest
four years from the date of grant. As of December 31, 1998, 66,261 options were
exercisable.
F-110
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
In October 1998 and June 1999, the Company increased the number of
shares available for grant under its Employee Stock Option Plan to 1,700,000
shares. During 1999, stock option grants covering 1,722,000 shares at an
exercise price of $0.50 per share were awarded by the Company, with terms
similar to the existing options with the vesting beginning from either their
original hire date or October 28, 1998. As of December 31, 1999, 180,797
shares are available for grant under the plan.
Data with respect to stock options of the Company are as follows:
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
------------------------- ----------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
--------- -------------- ------- --------------
<S> <C> <C> <C> <C>
January 1, 1998................ 9,246 $.03 9,246 $ .03
Granted........................ 593,068 .50
--------- ----
December 31, 1998.............. 602,314 .49 66,261 $(.43)
Granted........................ 1,722,000 .50
Exercised...................... (10,000) .50
Rescinded...................... (593,068) .50
Forfeitures.................... (212,043) .50
--------- ----
December 31, 1999.............. 1,509,203 $.50 331,354 $ .49
========= ====
</TABLE>
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, requires pro forma information regarding the
Company's net loss determined as if the Company has accounted for its employee
stock options under the fair value method. The fair value of the Company's
options estimated at the dates of grant during 1999 and 1998 using a "minimum
value" option pricing model was insignificant. Accordingly, the fair value
method results in substantially the same net loss for the years ended December
31, 1999 and 1998 as that shown in the statements of operations.
Reserved Shares
Shares of common stock reserved for future issuance as of December 31,
1999 were as follows:
<TABLE>
<S> <C>
Conversion of Series B Mandatory Redeemable Preferred Stock...... 9,461,468
Conversion of Series C Mandatory Redeemable Preferred Stock...... 7,108,707
Warrants......................................................... 393,875
Employee Stock Option Plan....................................... 1,700,000
----------
18,664,050
==========
</TABLE>
9. Related Party Transactions
On October 28, 1999, the Company's Board of Directors approved a
settlement agreement (the "Agreement") between the Company and a former
officer and shareholder, whereby the Company agreed to pay the former officer
deferred compensation of $118,000, which is included in the deferred
compensation liability at December 31, 1998. The amount will be payable in ten
monthly installments of $10,000 and twelve monthly installments of $1,500
beginning November 1, 1999. As part of this Agreement, the Company wrote off
the $135,000 note receivable from this former officer and shareholder.
F-111
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
An officer and director of the Company owns a facility from which the
Company relocated effective December 1998. The Company incurred approximately
$67,000 in rental expense related to this facility during the year ended
December 31, 1998.
Equipment is leased from a company in which a director of the Company has
an ownership interest. During the year ended December 31, 1999 and 1998, the
Company made approximately $397,000 and $266,000 in capital lease payments to
this company.
A partner of the Company's former outside legal counsel is also an equity
owner in the Company. The Company incurred approximately $18,000 in legal
expenses with the law firm during the year ended December 31, 1998.
In February 1998, the Company entered into a third-party development
contract for the design, engineering and development of a significant portion
of the Company's electronic filing application. Certain shareholders and
directors of the Company hold equity interests in the third party and serve on
its board of directors. For the year ended December 31, 1999 and 1998, the
Company made contract payments to this entity of approximately $816,000 and
$515,000, respectively. This agreement expired in September of 1999.
10. Subsequent Events
Note Payable Agreement
On February 11, 2000, the Company reached an agreement with Series B
Preferred stockholder which held the Note Payable in the amount of $1,072,000
(plus accrued interest of $62,000 as of February 11, 2000). Under the terms of
the agreement, the Company will pay $850,000 and transfer certain tangible and
intangible assets acquired in the merger with JusticeLink on May 25, 1999 to
the stockholder by March 10, 2000 in full settlement of the note. As of
December 31, 1999, the net book value of the tangible asset included in
property and equipment was $97,721. As a result of the agreement goodwill and
accrued interest will be reduced by $145,000 and $51,000, respectively.
Letter of Intent
On February 2, 2000, the Company signed a Letter of Intent for a proposed
merger with Data West Corporation, d.b.a. CourtLink. Tentatively, the agreement
calls for all of the outstanding equity securities of the Company to be
converted into CourtLink securities representing 42% of the combined entity.
Currently, the Company's operations are expected to remain in Dallas; however,
Corporate personnel are expected to relocate to Seattle, Washington. The
effects of the proposed merger have not been reflected in the accompanying
financial statements.
Asset Purchase Agreement
On March 30, 2000, the Company entered into an asset purchase agreement
with a software development company whereby the Company will purchase certain
assets, including software for $4.0 million and a 1.5% common stock interest in
the newly formed entity to be formed as a result of the planned merger with
CourtLink. The Company must pay $2.0 million within thirty days of closing and
$2.0 million on or before November 15, 2000.
Also the Company entered into a cooperative marketing and limited grant
license agreement with the software development company.
F-112
<PAGE>
JUSTICELINK, INC.
(Formerly LAWPlus, Inc.)
Notes to Financial Statements--(Continued)
11. Year 2000 (Unaudited)
The Company, in conjunction with its third-party technology developers
and other third parties and key suppliers, completed an assessment of its
internal information systems and the electronic filing application and has
developed or modified portions of these information systems so that they would
function properly with respect to dates in the Year 2000 and thereafter. The
Company also modified the internet application underlying its electronic filing
service so that the occurrence of the date January 1, 2000, would not, by
itself, cause the current version of the JusticeLink system, owned and
developed by the Company and licensed for use by the Company to its customers
in the regular course of business, to materially fail to operate in accordance
with published specifications.
The Company did not experience any significant failures as a direct
result of Year 2000, and management does not believe that there is any
remaining exposure related to the Year 2000. Additionally, the Company
continuously monitors the activity of the internet application and has standing
operating procedures to address Year 2000 related failures should they occur.
The Company has expensed a nominal amount in 1999 related to Year 2000
compliance, which was included in product development expense.
F-113
<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.
Arthur Andersen LLP
Pittsburgh, Pennsylvania
January 12, 2000
F-114
<PAGE>
METALSITE GENERAL PARTNER, LLC
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
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.
F-115
<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>
(Unaudited)
Nine Months From Inception
Ended (November 15, 1998)
September 30, through December 31,
1999 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.
F-116
<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
<TABLE>
<S> <C>
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)
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-117
<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>
(Unaudited)
Nine Months From Inception
Ended (November 15, 1998)
September 30, through
1999 December 31, 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.
F-118
<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").
The Limited Partnership Agreement provides, among other things, for the
following:
Management
The affairs of the Partnership are managed by MGP, its general partner.
F-119
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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 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).
F-120
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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:
<TABLE>
<CAPTION>
From Inception
(November 15, 1998)
to December 31, 1998
--------------------
<S> <C>
Hardware and Software..................................... 3-5 years
Furniture and Fixtures.................................... 5 years
</TABLE>
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:
<TABLE>
<S> <C>
Internally Developed or Capitalized Software Costs.................... 1.5 years
Externally Developed or Acquired Software and Hardware................ 2 years
</TABLE>
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
F-121
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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.
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).
F-122
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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 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.
F-123
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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.
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.
F-124
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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:
<TABLE>
<CAPTION>
September 30,
1999
-------------
<S> <C>
1999........................................................... $115,000
2000........................................................... 510,000
2001........................................................... 226,000
2002........................................................... 19,000
--------
Total........................................................ $870,000
========
</TABLE>
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.
Future minimum payments by year and in the aggregate, under capital
leases consist of the following at September 30, 1999:
<TABLE>
<S> <C>
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
=========
</TABLE>
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,
F-125
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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 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
F-126
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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:
<TABLE>
<CAPTION>
Weighted Average
Units Exercise Price
------- ----------------
<S> <C> <C>
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
</TABLE>
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.
F-127
<PAGE>
METALSITE GENERAL PARTNER, LLC
Notes to Consolidated Financial Statements--(Continued)
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.
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.
F-128
<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
F-129
<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
<TABLE>
<CAPTION>
Period From
January 1, 1998
To November 15, December 31,
1998 1997
--------------- ------------
<S> <C> <C>
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
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-130
<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.
F-131
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders of
Syncra Software, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in redeemable preferred stock and stockholders'
deficit and of cash flows present fairly, in all material respects, the
financial position of Syncra Software, Inc. (a development stage enterprise) at
December 31, 1998 and the results of its operations and its cash flows for the
period from inception (February 11, 1998) through December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 29, 1999
F-132
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
1998 1999
------------ ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents........................................ $ 1,700,370 $ 176,953
Prepaid expenses................................................. 185,506 149,366
Other current assets............................................. 22,704 19,991
----------- ------------
Total current assets............................................. 1,908,580 346,310
Fixed assets, net.................................................. 351,752 342,690
Deposits........................................................... 136,998 136,998
----------- ------------
$ 2,397,330 $ 825,998
=========== ============
Liabilities, Redeemable Preferred Stock and Stockholders' Deficit
Current Liabilities:
Accounts payable................................................. $ 233,281 $ 226,688
Accrued expenses................................................. 316,918 347,771
Notes payable to stockholders.................................... 3,926,370 --
----------- ------------
Total current liabilities........................................ 4,476,569 574,459
----------- ------------
Redeemable Preferred Stock:
Series A redeemable convertible preferred stock, $0.001 par value
Authorized: 2,941,031 and 2,586,207 shares at December 31, 1998
and March 31, 1999 (unaudited), respectively; issued and
outstanding: 2,586,207 shares at December 31, 1998 and March 31,
1999 (unaudited) plus accrued dividends of $334,652 and $454,513
at December 31, 1998 and March 31, 1999 (unaudited),
respectively; liquidation value of $6,334,651 and $6,454,512 at
December 31, 1998 and March 31, 1999 (unaudited), respectively
................................................................ 6,334,651 6,454,512
Series B redeemable convertible preferred stock, $0.001 par value
Authorized: 3,737,602 shares; subscribed and issued and
outstanding: 3,287,602 shares at March 31, 1999 (unaudited);
liquidation value of $13,150,408 at March 31, 1999 (unaudited).. -- 13,150,408
Subscriptions receivable (unaudited)............................. -- (9,000,000)
Preferred stock warrants......................................... 120,000 120,000
Redeemable non-voting, non-convertible preferred stock, $0.001
par value Authorized: 150,000 and 130,000 shares at December 31,
1998 and March 31, 1999 (unaudited), respectively; issued and
outstanding: 130,000 shares at December 31, 1998 and March 31,
1999 (unaudited) plus accrued dividends of $89,468 and $116,001
at December 31, 1998 and March 31, 1999 (unaudited),
respectively; liquidation value of $1,389,468 and $1,416,001 at
December 31, 1998 and March 31, 1999 (unaudited), respectively.. 1,389,468 1,416,001
----------- ------------
Total redeemable preferred stock................................. 7,844,119 12,140,921
----------- ------------
Stockholders' Deficit:
Common stock, $0.001 par value; 10,000,000 shares authorized;
396,000 shares issued and outstanding at December 31, 1998 and
March 31, 1999 (unaudited)...................................... 396 396
Deficit accumulated during the development stage................. (9,923,754) (11,889,778)
----------- ------------
Total stockholders' deficit...................................... (9,923,358) (11,889,382)
----------- ------------
Commitments (Note 14)..............................................
----------- ------------
$ 2,397,330 $ 825,998
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-133
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Statement of Operations
<TABLE>
<CAPTION>
For the Period (Unaudited)
from Inception For the Three
(February 11, Months Ended March 31,
1998) through ------------------------
December 31, 1998 1998 1999
----------------- ----------- -----------
<S> <C> <C> <C>
Costs and Expenses:
Research and development......... $ 1,501,267 $ 235,127 $ 480,701
Selling and marketing............ 2,425,532 271,723 767,148
General and administrative....... 1,950,153 685,788 355,164
Impairment charge for intangible
assets.......................... 1,312,500 -- --
Settlement charge................ 1,795,333 -- --
----------- ----------- -----------
Loss from operations............... (8,984,785) (1,192,638) (1,603,013)
Interest expense, net.............. (90,430) (2,565) (156,617)
----------- ----------- -----------
Net loss........................... $(9,075,215) $(1,195,203) $(1,759,630)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-134
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Statement of Changes in Redeemable Preferred Stock and Stockholders' Deficit
<TABLE>
<CAPTION>
Series A Redeemable Series B Redeemable Preferred
Preferred Stock Preferred Stock Stock Warrants
--------------------- --------------------- --------------
Carrying Carrying Subscriptions Carrying
Shares Value Shares Value Receivable Value
--------- ----------- --------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
founders.......
Issuance of
redeemable non-
voting, non-
convertible
preferred
stock..........
Issuance of
Series A
redeemable
convertible
preferred
stock, issuance
costs of
$170,752:
Initial
closing....... 948,276 $ 2,200,000
Second
closing....... 646,551 1,500,000
Third closing.. 991,380 2,299,999
Repurchase and
retirement of
common stock...
Redemption of
redeemable non-
voting, non-
convertible
preferred
stock..........
Series A
redeemable
convertible
preferred stock
warrants....... $120,000
Accrual of
cumulative
dividends on
redeemable
preferred
stock.......... 334,652
Net loss........
--------- ----------- --------- ----------- ----------- --------
Balance at
December 31,
1998........... 2,586,207 6,334,651 120,000
Issuance of
Series B
redeemable
convertible
preferred
stock, issuance
costs of
$60,000
(Unaudited).... 3,287,602 $13,150,408 $(9,000,000)
Accrual of
cumulative
dividends on
redeemable
preferred stock
(Unaudited).... 119,861
Net loss
(Unaudited)....
--------- ----------- --------- ----------- ----------- --------
Balance at March
31, 1999
(Unaudited).... 2,586,207 $ 6,454,512 3,287,602 $13,150,408 $(9,000,000) $120,000
========= =========== ========= =========== =========== ========
<CAPTION>
Redeemable Non-
voting
Non-convertible Deficit
Preferred Stock Common stock Accumulated
-------------------- --------------------- During
Carrying Development
Shares Value Shares Par Value Stage Total
-------- ----------- ----------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
founders....... 1,396,000 $1,396 $ 1,396
Issuance of
redeemable non-
voting, non-
convertible
preferred
stock.......... 150,000 $1,500,000
Issuance of
Series A
redeemable
convertible
preferred
stock, issuance
costs of
$170,752:
Initial
closing.......
Second
closing.......
Third closing.. $ (170,752) (170,752)
Repurchase and
retirement of
common stock... (1,000,000) (1,000) (249,000) (250,000)
Redemption of
redeemable non-
voting, non-
convertible
preferred
stock.......... (20,000) (204,667)
Series A
redeemable
convertible
preferred stock
warrants.......
Accrual of
cumulative
dividends on
redeemable
preferred
stock.......... 94,135 (428,787) (428,787)
Net loss........ (9,075,215) (9,075,215)
-------- ----------- ----------- --------- ------------- -------------
Balance at
December 31,
1998........... 130,000 1,389,468 396,000 396 (9,923,754) (9,923,358)
Issuance of
Series B
redeemable
convertible
preferred
stock, issuance
costs of
$60,000
(Unaudited).... (60,000) (60,000)
Accrual of
cumulative
dividends on
redeemable
preferred stock
(Unaudited).... 26,533 (146,394) (146,394)
Net loss
(Unaudited).... (1,759,630) (1,759,630)
-------- ----------- ----------- --------- ------------- -------------
Balance at March
31, 1999
(Unaudited).... 130,000 $1,416,001 396,000 $ 396 $(11,889,778) $(11,889,382)
======== =========== =========== ========= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-135
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Statement of Cash Flows
<TABLE>
<CAPTION>
For the Period (Unaudited)
From Inception For the Three Months
(February 11, Ended March 31,
1998) Through ------------------------
December 31, 1998 1998 1999
----------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss.......................... $(9,075,215) $(1,195,203) $(1,759,630)
Adjustments to reconcile net loss
to net cash used for operating
activities:......................
Depreciation.................... 58,537 506 28,522
Amortization and impairment of
intangible assets.............. 1,500,000 125,000 --
Amortization of discounts on
notes payable.................. 46,370 -- 73,630
Changes in assets and
liabilities:
Prepaid expenses.............. (185,506) -- 36,140
Other current assets.......... (22,704) (54,333) 2,713
Accounts payable.............. 233,281 1,691 (6,593)
Accrued expenses.............. 316,918 126,233 121,261
----------- ----------- -----------
Net cash used for operating
activities................... (7,128,319) (996,106) (1,503,957)
----------- ----------- -----------
Cash flows from investing
activities:
Purchases of fixed assets......... (410,289) (28,543) (19,460)
Increase in deposits.............. (136,998) -- --
----------- ----------- -----------
Net cash used for investing
activities................... (547,287) (28,543) (19,460)
----------- ----------- -----------
Cash flows from financing
activities:
Proceeds from issuance of notes
payable to stockholders.......... 4,000,000 -- --
Proceeds from Series A redeemable
convertible preferred stock, net
of issuance costs................ 5,829,247 1,829,248 --
Proceeds from issuance of common
stock............................ 1,396 1,396 --
Redemption of non-voting, non-
convertible redeemable preferred
stock and related dividends...... (204,667) -- --
Repurchase of common stock........ (250,000) -- --
----------- ----------- -----------
Net cash provided by financing
activities................... 9,375,976 1,830,644 --
----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents............. 1,700,370 805,995 (1,523,417)
Cash and cash equivalents,
beginning of period.............. -- -- 1,700,370
----------- ----------- -----------
Cash and cash equivalents, end of
period........................... $ 1,700,370 $ 805,995 $ 176,953
=========== =========== ===========
Non-cash investing and financing
activities:
Software acquired in exchange for
150,000 shares of non-voting,
non-convertible redeemable
preferred stock.................. $ 1,500,000 $ 1,500,000 $ --
=========== =========== ===========
Conversion of notes payable to
stockholders plus accrued
interest of $150,408 into
1,037,602 shares of Series B
Preferred Stock.................. $ -- $ -- $ 4,150,408
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-136
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements
1. Nature of the Business
Syncra Software, Inc. ("Syncra" or the "Company") was incorporated in
Delaware on February 11, 1998. Syncra was formed to design, develop, produce
and market supply chain collaboration software and solutions. Since its
inception, Syncra has devoted substantially all of its efforts to business
planning, research and development, recruiting management and technical staff,
acquiring operating assets, raising capital, marketing and business
development. Accordingly, Syncra is considered to be in the development stage
as defined in Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises".
Syncra is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological changes, growth and
commercial acceptances of the Internet, dependence on principal products and
third party technology, new product development and performance, new product
introductions and other activities of competitors, dependence on key personnel,
development of a distribution channel, international expansion, lengthy sales
cycles and limited operating history.
2. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Syncra considers all highly liquid instruments with an original maturity
of three months or less at the time of purchase to be cash equivalents.
Included in cash and cash equivalents at December 31, 1998 is approximately
$1.6 million in money market accounts.
Financial Instruments
The carrying amount of Syncra's financial instruments, principally cash,
notes payable, and redeemable preferred stock, approximates their fair values
at December 31, 1998.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repairs and maintenance costs are
expensed as incurred.
Research and Development and Software Development Costs
Costs incurred in the research and development of Syncra's products are
expensed as incurred, except for certain research and development costs. Costs
associated with the development of computer software are expensed prior to the
establishment of technological feasibility, as defined by SFAS No. 86,
"Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed." Costs incurred subsequent to the establishment of technological
feasibility and prior to the general release of the products are capitalized.
During the period ended December 31, 1998, costs eligible for capitalization
were immaterial.
Accounting for Impairment of Long Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of", the Company records
impairment of losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
F-137
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements--(Continued)
Stock-Based Compensation
Syncra accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to
employees in fixed amounts and with fixed exercise prices at least equal to the
fair market value of Syncra's Common Stock at the date of grant. Syncra has
adopted the provisions of SFAS No. 123, " Accounting for Stock-Based
Compensation", through disclosure only (Note 11). All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123.
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 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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
The financial statements as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are unaudited. In the opinion of Syncra's
management, the March 31, 1998 and 1999 unaudited interim financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operation for
that period. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results of operations to be expected
for the year ending December 31, 1999.
3. Prepaid Expenses
Prepaid expenses consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Trade shows and other marketing prepayments...................... $135,774
Others........................................................... 49,732
--------
$185,506
========
</TABLE>
4. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
Estimated
useful life December 31,
(years) 1998
----------- ------------
<S> <C> <C>
Computer equipment.................................. 3 $246,631
Office equipment.................................... 5 71,783
Furniture and fixtures.............................. 7 91,875
--------
410,289
Less: accumulated depreciation...................... 58,537
--------
$351,752
========
</TABLE>
F-138
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements--(Continued)
5. Impairment of Intangible Assets
In accordance with SFAS No. 121, Syncra reviews for impairment of long-
lived assets when events or changes in circumstances indicate that an asset's
carrying value may not be recoverable. In connection with the organization of
Syncra in February 1998, Syncra purchased the rights to certain software from
Benchmarking Partners, Inc. ("Benchmarking") in exchange for the issuance of
150,000 shares of Syncra's non-voting, non-convertible Redeemable Preferred
Stock (Note 8). Syncra did not obtain an independent valuation of the
technology and the fair value of the Redeemable Preferred Stock was not
objectively determinable. Therefore, Syncra recorded the technology based upon
the amount of the Redeemable Preferred Stock as determined by Syncra's Board of
Directors. Syncra expected to use the acquired software as a core technology in
its product development. In May 1998, management reassessed the status of
Syncra's product development and the additional features and functionality
planned to be included in Syncra's products. As a result of this re-evaluation,
management concluded that the core technology acquired from Benchmarking would
not be able to support Syncra's planned products. Accordingly, management
decided to restart Syncra's product development activities without the use of
the acquired software. An impairment charge of $1,312,500 was recognized in the
December 31, 1998 statement of operations.
6. Notes Payable to Stockholders
During 1998, the Company received aggregate cash proceeds totaling
$4,000,000 pursuant to the issuance of convertible promissory notes (the
"Notes") payable to certain of its stockholders. No repayments of principal or
interest (which accrues at a rate of 9% per annum) were made during the year.
The Note holders were also issued 344,828 warrants to purchase Series A
Preferred Stock ("Preferred Stock Warrants") at $2.32 per share in 1998. The
aggregate value of the Preferred Stock Warrants issued to all Note holders was
estimated to be $120,000, which was accounted for as discount on the Notes and
Preferred Stock Warrants. The discount is being amortized over the term of the
Notes. Upon closing of the Series B Preferred Stock financing, each Note holder
is entitled to a number of warrants equal to 20% of the face value of the Note
held by such holder divided by the price per share of Series B Preferred Stock.
As a result of the Series B Preferred Stock financing in 1999, the Notes were
converted into shares of Series B Preferred Stock. Additionally, the Preferred
Stock Warrants were converted to the equivalent number of warrants for Series B
Preferred Stock totaling 200,000 shares at $4.00 per share (Note 7). The
Preferred Stock Warrants have a term of ten years.
7. Redeemable Convertible Preferred Stock
At December 31, 1998, the Company had authorized preferred stock of
5,000,000 shares, $.001 par value per share, of which 2,941,031 shares were
designated as redeemable convertible Series A Preferred Stock ("Series A
Preferred Stock") and 150,000 shares of which were designated as Redeemable
Preferred Stock (the "Redeemable Preferred Stock").
On March 31, 1999, the Company's authorized Preferred Stock was increased
to 6,453,809 shares with a par value of $.001 per share of which 2,586,207
shares were designated as redeemable convertible Series A Preferred Stock,
3,737,602 shares as redeemable convertible Series B Preferred Stock ("Series B
Preferred Stock") and 130,000 shares as Redeemable Preferred Stock. Of the
designated Series B Preferred Stock, the Company issued 3,287,602 shares on
March 31, 1999 in exchange for net cash proceeds of $9.0 million received on
April 1, 1999 and the conversion of all principal and accrued interest due on
the Notes (Note 6).
F-139
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements--(Continued)
The Series A and B Preferred Stock have the following characteristics:
Voting
Holders of Series A and B Preferred Stock are entitled to that number of
votes equal to the number of shares of common stock into which the shares of
Series A and B Preferred Stock are then convertible.
Dividends
Holders of Series A and B Preferred Stock are entitled to receive out of
funds legally available, cumulative dividends at the rate of 8% per share per
annum on the Base Amount of each share. The Base Amount of each share is equal
to the price paid for each share of Series A and B Preferred Stock of $2.32 and
$4.00, respectively, plus unpaid dividends which accrue commencing on the date
of original issuance of the Series A and B Preferred Stock. In the event that
the full amount of dividends is not paid in any twelve-month period, the Base
Amount will be increased by the amount of the unpaid dividend. After payment of
all dividends owing to the holders of Series A and B Preferred Stock, such
holders will not participate in any other dividends thereafter paid on
Redeemable Preferred Stock or Common Stock.
Liquidation
In the event of any liquidation, dissolution or winding-up of the affairs
of the Company, the holders of Series A and B Preferred Stock are entitled to
receive, prior to and in preference to holders of both Redeemable Preferred
Stock and Common Stock, an amount equal to $2.32 and $4.00 per share,
respectively, plus all unpaid cumulative dividends on each share. After full
payment of (i) the foregoing amounts and (ii) amounts to be paid to the holders
of Redeemable Preferred Stock pursuant to the terms thereof (Note 8), the
remaining assets of the Company will be distributed ratably among the holders
of Common Stock.
Conversion
Each share of Series A and B Preferred Stock may be converted at any
time, at the option of the stockholder, into one share of Common Stock, subject
to certain anti-dilution adjustments, as defined in the terms of the Series A
and B Preferred Stock.
The Series A and B Preferred Stock will automatically convert into shares
of Common Stock upon (i) a public offering of Syncra's Common Stock which
results in gross proceeds to Syncra of at least $10,000,000, at a price per
share of the Common Stock of at least three times the Series B Preferred Stock
original purchase price per share (as adjusted for stock splits, stock
dividends, combinations, reorganizations, reclassifications or similar events)
or (ii) upon approval of the two-thirds of the outstanding Series A and B
Preferred Stockholders, voting separately, to convert all outstanding shares of
Series A and B Preferred Stock to Common Stock.
Redemption
Any time after March 31, 2004, at the option of the holders of the Series
A and B Preferred Stock, Syncra shall redeem all, but not less than all of such
holder's shares of Series A and B Preferred Stock, at a redemption price equal
to the original purchase price of $2.32 and $4.00 per share, respectively, plus
all unpaid dividends thereon which have accrued through and including the
redemption date.
F-140
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements--(Continued)
Accretion
The issuance cost incurred by the Company was accreted in full in 1998
and at March 31, 1999 as an adjustment to the carrying value of redeemable
convertible Series A and B Preferred Stock.
8. Non-voting, Non-convertible Redeemable Preferred Stock
As described in Note 5, Syncra's Redeemable Preferred Stock was issued in
a non-cash exchange with Benchmarking for certain software. Subsequent to the
issuance of the Redeemable Preferred Stock to Benchmarking, Syncra repurchased
20,000 shares of its Redeemable Preferred Stock from Benchmarking at a price
per share of $10.00 plus accrued dividends of $4,667. In a separate
transaction, Benchmarking transferred the remaining 130,000 shares of the
Redeemable Preferred Stock to Internet Capital Group, Inc. ("ICG"), an existing
stockholder of Syncra in exchange for a $1.3 million note, bearing interest at
8% per annum. At December 31, 1998, ICG continued to hold the 130,000 shares of
Redeemable Preferred Stock. ICG is also a stockholder of Benchmarking.
The Redeemable Preferred Stock has the following characteristics:
Voting
Except as required by law, holders of Redeemable Preferred Stock are not
entitled to vote on any matters submitted to a vote of the stockholders of
Syncra, including the election of directors.
Dividends
Holders of Redeemable Preferred Stock are entitled to receive out of
funds legally available, cumulative dividends at the rate of 8% per share per
annum on the Base Amount of each share. The Base Amount of each share is equal
to purchase price paid for such share of Redeemable Preferred Stock ($10.00)
plus unpaid dividends which accrue commencing on the date of original issuance
of the Redeemable Preferred Stock. In the event that the full amount of
dividends is not paid in any twelve- month period, the Base Amount will be
increased by the amount of the unpaid dividends. After payment of all dividends
owing to the holders of Redeemable Preferred Stock, such holders will not
participate in any other dividends thereafter paid on the Series A and B
Preferred Stock or the Common Stock.
Liquidation
In the event of any liquidation, dissolution or winding-up of the affairs
of Syncra, the holders of Redeemable Preferred Stock are entitled to receive,
prior to and in preference to any holders of Common Stock, but after all
distribution or payments required to be made to the holders of Series A and B
Preferred Stock, an amount equal to $10.00 per share plus accrued but unpaid
dividends. After payment in full of the amounts owed to holders of the
Redeemable Preferred Stock, such holders are not entitled to share in the
distribution of the remaining assets of Syncra.
Redemption
At any time after March 31, 2004, each holder may require Syncra to
redeem all or any portion of such holder's shares at a redemption price equal
to the original issuance price per share ($10.00) plus all unpaid dividends
thereon which have accrued through and including the redemption date.
F-141
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements--(Continued)
At any time, and from time to time, Syncra may elect to redeem all, or
any portion of the outstanding shares of its Redeemable Preferred Stock, at a
redemption price equal to the original issuance price per share ($10.00) plus
all unpaid dividends thereon which have accrued through and including the
redemption date.
Redeemable Preferred Stock is also redeemable by Syncra upon the earlier
of (i) a public offering of Syncra's Common Stock which results in gross
proceeds to Syncra of at least $10,000,000, at a price per share of the Common
Stock of at least three times the Series B Preferred Stock original purchase
price per share (as adjusted for stock splits, stock dividends, combinations,
reclassifications, reorganizations or other similar events); or (ii) the
consummation of a sale of all or substantially all of Syncra's assets or
capital stock, either through a direct sale, merger, reorganization or other
form of business combination in which control of Syncra is transferred and as a
result holders of Series A and B Preferred Stock receive at least three times
the Series B Preferred Stock original purchase price per share (as adjusted for
stock splits, stock dividends, combination, reorganizations, reclassifications
or other similar events).
9. Common Stock
Each share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of Syncra's stockholders. Common stockholders are entitled
to receive dividends, if any, as may be declared by the Board of Directors,
subject to the preferential dividend rights of the holders of the Series A and
B Preferred Stock and the Redeemable Preferred Stock.
Restricted Stock Agreements
Syncra has entered into agreements with certain of its employee
stockholders providing for restrictions on transfers of the shares subject to
such agreement. Each agreement provides Syncra with a right to repurchase the
shares held by such individual, in the event that the Company terminates the
employment of the individual. The number of shares which may be repurchased by
the Company and the price at which such shares may be repurchased differs per
individual and is contingent on whether such individual's termination is for
"cause' (as defined in the agreement) or other than for "cause'. At December
31, 1998, none of the restricted shares were subject to repurchase due to the
restrictions contained in these agreements.
Pursuant to a stockholders' agreement, as amended and restated on March
31, 1999, all of the outstanding capital stock (including the Common Stock,
Series A and B Preferred Stock and Redeemable Preferred Stock) of the Company
is subject to certain restrictions as to sale or transfer of such shares
pursuant to a stockholders' agreement. The Company and its non-founder
stockholders also hold rights of first refusal, under certain circumstances, on
shares offered by a stockholder for sale to third parties, at the price per
share to be paid by such third party.
Reserved Shares
At December 31, 1998, 2,833,857 shares were reserved for issuance upon
conversion of the Series A Preferred Stock and exercise of outstanding options.
10. Repurchase of Common Stock and Redemption of Preferred Stock
On June 5, 1998, the Company repurchased 1,000,000 shares of Common Stock
and redeemed 20,000 shares of its Redeemable Preferred Stock from Benchmarking,
one of the original founders in exchange for
F-142
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements--(Continued)
$2,250,000. The transaction was financed through the sale of additional Series
A Preferred Stock to certain of the existing holders of Series A Preferred
Stock. Of the 150,000 shares of Redeemable Preferred Stock originally issued to
Benchmarking, the remaining 130,000 shares were transferred by Benchmarking to
ICG (see Note 8).
In addition to the shares acquired, the withdrawal of Benchmarking as a
stockholder eliminated a potential conflict of interest for Syncra and its
other stockholders with Benchmarking and its customers. The transaction also
settled potential claims by Benchmarking against Syncra with respect to the
transfer of technical talent from Benchmarking to Syncra and other potential
claims by Benchmarking against the potential future value of Syncra.
The difference between the total amount paid to Benchmarking and the
aggregate of the redemption value of the Redeemable Preferred Stock plus
accrued dividends of $204,667 and the fair value of the Common Stock of
$250,000 was treated as settlement charge in the statement of operations.
11. Stock Option Plan
In 1998, the Company adopted the 1998 Stock Option Plan (the "1998 Plan")
which provides for the grant of incentive stock options and non-qualified stock
options, stock awards and stock purchase rights for the purchase of up to
1,000,000 shares of the Company's Common Stock by officers, employees,
consultants, and directors of the Company. The Board of Directors is
responsible for administration of the 1998 Plan. The Board determines the term
of each option, the option exercise price, the number of shares for which each
option is granted, the rate at which each option is exercisable and the vesting
period (generally ratably over four to five years). Incentive stock options may
be granted to any officer or employee at an exercise price of not less than the
fair value per common share on the date of the grant (not less than 110% of the
fair value in the case of holders of more than 10% of the Company's voting
stock) and with a term not to exceed ten years from the date of the grant (five
years for incentive stock options granted to holders of more than 10% of the
Company's voting stock). Non-qualified stock options may be granted to any
officer, employee, consultant, or director at an exercise price per share of
not less than the book value per share.
During the period from inception (February 11, 1998) through December 31,
1998, Syncra granted options aggregating 803,300 shares with a weighted average
exercise price of $0.87 per share. Of the total options granted, 99,374 shares
were exercisable at December 31, 1998. None of these vested options were
exercised during the period. Options totaling 196,700 were available for future
grant at December 31, 1998. The weighted-average remaining contractual life of
the options outstanding is 9.5 years. No compensation expense has been
recognized for employee stock-based compensation in 1998.
The exercise price of the options is more than the fair market value of
the common stock, therefore, the weighted average grant date fair value per
share of the options granted during the year using the Black-Scholes option-
pricing model is zero at December 31, 1998. As a result, had compensation
expense been determined based on the fair value of the options granted to
employees at the grant date consistent with the provision of SFAS No. 123, the
Company's pro forma net loss would have been the same. The impact on the pro
forma net loss is not necessarily indicative of the effects on future results
of operations because the Company expects to grant options in future years.
For purposes of pro forma disclosure of net loss, the fair value of each
option grant was estimated on the date of grant using the Black-Scholes option-
pricing model with the following assumptions for grants in 1998; zero dividend
yield; zero volatility; risk-free interest rate of 4.55%, and expected life of
five years.
F-143
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements--(Continued)
12. Income Taxes
Deferred tax assets consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Net operating loss carryforward................................ $2,386,619
Fixed and intangible assets.................................... 482,690
Research and development credit carryforwards.................. 90,891
Accrued vacation............................................... 35,687
----------
Net deferred tax assets........................................ 2,995,887
Deferred tax asset valuation allowance......................... 2,995,887
----------
$ --
==========
</TABLE>
The Company has provided a valuation allowance for the full amount of its
net deferred tax assets since realization of any future benefit from deductible
temporary differences and net operating loss and tax credit carryforwards
cannot be sufficiently assured at December 31, 1998.
At December 31, 1998, the Company has federal and state net operating
loss carryforwards of approximately $5.9 million available to reduce future
taxable income, which will expire in 2019. The Company also has federal and
state research and development tax credit carryforwards of approximately
$72,490 and $27,881, respectively, available to reduce future tax liabilities.
Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may limit the amount of net operating loss
carryforwards and research and development credit carryforwards which could be
utilized annually to offset future taxable income and taxes payable.
13. 401(k) Savings Plan
The Company has established a retirement savings plan under Section
401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all employees of the Company who meet minimum age and service
requirements, and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Company contributions to the 401(k) Plan may
be made at the discretion of the Board of Directors. The Company has not made
any contributions to the 401(k) Plan through December 31, 1998.
F-144
<PAGE>
SYNCRA SOFTWARE, INC.
(a development stage enterprise)
Notes to Financial Statements--(Continued)
14. Commitments
The Company leases its office space and certain office equipment under
noncancelable operating leases. Total rent expense under these operating leases
was approximately $134,000 for the period ended December 31, 1998.
Future minimum lease commitments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Leases
Year ending December 31, ----------------
<S> <C>
1999......................................................... $ 272,328
2000......................................................... 254,728
2001......................................................... 254,728
2002......................................................... 254,728
Thereafter................................................... 127,364
----------
$1,163,876
==========
</TABLE>
15. Related Party Transactions
In the normal course of business, Syncra had transactions with
Benchmarking during the period from inception until May 1998 for certain
operating expenses such as organizational costs, payroll, marketing, legal and
other expenses. The total expenses reimbursed by Syncra to Benchmarking
amounted to $496,344. Furthermore, Syncra also paid Benchmarking a management
fee totaling $80,000 during the same period.
In addition to the above transactions, Syncra also reimbursed ICG
$500,000 related to professional services provided by Benchmarking to Syncra
that originally were funded by ICG.
16. Subsequent Events
In April 1999, Syncra issued 250,000 shares of Series B Preferred Stock
for $1.0 million to a new investor.
F-145
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To USgift.com Corporation:
We have audited the accompanying balance sheet of USgift.com Corporation (a
Georgia corporation and wholly owned subsidiary of OneCoast Network Corporation
in the development stage) as of September 30, 1999 and the related statements
of operations and accumulated deficit and cash flows for the period from
inception (April 27, 1999) to September 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USgift.com Corporation as of
September 30, 1999 and the results of its operations and its cash flows for the
period from inception (April 27, 1999) to September 30, 1999 in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
December 3, 1999
F-146
<PAGE>
USGIFT.COM CORPORATION
(A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
Stage)
BALANCE SHEET
SEPTEMBER 30, 1999
Assets
<TABLE>
<S> <C>
Cash................................................................... $ 204
Property and equipment, net............................................ 154,922
-------
</TABLE>
<TABLE>
<S> <C>
$155,126
========
Liabilities and Stockholders' Deficit
Current Liabilities:
Due to OneCoast...................................................... $645,774
Accounts payable and accrued liabilities............................. 147,529
--------
Total current liabilities.......................................... 793,303
--------
Contingencies (Note 4)
Stockholders' Deficit:
</TABLE>
<TABLE>
<S> <C>
Common stock, no par value; 100,000,000 shares authorized, 0 shares
issued and outstanding............................................. 0
Deficit accumulated during the development stage.................... (638,177)
--------
Total stockholders' deficit....................................... (638,177)
--------
$155,126
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-147
<PAGE>
USGIFT.COM CORPORATION
(A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
Stage)
Statement of Operations and Accumulated Deficit
For the Period from Inception
(April 27, 1999) to September 30, 1999
<TABLE>
<S> <C>
Sales............................................................... $ 0
---------
Costs and expenses:
General and administrative......................................... 636,609
Depreciation and amortization...................................... 1,568
---------
Total costs and expenses......................................... 638,177
---------
Net loss............................................................ (638,177)
Accumulated Deficit:
Beginning of period................................................ 0
---------
End of period...................................................... $(638,177)
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-148
<PAGE>
USGIFT.COM CORPORATION
(A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
Stage)
Statement of Cash Flows
For the Period from Inception
(April 27, 1999) to September 30, 1999
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss........................................................... $(638,177)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization..................................... 1,568
Changes in operating assets and liabilities:
Due to OneCoast.................................................. 645,774
Accounts payable and accrued liabilities......................... 147,529
---------
Net cash provided by operating activities....................... 156,694
---------
Cash Flows from Investing Activities:
Purchases of property and equipment................................ (156,490)
---------
Change in Cash and Cash Equivalents................................. 204
Cash and Cash Equivalents, beginning of period...................... 0
---------
Cash and Cash Equivalents, end of period............................ $ 204
=========
Supplemental Disclosures of Cash Flow Information:
Interest paid...................................................... $ 0
=========
Taxes paid......................................................... $ 0
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-149
<PAGE>
USGIFT.COM CORPORATION
(A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
Stage)
Notes to Financial Statements
September 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
USgift.com Corporation ("USgift" or the "Company") is a development stage
enterprise organized by OneCoast Network Corporation ("OneCoast") under the
laws of the state of Georgia on April 27, 1999. The Company did not issue any
stock until November 10, 1999, and accordingly, has no outstanding capital
stock at September 30, 1999. The Company was formed for the purpose of pursuing
business to business e-Commerce solutions related to the ongoing business of
OneCoast. OneCoast is a manufacturers' representative agency which solicits
sales of home and gift accessories through various methods of retail
distribution, including gift shops, merchandise marts, and catalogs throughout
the United States.
The Company's absence of operating history makes it difficult to predict
future operating results. The Company's budgeted expense levels are based, in
part, on its expectations of future growth. If revenue levels are below
expectations or if the Company is unable to reduce expenses proportionately,
operating results will be adversely affected. There is no assurance that the
Company will be profitable. The Company's prospects must be considered in light
of the risks, expenses, and difficulties frequently encountered by companies in
their early stages of development. While the Company believes that their
business to business e-Commerce solutions will become a viable commercial
operation, there can be no assurance in that regard. Accordingly, their
business processes may not work as the Company expects, and to the extent that
the Company is unable to make necessary adjustments to the business processes,
the operating results of the Company may be adversely affected.
History of Operating Losses
The Company has incurred net losses since its formation. The Company will
need to generate significant revenues to achieve and maintain profitability
which cannot be assured. The Company plans to significantly increase its sales
and marketing, research and development, and general and administrative
expenses throughout the remainder of calendar year 1999. Advances from OneCoast
as of September 30, 1999 were approximately $646,000. Subsequent to September
30, 1999, USgift became further indebted to OneCoast in the form of a
promissory note totaling approximately $10.3 million (Note 5). This note
matures upon the earlier of demand by OneCoast or proceeds from a qualified
debt or equity financing. OneCoast has represented they will not demand payment
of the note prior to the Company receiving adequate financing.
Use of Estimates
The preparation of the accompanying financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent 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.
Cash and Cash Equivalents
From inception (April 27, 1999) through September 30, 1999, OneCoast
maintained a centralized cash management function; accordingly, the Company did
not maintain a separate operating cash account, and its cash disbursements were
settled by OneCoast. The cash balance at September 30, 1999 relates to petty
cash.
F-150
<PAGE>
USGIFT.COM CORPORATION
(A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
Stage)
Notes to Financial Statements--(Continued)
Fair Value of Financial Instruments
The book values of trade accounts payable approximate its fair value
principally because of the short-term maturities of this instrument.
Property and Equipment
Property and equipment are stated at cost and are depreciated and
amortized using the straight-line method over the estimated useful lives of
three years.
<TABLE>
<S> <C>
Computer software and equipment................................... $129,091
Machinery and equipment........................................... 27,399
--------
156,490
Less accumulated depreciation..................................... (1,568)
--------
$154,922
========
</TABLE>
The Company records impairment losses on property and equipment used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
Comprehensive Income
The Company currently has no other comprehensive income items as defined
by Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting
Comprehensive Income."
Segment Information
USgift operates solely in one operating segment, business to business e-
Commerce solutions for the gift and home accessories wholesale industry.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
USgift will be required to adopt for the year ending December 31, 2001. This
statement establishes a new model for accounting for derivatives and hedging
activities. SFAS No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Because USgift currently holds no derivative
financial instruments and does not currently engage in hedging activities, the
adoption of SFAS No. 133 is expected to have no material impact on USgift's
financial condition or results of operations.
2. PAYABLE TO ONECOAST
The payable to OneCoast consists primarily of expenses incurred by
OneCoast on behalf of USgift. These expenses include allocations of amounts
estimated by management and the actual operating expenses of USgift. Advances
through September 30, 1999 of $645,774 plus additional advances of $182,630 are
included in the $10.3 million note payable discussed in Note 5.
F-151
<PAGE>
USGIFT.COM CORPORATION
(A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
Stage)
Notes to Financial Statements--(Continued)
Allocations of certain corporate expenses primarily relating to officer
and corporate administration salaries and benefits and occupancy expense for
corporate headquarters has been included as a component of general and
administrative expense. Because specific identification of such expense was not
practicable, a proportionate cost allocation was utilized to allocate these
expenses to USgift based on management's estimate of officer and corporate
administration's time incurred or total square footage utilized in relation to
OneCoast's total corporate headquarters' square footage. Allocated expenses
totaled approximately $208,000 for the period from inception (April 27, 1999)
to September 30, 1999. Management has determined that such allocations are a
practical and reasonable method of allocation. However, these financial
statements are not necessarily indicative of the financial position that would
have occurred if the Company had been an independent company. The amounts that
would have been incurred on a stand-alone basis could differ significantly from
the allocated amounts due to economies of scale, differences in management and
operational practices, or other factors.
3. INCOME TAXES
For the period from inception (April 27, 1999) to September 30, 1999, the
Company's results were included in the federal and state income tax returns of
OneCoast. For the purpose of these financial statements, the income tax
provision has been determined on a basis as if the Company were a separate
taxpayer. Due to the history of losses incurred by the Company, the net
deferred tax asset resulting from temporary differences is not considered
probable of realization and therefore is offset in all periods presented by a
valuation allowance. Net operating loss carryforwards generated by USgift
through November 10, 1999 will not be available to offset income taxes
subsequent to the spin-off. A reconciliation of the provision of income taxes
to the amount computed by applying the statutory federal income tax rate to
income before income taxes is as follows for the period from inception (April
27, 1999) to September 30, 1999:
<TABLE>
<S> <C>
Statutory federal tax rate........................................... 34.0%
State tax rate, net of federal tax benefit........................... 4.0
Valuation allowance.................................................. (38.0)
-----
0.0%
=====
</TABLE>
4. CONTINGENCIES
For the period from inception (April 27, 1999) to August 31, 1999, the
Company shared office space with OneCoast and was allocated total rent expense
of $4,348. Commencing September 1, 1999, the Company entered into a lease
agreement for separate office space with an obligation of $5,986 per month and
is cancelable upon 30 days notice.
5. SUBSEQUENT EVENTS
Agreement and Plan of Reorganization and Corporate Separation
On April 27, 1999, the Company was organized under the laws of the state
of Georgia. On September 9, 1999, OneCoast notified its shareholders of a spin-
off of USgift whereby one share of USgift common stock would be distributed to
each holder of (or the right to hold) one share of OneCoast common stock. On
November 10, 1999, OneCoast subscribed to 1,634,096 shares of common stock of
USgift, all the then outstanding shares of USgift common stock, for $16,341 for
purposes of effecting the spin-off. Also on
F-152
<PAGE>
USGIFT.COM CORPORATION
(A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
Stage)
Notes to Financial Statements--(Continued)
November 10, 1999, pursuant to an agreement and plan of reorganization and
corporate separation, OneCoast and USgift effected the following:
Transfer of Assets
OneCoast transferred certain assets with a nominal net book value to
USgift in exchange for 10,178,152 shares of USgift common stock.
Distribution of USgift Stock to OneCoast Shareholders
OneCoast distributed all 10,178,152 shares of USgift common stock
acquired above to each holder of OneCoast stock of any class, subject to the
receipt by USgift of such shareholder's signature to the USgift shareholders
agreement.
Distribution of USgift Stock to OneCoast Warrant Holders
At the direction of OneCoast, USgift reserved 2,081,428 shares of common
stock for future issuance to holders of OneCoast warrants to purchase common
stock.
Purchase and Sale of OneCoast Assets
USgift purchased certain tangible assets from OneCoast for an estimated
net book value of $160,000.
Reimbursement of Start-up and Transaction Costs; Loan to USgift
In consideration of certain prior services provided by OneCoast, advances
of $828,404 through October 31, 1999, an anticipated loan of approximately
$1.6 million and tangible assets with a net book value of $160,000, USgift
promised to pay OneCoast approximately $10.3 million in the form of a
promissory note. The note bears interest at 13.33% per annum, payable
quarterly. Principal is payable on demand or from any proceeds from any debt
or equity financing. The note is secured by substantially all of the assets of
USgift. The Company will account for monies due under the note in excess of
assets received as a capital transaction.
Shareholders Agreement and Registration Rights Agreement
All recipients of USgift common stock and equivalents were required to
sign the USgift shareholders agreement. The shareholders agreement, as
amended, provides for the appointment of seven board members, one of which
will be independent. The agreement requires any shareholder wishing to sell
common stock to first offer the shares to the Company and existing
shareholders prior to any sales to third parties. The agreement also grants
certain investors rights to co-sale in the event of a sale to a third party.
A significant portion of shareholders are also party to a registration
rights agreement which requires the Company to effect a registration of common
stock upon the earlier of October 8, 2000 or 180 days after the effective date
of an initial public offering, as defined.
License Agreement
On November 10, 1999, One Coast and USgift entered into a 20-year license
agreement. Pursuant to the agreement, OneCoast licensed certain technology and
derivative works, including an electronic catalog and
F-153
<PAGE>
USGIFT.COM CORPORATION
(A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
Stage)
Notes to Financial Statements--(Continued)
electronic order processing system and certain data about OneCoast
manufacturers and their products and OneCoast retailers, to USgift on a royalty
free basis. USgift is required to share all derivative works with OneCoast for
a period of four years.
Strategic Alliance Agreement
On November 10, 1999, OneCoast and USgift entered into a strategic
alliance agreement. Pursuant to the agreement, OneCoast will use its best
efforts to encourage OneCoast manufacturers and retailers to conduct business
with and through USgift. In return, USgift agrees to pay OneCoast a percentage
of its revenues through 2004. The percentage is 1.5% of revenues for calendar
year 2000 and decreases .3% each year through 2004.
Stock Option Plans
On November 10, 1999, the board of directors of USgift approved the
adoption of the 1999 USgift Stock Option and Incentive Plan (the "1999 Plan")
and the 2000 USgift Stock Option and Incentive Plan (the "2000 Plan"). USgift
reserved 2,447,286 shares of common stock for issuance under the 1999 Plan and
6,573,105 shares of common stock for issuance under the 2000 Plan
(collectively, the "Plans"). The Plans provide for the granting of either
incentive or nonqualified stock options to purchase shares of common stock and
for other stock-based awards to employees, directors, consultants, and
independent contractors.
On November 10, 1999, the Company issued options to purchase 2,447,286
shares of common stock under the 1999 Plan, all with an exercise price of $.01
per share. The vesting of the options was immediate for 1,933,120 options and
ratable over four years for the remaining 514,166 options. Certain of the
options which vested immediately may be repurchased for $.01 by the Company if
employment is terminated prior to December 1, 2000. The Company anticipates
recording a compensation charge related to the issuance of these options.
On November 10, 1999, the Company entered into agreements to issue
options to purchase 2,592,378 shares of common stock under the 2000 Plan. The
options were issued in connection with the preferred stock offering discussed
below. The exercise price of the options is $2.21 per share and vest upon the
attainment of certain goals, including effecting an exit transaction, as
defined, or obtaining certain revenue goals for USgift. The Company anticipates
recording a compensation charge related to the issuance of these options.
Preferred Stock Offering
On November 19, 1999, the Company amended its articles of incorporation
whereby the authorized capital stock was increased to 113,000,000 shares of
which 13,000,000 shares were designated as Series A Preferred Stock. Dividends
are payable annually in cash or securities at a rate of 8% per annum. The
preferred shares, together with any accrued and unpaid dividends, are
convertible into an equal number of common shares and automatically convert
upon the earlier of a public offering, as defined, or at the election of a two-
thirds majority of the preferred shareholders. The shares are mandatorily
redeemable five years from issuance at the greater of $2.21 per share or fair
market value. The shares have a liquidation preference of $2.21 per share.
On November 24, 1999, the Company sold 12,265,198 shares of Series A
Preferred for consideration of $27.1 million, plus an earnout. A portion, $7
million, of the consideration is not payable until March 31, 2000.
Additionally, an earnout of $7 million is payable if the Company's revenues for
its fiscal year ended December 31, 2000 are not less than $25 million or the
Company effects a public offering of its common stock, as defined, prior to
December 31, 2000.
A portion of the proceeds from the offering were used to repay the note
payable to OneCoast.
F-154
<PAGE>
Independent Auditors' Report
To the Board of Directors and
Shareholders of VerticalNet, Inc.:
We have audited the accompanying consolidated balance sheets of
VerticalNet, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity (deficit)
and comprehensive 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 these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
VerticalNet, Inc. and subsidiaries as a December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.
KPMG LLP
January 28, 2000
Philadelphia, Pennsylvania
F-155
<PAGE>
VERTICALNET, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................ $ 14,253,828 $ 5,662,849
Short-term investments........................... 44,131,135 --
Accounts receivable, net of allowance for
doubtful accounts of $2,084,573 in 1999 and
$61,037 in 1998................................. 45,776,520 1,794,728
Inventory........................................ 5,509,525 --
Prepaid expenses and other assets................ 5,964,422 747,951
------------ ------------
Total current assets........................... 115,635,430 8,205,528
------------ ------------
Cash-restricted.................................... 4,789,261 --
Property and equipment, net........................ 13,147,628 1,072,063
Goodwill, net of accumulated amortization of
$7,322,829 in 1999 and $282,990 in 1998........... 159,253,441 2,451,991
Other intangibles, net of accumulated amortization
of $779,513 in 1999............................... 18,670,487 --
Long-term investments.............................. 16,885,183 --
Other investments (Note 7)......................... 6,700,000 --
Other assets....................................... 5,823,062 613,393
------------ ------------
Total assets................................... $340,904,492 $ 12,342,975
============ ============
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current portion of long-term debt................ $ 1,372,255 $ 288,016
Line of credit................................... -- 2,000,000
Accounts payable................................. 14,515,309 1,220,562
Accrued expenses................................. 20,101,348 1,582,038
Deferred revenues................................ 9,768,394 2,176,585
------------ ------------
Total current liabilities...................... 45,757,306 7,267,201
------------ ------------
Long-term debt, net of current portion............. 1,749,935 351,924
------------ ------------
Convertible notes (Note 10)........................ 115,000,000 5,000,000
Commitments and contingencies (Note 11)
Shareholders' Equity (Deficit):
Preferred stock $.01 par value, 10,000,000 shares
authorized, 7,805,667 shares issued and
outstanding in 1998............................. -- 78,057
Common stock $.01 par value, 90,000,000 shares
authorized, 72,120,866 shares issued in 1999 and
10,537,516 shares issued in 1998................ 721,208 105,374
Common stock to be issued (Note 2)............... 99,545,663 --
Additional paid-in capital....................... 151,874,747 19,487,338
Deferred compensation............................ (600,942) (594,033)
Accumulated other comprehensive loss............. (218,671) --
Accumulated deficit.............................. (72,772,767) (19,292,886)
------------ ------------
178,549,238 (216,150)
Treasury stock at cost, 649,936 shares in 1999
and 645,156 shares in 1998...................... (151,987) (60,000)
------------ ------------
Total shareholders' equity (deficit)........... 178,397,251 (276,150)
------------ ------------
Total liabilities and shareholders' equity..... $340,904,492 $ 12,342,975
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-156
<PAGE>
VERTICALNET, INC.
Consolidated Statements Of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Exchange transaction sales.......... $ 16,500,781 $ -- $ --
Cost of exchange transaction sales.. 14,171,345 -- --
------------ ------------ -----------
Net exchange revenues............. 2,329,436 -- --
Advertising and e-commerce
revenues........................... 18,428,485 3,134,769 791,822
------------ ------------ -----------
Combined revenues................. 20,757,921 3,134,769 791,822
Costs and Expenses:
Editorial and operational........... 8,611,317 3,237,971 1,055,725
Product development................. 7,396,316 1,404,557 711,292
Sales and marketing................. 26,268,370 7,894,662 2,300,365
General and administrative.......... 11,886,681 3,823,593 1,388,123
Amortization expense................ 7,819,351 282,990 --
In-process research and development
charge (Note 3).................... 13,600,000 -- --
------------ ------------ -----------
Operating loss.................... (54,824,114) (13,509,004) (4,663,683)
------------ ------------ -----------
Interest and dividend income.......... 3,448,034 212,130 10,999
Interest expense...................... (2,103,801) (297,401) (126,105)
------------ ------------ -----------
Interest, net......................... 1,344,233 (85,271) (115,106)
------------ ------------ -----------
Net loss.............................. $(53,479,881) $(13,594,275) $(4,778,789)
============ ============ ===========
Basic and diluted net loss per share.. $ (0.86) $ (1.32) $ (0.47)
============ ============ ===========
Weighted average shares outstanding
used in basic and diluted per-share
calculation.......................... 62,391,416 10,282,200 10,107,460
============ ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-157
<PAGE>
VERTICALNET, INC.
Consolidated Statement of Shareholders' Equity (Deficit) and Comprehensive
Loss
<TABLE>
<CAPTION>
Preferred Common Accumulated
Stock Stock Common Additional Other
------------------- ------------------- Stock to be Paid-In Deferred Comprehensive Accumulated
Shares Amount Shares Amount Issued Capital Compensation Loss Deficit
---------- ------- ---------- -------- ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January
1, 1997......... 512,821 $ 5,128 10,107,460 $101,074 $ -- $ 978,884 $ -- $ -- $ (919,822)
Issuance of
Series B
preferred
stock........... 2,579,580 25,796 -- -- -- 1,974,204 -- -- --
Issuance of
Series C
preferred
stock........... 154,861 1,549 -- -- -- 198,451 -- -- --
Issuance of
warrants in
connection with
debt financing.. -- -- -- -- -- 50,000 -- -- --
Net loss........ -- -- -- -- -- -- -- -- (4,778,789)
---------- ------- ---------- -------- ----------- ------------ --------- --------- ------------
Balance,
December 31,
1997............ 3,247,262 32,473 10,107,460 101,074 -- 3,201,539 -- -- (5,698,611)
---------- ------- ---------- -------- ----------- ------------ --------- --------- ------------
Issuance of
Series D
preferred stock,
net of issuance
costs........... 4,558,405 45,584 -- -- -- 15,089,770 -- -- --
Issuance of
common stock as
consideration
for private
placement fees.. -- -- 227,920 2,280 -- 147,720 -- -- --
Issuance of
fully vested
options to non
employees....... -- -- -- -- -- 19,096 -- -- --
Shares issued as
consideration
for
acquisitions.... -- -- 193,416 1,932 -- 158,362 -- -- --
Exercise of
employee stock
options......... -- -- 8,720 88 -- 1,311 -- -- --
Unearned
compensation.... -- -- -- -- -- 669,540 (669,540) -- --
Amortization of
unearned
compensation.... -- -- -- -- -- -- 75,507 -- --
Issuance of
warrants in
connection with
debt financing.. -- -- -- -- -- 200,000 -- -- --
Net loss........ -- -- -- -- -- -- -- -- (13,594,275)
---------- ------- ---------- -------- ----------- ------------ --------- --------- ------------
Balance,
December 31,
1998............ 7,805,667 78,057 10,537,516 105,374 -- 19,487,338 (594,033) -- (19,292,886)
---------- ------- ---------- -------- ----------- ------------ --------- --------- ------------
Comprehensive
loss:
Conversion to
common stock.... (7,805,667) (78,057) 38,939,384 389,396 -- (311,339) -- -- --
Sale of common
stock in initial
public offering
(Note 1)........ -- -- 16,100,000 161,000 -- 58,126,314 -- -- --
Common stock to
be issued (Note
2).............. -- -- -- -- 99,545,663 -- -- -- --
Notes converted
to common
stock........... -- -- 1,250,000 12,500 -- 4,987,500 -- -- --
Exercise of
options......... -- -- 2,214,908 22,148 -- 1,358,259 -- -- --
Shares issued
through employee
stock purchase
plan............ -- -- 143,122 1,430 -- 571,068 -- -- --
Shares issued as
consideration
for
acquisitions.... -- -- 2,787,640 27,876 -- 67,127,029 -- -- --
Exercise of
warrants........ -- -- 148,296 1,484 -- 90,503 -- -- --
Unearned
compensation.... -- -- -- -- -- 438,075 (494,855) -- --
Amortization of
unearned
compensation.... -- -- -- -- -- -- 487,946 -- --
Net loss........ -- -- -- -- -- -- -- -- (53,479,881)
Unrealized loss
on securities... -- -- -- -- -- -- -- (218,671) --
Comprehensive
loss............
---------- ------- ---------- -------- ----------- ------------ --------- --------- ------------
Balance,
December 31,
1999............ -- $ -- 72,120,866 $721,208 $99,545,663 $151,874,747 $(600,942) $(218,671) $(72,772,767)
========== ======= ========== ======== =========== ============ ========= ========= ============
<CAPTION>
Total
Shareholders' Comprehensive
Treasury Equity Income
Stock (Deficit) (Loss)
---------- -------------- --------------
<S> <C> <C> <C>
Balance, January
1, 1997......... $ (60,000) $ 105,264
Issuance of
Series B
preferred
stock........... -- 2,000,000
Issuance of
Series C
preferred
stock........... -- 200,000
Issuance of
warrants in
connection with
debt financing.. -- 50,000
Net loss........ -- (4,778,789)
---------- -------------- --------------
Balance,
December 31,
1997............ (60,000) (2,423,525)
---------- -------------- --------------
Issuance of
Series D
preferred stock,
net of issuance
costs........... -- 15,135,354
Issuance of
common stock as
consideration
for private
placement fees.. -- 150,000
Issuance of
fully vested
options to non
employees....... -- 19,096
Shares issued as
consideration
for
acquisitions.... -- 160,294
Exercise of
employee stock
options......... -- 1,399
Unearned
compensation.... -- --
Amortization of
unearned
compensation.... -- 75,507
Issuance of
warrants in
connection with
debt financing.. -- 200,000
Net loss........ -- (13,594,275)
---------- -------------- --------------
Balance,
December 31,
1998............ (60,000) (276,150)
---------- -------------- --------------
Comprehensive
loss:
Conversion to
common stock.... -- --
Sale of common
stock in initial
public offering
(Note 1)........ -- 58,287,314
Common stock to
be issued (Note
2).............. -- 99,545,663
Notes converted
to common
stock........... -- 5,000,000
Exercise of
options......... -- 1,380,407
Shares issued
through employee
stock purchase
plan............ -- 572,498
Shares issued as
consideration
for
acquisitions.... -- 67,154,905
Exercise of
warrants........ (91,987) --
Unearned
compensation.... -- (56,780)
Amortization of
unearned
compensation.... -- 487,946
Net loss........ -- (53,479,881)
Unrealized loss
on securities... -- (218,671) $(53,479,881)
Comprehensive
loss............ (218,671)
---------- -------------- --------------
Balance,
December 31,
1999............ $(151,987) $178,397,251 $(53,698,552)
========== ============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-158
<PAGE>
VERTICALNET, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1999 1998 1997
------------- ------------ -----------
<S> <C> <C> <C>
Net loss............................ $ (53,479,881) $(13,594,275) $(4,778,789)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Loss from disposal of fixed
assets............................ 30,912 -- 3,278
Depreciation, amortization and
other noncash charges............. 9,790,278 837,724 388,058
In-process research and
development charge................ 13,600,000 -- --
Change in assets net of effect of
acquisitions:
Accounts receivable................ (8,031,734) (1,058,461) (428,669)
Inventory.......................... 1,894,778 -- --
Prepaid expenses and other
assets............................ (1,944,568) (1,085,213) (143,420)
Change in liabilities net of
effect of acquisitions:
Accounts payable................... 1,818,386 581,536 509,434
Accrued expenses................... 12,486,254 1,403,491 135,057
Deferred revenues.................. 7,032,955 1,249,624 493,960
------------- ------------ -----------
Net cash used in operating
activities...................... (16,802,620) (11,665,574) (3,821,091)
------------- ------------ -----------
Cash flows from investing
activities:
Acquisitions, net of cash
acquired.......................... (64,334,532) (1,858,389) --
Loan to Informatrix prior to
acquisition....................... -- (550,914) --
Purchase of investments............ (195,042,538) -- --
Proceeds from sale and redemption
of investments.................... 133,782,760 -- --
Restricted cash.................... (3,719,097) -- --
Loan receivable.................... -- (4,086) (160,000)
Bridge financing to Isadra prior
to acquisition.................... (965,319) -- --
Purchase of equity investments..... (6,700,000)
Capital expenditures............... (5,403,196) (484,408) (235,671)
------------- ------------ -----------
Net cash used investing
activities...................... (142,381,922) (2,897,797) (395,671)
------------- ------------ -----------
Cash flows from financing
activities:
Borrowings under line of credit.... -- 2,000,000 2,500,000
Repayment of line of credit........ (2,000,000) (2,500,000) --
Loans from ICG..................... -- 6,550,000 1,600,000
Repayment of loans from ICG........ -- -- (950,000)
Repayment of loans from related
parties........................... -- (100,000) --
Principal payments on obligations
under capital leases.............. (903,428) (189,005) (48,834)
Repayment of long-term debt........ (603,261) (32,852) (9,139)
Net proceeds from issuance of
preferred stock................... -- 13,741,962 1,550,000
Net proceeds from issuance of
common stock in initial public
offering.......................... 58,459,305 -- --
Net proceeds from convertible debt
issuance.......................... 110,870,000 -- --
Proceeds from exercise of stock
options and employee stock
purchase plan..................... 1,952,905 1,399 --
------------- ------------ -----------
Net cash provided by financing
activities...................... 167,775,521 19,471,504 4,642,027
------------- ------------ -----------
Net increase in cash................ 8,590,979 4,908,133 425,265
Cash and cash equivalents--beginning
of period.......................... 5,662,849 754,716 329,451
------------- ------------ -----------
Cash and cash equivalents--end of
period............................. $ 14,253,828 $ 5,662,849 $ 754,716
============= ============ ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for
interest........................... $ 300,806 $ 199,016 $ 52,925
============= ============ ===========
Supplemental schedule of noncash
investing and financing activities:
Equipment acquired under capital
leases............................ $ 3,120,292 $ 383,816 $ 415,195
Issuance of common stock as
consideration for acquisitions.... $ 67,154,905 $ 160,294 $ --
Common stock to be issued as
consideration for acquisitions.... $ 99,545,663 $ -- $ --
Issuance of common stock as
consideration for private
placement fees.................... $ -- $ 150,000 $ --
Issuance of warrants in connection
with debt financing............... $ -- $ 200,000 $ 50,000
Warrant exercises.................. $ 91,987 $ -- $ --
Liabilities assumed in conjunction
with acquisitions................. $ 18,671,532 $ -- $ --
Loans from ICG converted to
preferred stock................... $ -- $ 1,550,000 $ 650,000
Notes converted to common stock.... $ 5,000,000 $ -- $ --
Financing agreement for directors
and officers liability
insurance......................... $ 235,214 $ -- $ --
</TABLE>
See accompanying notes to consolidated financial statements.
F-159
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
Description of Company
VerticalNet, Inc. ("VerticalNet" or the "Company") owns and operates
vertical trade communities, which are targeted business-to-business communities
of commerce on the Internet. The Company's vertical trade communities are Web
sites that act as industry-specific comprehensive sources of information,
interaction and electronic commerce. Vertical trade communities combine product
information; industry news; requests for proposals; directories; classifieds;
job listings; discussion forums; a variety of electronic commerce opportunities
for buyers and sellers; and other services, such as online professional
education courses and virtual trade shows. Each trade community is individually
branded, focuses on one business sector and caters to individuals with similar
professional interests. The virtual trade communities are designed to attract
technical and purchasing professionals with highly specialized product and
specification requirements and purchasing authority or influence. The Company
was founded on July 28, 1995 and as of March 15, 2000 operates 55 vertical
trade communities in eleven major industry groups: advanced technologies;
communications; environmental; food and packaging; food service/hospitality;
healthcare and science; manufacturing and metals; process; public sector;
service; textiles and apparel.
Through the December 16, 1999 acquisition of NECX.com LLC ("NECX"), a
business-to-business market maker for the electronic components and hardware
market, the Company is also engaged in the sale of electronic hardware and
components. NECX acts as a third party intermediary, purchasing electronic
hardware and components from various vendors for resale to foreign and domestic
companies. NECX also has overseas subsidiaries in Sweden and Ireland that serve
as sales offices to European exchange customers. NECX's functional currency is
US dollars.
On February 17, 1999, the Company completed its initial public offering
(the "IPO") of 16,100,000 shares of its common stock at $4.00 per share (on a
post-split basis). Net proceeds to the Company were approximately $58.3 million
(net of underwriters' commission and offering expenses of $6.1 million).
On July 21, 1999, the Board of Directors of the Company approved a two-
for-one stock split of the Company's common stock. Shares resulting from the
split were distributed on August 20, 1999 to shareholders of record at the
close of business on August 9, 1999.
On January 20, 2000, the Board of Directors of the Company approved a
two-for-one stock split of the Company's common stock to be distributed in the
form of a stock dividend, payable on or about March 31, 2000 for shareholders
of record at the close of business on March 17, 2000.
All references in the consolidated financial statements to shares, share
prices and per share amounts have been adjusted retroactively for these splits.
Principles of Consolidation
The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
F-160
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
Revenue and Editorial and Operational Expenses
Prior to the acquisition of NECX, the Company generated substantially all
of its revenue from Internet advertising including the development of
"storefronts" (Web pages that focus on advertisers' products and provide a link
to the advertisers' Web sites). The advertising contracts generally do not
extend beyond one year, although certain contracts are for multiple years.
Advertising revenues are recognized ratably over the period of the advertising
contract. In 1999, we also entered into a number of strategic co-marketing
agreements where the Company is responsible for creating co-branded sites.
Revenues from the development of these sites are recognized as earned.
Additional revenues from advertising and maintenance services are recognized as
earned over the term of the contract. Revenues from educational courses are
recognized in the period in which the course is completed and revenues from the
sale of books are recognized in the period in which the books are shipped.
Auction revenues related to transaction fees are recognized at the time that
the auction is successfully concluded. Web hosting revenues are recognized
ratably over the period of service and web development fees are recognized as
earned. All e-commerce revenues, whether transaction fees, a percentage of sale
fee or a minimum guaranteed fee, are recognized when earned. Approximately $3.0
million and $1.0 million at December 31, 1999 and 1998, respectively, included
in the accounts receivable balance, is unbilled due to customer payment terms.
Gross exchange transaction sales are comprised of product sales, net of
returns and allowances. Product sales typically involve electronic components,
computer products and connectivity equipment. Revenue is recognized when the
products are shipped to customers. The Company reflects the gross revenue and
related product costs of exchange transactions in its consolidated financial
statements since it takes title to the products exchanged in such transactions
and is exposed to both inventory and credit risk related to the execution of
the transactions. However, management believes that the amount of net revenue,
resulting from exchange transactions is an important performance measure for
the exchange business and has presented this amount as a subtotal in the
consolidated statements of operations. Net exchange revenues as shown in the
Company's consolidated financial statements are gross exchange transaction
sales less exchange transaction costs primarily consisting of resale inventory
purchases and freight charges. The Company records a reserve for exchange sales
returns at the time of shipment, based on estimated return rates.
Barter transactions are recorded at the lower of estimated fair value of
the goods or services received or the estimated fair value of the
advertisements given based on historical cash transactions. Barter revenue is
recognized when the advertising impressions are delivered to the customer and
advertising expense is recorded when the advertising impressions or other
advertising services are received from the customer. If the advertising
impressions are received from the customer prior to the Company delivering the
advertising impressions a liability is recorded, and if the Company delivers
the advertising impressions to the customer prior to receiving the advertising
impressions or other advertising a prepaid expense is recorded. For the year
ended December 31, 1999 and 1998, the Company recognized approximately $3.8
million and $650,000 of advertising revenues and $3.0 million and $498,000 of
advertising expenses from barter transactions, respectively. For the year ended
December 31, 1997, barter transactions were immaterial. The Company has
recorded approximately $968,000 and $175,000 in prepaid expenses related to
barter transactions as of December 31, 1999 and 1998, respectively.
Editorial and operational expenses primarily consist of Internet
connection charges, depreciation, purchased content, salaries and benefits of
operating and editorial personnel and other related operating costs and are
recorded as incurred.
F-161
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
Product Development
Product development costs consist principally of salaries and related
costs, which are charged to expense as incurred.
Advertising Costs
The Company charges advertising costs to expense as incurred. Advertising
expense, exclusive of barter advertising discussed above, was approximately
$4.3 million, $1.9 million and $198,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include cash, money market investments and
other highly liquid investments with original maturities of three months or
less.
Restricted Cash
Restricted cash represents certificates of deposit held pursuant to a
building lease agreement and standby letters of credit.
Investments
The Company accounts for investments in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company's marketable investments
are classified as available-for-sale as of the balance sheet date and are
reported at fair value, with unrealized gains and losses, net of tax, recorded
in shareholders' equity (deficit). Realized gains or losses and permanent
declines in value, if any, on available-for-sale securities will be reported in
other income or expense, as incurred.
The Company holds equity instruments of privately held companies for
business and strategic purposes. These investments are included in other
investments and are accounted for under the cost method since ownership is less
than 20% and the Company does not have the ability to exercise significant
influence over the investees. For these non-quoted investments, the Company's
policy is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values. The
Company identifies and records impairment losses on long-lived assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has been recorded.
The Company has investments in companies whose results are not
consolidated, but over whom the Company exercises significant influence, these
investments are accounted for under the equity method of accounting. Whether or
not the Company exercises significant influence with respect to an investment
depends on an evaluation of several factors including, among others,
representation on the investee's board of directors and ownership level, which
is generally a 20% to 50% interest in the voting securities of the investee,
including voting rights associated with the Company's holdings in common,
preferred and other convertible instruments in the investee. Under the equity
method of accounting, the Company's share of the earnings or losses of the
investee is reflected in the Company's consolidated statements of operations.
F-162
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
Inventory
Inventory consists of NECX merchandise purchased for resale and is
recorded at the lower of cost or market with the cost determined on the first-
in, first-out basis.
Property and Equipment
Property and equipment are stated at cost, net of accumulated
amortization and depreciation. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful life of the asset
or the lease term. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Computer equipment and purchased software....................... 3-5 years
Office equipment and furniture.................................. 5-7 years
Trade show equipment............................................ 7 years
Leasehold improvements.......................................... 3 years
</TABLE>
Internal Use Software
Under the provisions of Statement of Position ("SOP") 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use, the
Company capitalizes costs associated with internally developed and/or purchased
software systems for new products and enhancements to existing products that
have reached the application stage and meet recoverability tests. Capitalized
costs include external direct costs of materials and services utilized in
developing or obtaining internal-use software, payroll and payroll related
expenses for employees who are directly associated with and devote time to the
internal-use software project and interest costs incurred, if material, while
developing internal-use software. Capitalization of such costs begins when the
preliminary project stage is complete and ceases no later than the point at
which the project is substantially complete and ready for its intended purpose.
The carrying value of the software is regularly reviewed and a loss is
recognized if the value of estimated undiscounted cash flow benefit related to
the asset falls below the unamortized cost. As of December 31, 1999,
capitalized costs are not yet being amortized since projects are still in
process.
Goodwill and Intangible Assets
Goodwill is amortized using the straight-line method from the date of
acquisition over the period of the expected benefits, which ranges from three
to five years. Other intangible assets resulting from the Company's
acquisitions, including covenants not-to-compete, acquired technology,
strategic relationships and acquired workforce, are also amortized using the
straight-line method from the date of acquisition over the period of the
expected benefits, ranging from at two to four years. The Company periodically
assesses the recoverability of goodwill, as well as other long-lived assets,
based upon expectations of future undiscounted cash flows.
Debt Issuance Costs
Specific costs related to the convertible debt offering were capitalized
upon issuance and are being amortized to interest expense using the effective
interest rate method over five years. As of December 31, 1999, the remaining
debt issuance costs are $3.7 million, classified in other assets on the balance
sheet.
F-163
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
Income Taxes
The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and the tax effect of net operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recorded against deferred
tax assets if it is more likely than not that such assets will not be realized.
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 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.
Accounting for Impairment of Long-Lived Assets
The Company assesses impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
future cash flows estimated to be generated by those assets are less than the
assets' carrying amount. The amount of the impairment, if any, is measured
based on projected discounted future cash flows.
Financial Instruments
In accordance with the requirements of SFAS No. 107, Disclosure about
Fair Value of Financial Instruments, the Company has determined the estimated
fair value of its financial instruments using available market information and
valuation methodologies. The Company's financial instruments consist of cash,
accounts receivable, accounts payable, capital leases and convertible notes.
Considerable judgment is required to develop the estimates of fair value; thus,
the estimates are not necessarily indicative of the amounts that could be
realized in a current market exchange. However, the Company believes the
carrying values of these assets and liabilities, with the exception of the
convertible notes, is a reasonable estimate of their fair market values at
December 31, 1999 and 1998 due to the short maturities of such items. Based on
their quoted market value as of December 31, 1999, the convertible notes are
estimated to have an aggregate fair market value of approximately $487.6
million.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents in
bank deposits accounts, marketable securities and trade receivables. The
Company has not experienced significant losses related to cash and cash
equivalents and marketable securities and does not believe it is exposed to any
significant credit risks relating to its cash and cash equivalents. The
Company's trade receivables from exchange sales are derived primarily from
sales of electronic hardware products to a large number of customers worldwide.
The Company establishes the allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical
F-164
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
trends and other information. At December 31, 1999 less than 1% of receivables
(denominated in U.S. dollars) is due from exchange customers whose economies
are considered highly inflationary. The Company does not anticipate any losses
from these receivables in excess of the provided allowances. No single customer
accounted for greater than 10% of total revenues during the years ended
December 31, 1999, 1998 and 1997.
Self Insurance
The Company is self-insured for certain losses related to employee
medical benefits as of December 1999. The Company has purchased stop-loss
coverage in order to limit its exposure. Self insurance losses are accrued
based upon the Company's estimates of the aggregate liability for uninsured
claims incurred using certain actuarial assumptions followed in the insurance
industry. At December 31, 1999, the accrued liability for self-insured losses
included in other accrued expenses is $171,000.
Stock Options
Stock-based compensation is recognized using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25"). For disclosure purposes, pro forma
net loss and loss per share data are provided in accordance with SFAS 123,
Accounting for Stock-Based Compensation as if the fair value method had been
applied.
Computation of Historical Net Loss Per Share and Pro Forma Net Loss Per Share
Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
potentially could include the incremental common shares issuable upon the
exercise of stock options and warrants (using the treasury stock method) and
the incremental common shares issuable upon the conversion of the convertible
preferred stock (using the if-converted method) and the Company's convertible
debt. Common equivalent shares are excluded from the calculation if their
effect is anti-dilutive. Common stock to be issued upon the conversion of the
convertible note given as consideration for the purchase of NECX was included
in the calculation from the date of acquisition in December 1999 since the
related securities were accounted for as equity.
Pro forma net loss per share is computed using the weighted average
number of shares of common stock outstanding, including common equivalent
shares from the convertible preferred stock (using the if-converted method),
which automatically converted into common stock upon the completion of the IPO
as if converted at the original date of issuance, for both basic and diluted
net loss per share, even though inclusion is anti-dilutive.
The following table sets forth the reconciliation between the weighted
average shares outstanding for basic and diluted and pro forma net loss per
share computations:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average shares outstanding basic and
diluted..................................... 62,391,416 10,282,200 10,107,460
Effect of convertible preferred stock........ 4,267,326 32,259,756 14,629,844
---------- ---------- ----------
Pro forma weighted average shares
outstanding................................. 66,658,742 42,541,956 24,737,304
========== ========== ==========
</TABLE>
F-165
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
The following table sets forth the computation of net loss per share:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Basic and diluted net loss per share
Numerator: Net loss.................... $(53,479,881) $(13,594,275) $(4,778,789)
Denominator:
Weighted average shares outstanding
basic and diluted................... 62,391,416 10,282,200 10,107,460
Basic and diluted net loss per share... $ (0.86) $ (1.32) $ (0.47)
============ ============ ===========
Pro forma net loss per share
Numerator: Net loss.................... $(53,479,881) $(13,594,275) $(4,778,789)
Denominator:
Pro forma weighted average shares
outstanding basic and diluted....... 66,658,742 42,541,956 24,737,304
Basic and diluted net loss per share... $ (0.80) $ (0.32) $ (0.19)
============ ============ ===========
</TABLE>
The conversion of outstanding options, warrants and subordinated
convertible debt resulting in 17,583,787, 2,704,474 and 1,464,292 common stock
equivalents would have been anti-dilutive and were excluded from the
calculations for the years ended December 31, 1999, 1998 and 1997,
respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivatives and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. As we do not currently engage or plan to engage
in derivative or hedging activities, it is not anticipated that there will be
any impact on our results of operations, financial position or cash flows upon
the adoption of this standard.
In October 1999, the Chief Accountant of the Securities and Exchange
Commission (the "SEC") requested that the Financial Accounting Standards Board
Emerging Issues Task Force (the "EITF") address a number of accounting and
financial reporting issues that the SEC believes had developed with respect to
Internet businesses. The SEC identified twenty issues for which they believed
some form of standard setting or guidance may be appropriate either because (1)
there appeared to be diversity in practice or (2) the issues are not
specifically addressed in current accounting literature or (3) the SEC Staff is
concerned that developing practice may be inappropriate under generally
accepted accounting principles. Many of the issues identified by the SEC,
including those which address barter and revenue recognition, are potentially
applicable to the Company. Although the EITF has begun to deliberate these
issues, formal guidance has not been issued to date for the majority of them.
In addition, in December 1999, the SEC issued Staff Accounting Bulletin ("SAB")
No. 101, Revenue Recognition in Financial Statements, which is required to be
implemented in the quarter ended March 31, 2000. The Company is currently
analyzing the potential impact of SAB No. 101 on its revenue recognition
policies. Although the Company believes its historical accounting policies and
practices conform with generally accepted accounting principles, there can be
no assurance that final consensuses reached by the EITF on the Internet issues
referred to above, or other actions by standard setting bodies, or the
Company's formal implementation of SAB No. 101, will not result in changes to
the Company's historical accounting policies and practices or to the manner in
which certain transactions are presented and disclosed in the Company's
consolidated financial statements.
F-166
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
(2) Acquisitions
In September 1998, the Company acquired all of the outstanding capital
stock of Boulder Interactive Technology Services Company ("BITC") for $1.8
million in cash. BITC operates a vertical trade community for professionals in
the radio frequency and wireless communications industry. The acquisition was
accounted for as a purchase and the excess of the purchase price over the fair
value of the net assets acquired of approximately $1.9 million was recorded as
goodwill and is being amortized over 36 months.
In September 1998, the Company acquired all of the outstanding capital
stock of Informatrix Worldwide, Inc. ("Informatrix") for 184,616 shares of the
Company's common stock valued at $153,000. The acquisition was accounted for as
a purchase and the excess of the purchase price over the fair value of the net
assets acquired of approximately $903,000 was recorded as goodwill and is being
amortized over 36 months. The purchase agreement also provided for the Company
to issue up to 46,152 additional shares of the Company's common stock to the
Informatrix shareholders in the event that Informatrix achieved certain sales
targets through December 1998. Through December 31, 1998, the former
shareholders of Informatrix earned, and the Company recorded, the issuance of
14,952 shares of common stock which was valued at $32,000. The additional
consideration was accounted for as additional goodwill. Informatrix operates a
vertical community in the property and casualty insurance industry that caters
to risk managers, agents, brokers and other professionals in the insurance
industry.
In January 1999, the Company acquired certain assets, including the
Safety Online Web site, and assumed certain liabilities from Coastal Video
Communications ("Coastal"). The Company paid $260,000 in cash, issued a $50,000
note, to be paid within 90 days of the closing of the purchase, and provided
the seller an advertising commitment on the Company's Web site valued at
$160,000. As of December 31, 1999, the Company has paid the note to Coastal and
has fulfilled approximately $104,000 of its advertising commitment to the
seller. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $550,000 was recorded as goodwill and is being amortized over 36
months. The results of operations from Safety Online are not material to the
Company's consolidated financial position or results of operations. Safety
Online is a vertical trade community serving professionals in the occupational
and safety industry.
In June 1999, the Company acquired certain assets, including the Oillink
Web site, and assumed certain liabilities of a sole proprietor. The Company
paid $225,000 in cash and issued 11,684 shares of its common stock valued at
$250,000. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $504,000 was recorded as goodwill and is being amortized over 36
months. The results of operations from Oillink are not material to the
Company's consolidated financial position or results of operations. Oillink is
a vertical trade community for professionals in the global oil and gas
community, offering industry news, information and a number of on-line
services.
In June 1999, the Company acquired certain assets, including the
ElectricNet Web site, and assumed certain liabilities of a sole proprietor. The
Company paid $975,000 in cash and issued 42,252 shares of its common stock
valued at $825,000. The acquisition was accounted for as a purchase and the
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $1.9 million was recorded as goodwill and is being
amortized over 36 months. The results of operations from ElectricNet are not
material to the Company's consolidated financial position or results of
operations. ElectricNet is a leading destination for electrical power industry
professionals, offering information for the power transmission and distribution
industry.
F-167
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
In June 1999, the Company acquired all of the outstanding capital stock
of Techspex, Inc. ("Techspex") for $211,000 in cash and 179,988 shares of
common stock valued at $3.0 million. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $3.3 million was recorded as goodwill
and is being amortized over 36 months. Techspex was the owner and operator of a
vertical trade community in the machine tools industry. The Web site acts as a
comprehensive source of information, interaction and electronic commerce for
the machine tool industry providing a searchable database of machine tools,
dealers and tooling and accessory suppliers.
In July 1999, the Company acquired all of the outstanding capital stock
of LabX Technologies Inc. ("LabX") for $1.6 million in cash and 139,588 shares
of common stock valued at $2.8 million. The common stock given as consideration
was reduced by an illiquidity discount of 10% based on restrictions detailed in
the lock up agreements signed by the individuals receiving the stock. The
acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$4.6 million was allocated to a covenant not-to-compete, existing technology
and goodwill of approximately $350,000, $500,000 and $3.75 million,
respectively. The covenant not-to-compete is being amortized on a straight-line
basis over 24 months, the term of the covenant, while the existing technology
and goodwill are being amortized on a straight-line basis over 36 months. LabX
was the owner and operator of an Internet trading community focused on
facilitating electronic commerce of scientific equipment on the Internet.
LabX's Web site community allows participants to communicate their buying and
selling requirements for laboratory equipment.
In August 1999, the Company acquired all of the outstanding capital stock
of CertiSource Inc. ("CertiSource") for $476,000 in cash and 167,424 shares of
common stock valued at $2.7 million. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $3.4 million was allocated to a
covenant not-to-compete and goodwill of approximately $500,000 and $2.9
million, respectively. Both the covenant not-to-compete and goodwill are being
amortized on a straight-line basis over 36 months. CertiSource provides
registration services for technical and educational training courses, as well
as related training products, consulting services and software. CertiSource
also uses an Internet Web site to provide large corporations training
management services including reporting and the coordination of private
training events.
In August 1999, the Company acquired certain assets, including the
Surface Finishing Web site, and assumed certain liabilities from Industry On
Line, Inc. ("Industry On Line"). The Company paid $150,000 in cash and issued
13,592 shares of its common stock valued at approximately $251,000. The Company
has also agreed to provide the seller an advertising commitment on the
Company's Web site valued at $140,000. As of December 31, 1999, the Company has
fulfilled approximately $67,000 of its advertising commitment to the seller.
The acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$604,000 was recorded as goodwill and is being amortized over 36 months. The
results of operations from Industry On Line are not material to the Company's
consolidated financial position or results of operations. Industry On Line is
the owner and operator of a vertical trade community in the metal finishing
industry.
In August 1999, the Company acquired all of the outstanding capital stock
of Isadra, Inc. ("Isadra") for $2.4 million in cash, 2,000,000 shares of common
stock valued at $37.8 million and 81,526 options to purchase VerticalNet common
stock valued at $1.5 million at the date of acquisition using the Black-Sholes
model. The common stock given as consideration was reduced by an illiquidity
discount ranging from 5% to 20% based on restrictions detailed in the lock up
agreements signed by the individuals receiving the stock. In
F-168
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
connection with this transaction, the Company agreed to lend up to $1.0 million
to Isadra prior to the closing of this transaction. As of the acquisition date,
the Company had advanced Isadra $965,000. The acquisition was accounted for as
a purchase and the estimated excess of the purchase price over the fair value
of the net assets acquired of approximately $43.9 million was allocated to in-
process research and development, existing technology, assembled work force and
goodwill of approximately $13.6 million, $2.1 million, $500,000 and $27.7
million, respectively. The $13.6 million was charged to expense as a non-
recurring charge upon consummation of the acquisition since the in-process
research and development has not yet reached feasibility and had no alternative
future use (see Note 3). The existing technology and assembled work force are
being amortized on a straight-line basis over 24 months, while goodwill is
being amortized on a straight-line basis over 36 months. Isadra has developed
e-commerce software for vertical industries.
In December 1999, the Company acquired substantially all of the assets
and liabilities of NECX for approximately $14.1 million cash and $70.0 million
of notes convertible into common stock. The notes were valued at the estimated
fair value of the shares into which they are convertible, based on the average
of the stock price for a few days before and after the transaction was
announced on November 16, 1999. On the date of the definitive agreement,
November 16, 1999, the notes were convertible into 2,008,738 shares of
VerticalNet common stock valued at $99.5 million. Since the notes are required
to be paid in common stock and it is the Company's intention to convert the
notes once a registration statement is declared effective, the notes have been
accounted for as common stock to be issued. Additionally, the Company assumed
certain liabilities including, $10.0 million in debt and a $22.0 million line
of credit which were paid in cash upon the transaction closing.
NECX was a privately held leader in buying and selling semiconductors,
electronic components, computer products and networking equipment. The
acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$120.0 million was allocated to strategic relationships, including customer and
vendor lists, assembled workforce and goodwill in the amounts of approximately
$13.0 million, $2.5 million and $104.5 million respectively. The assembled
workforce is being amortized on a straight-line basis over 48 months, while
strategic relationships and goodwill are being amortized on a straight-line
basis over 60 months.
In December 1999, the Company acquired certain assets, including the
GovCon Web site, and assumed certain liabilities from GovCon, Inc. ("GovCon").
The Company issued 150,000 shares of its common stock valued at approximately
$12.0 million. The acquisition was accounted for as a purchase and the
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $12.0 million was recorded as goodwill and is being
amortized over 36 months. The results of operations from GovCon are not
material to the Company's consolidated financial position or results of
operations. GovCon is a Web site community for bidders on federal government
contracts.
In December 1999, the Company acquired certain assets, including the
TextileWeb Web site, and assumed certain liabilities from TextileWeb, Inc.
("TextileWeb"). The Company issued 76,600 shares of its common stock valued at
approximately $6.1 million. The acquisition was accounted for as a purchase and
the estimated excess of the purchase price over the fair value of the net
assets acquired of approximately $6.3 million was recorded as goodwill and is
being amortized over 36 months. The results of operations from TextileWeb are
not material to the Company's consolidated financial position or results of
operations. TextileWeb is a vertical trade community in the textile industry.
F-169
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
The following unaudited pro forma financial information presents the
combined results of operations of VerticalNet, BITC, Informatrix, Techspex,
LabX, CertiSource, Isadra and NECX as if the acquisitions occurred on January
1, 1998, after giving effect to certain adjustments including amortization of
goodwill. The unaudited pro forma financial information does not necessarily
reflect the results of operations that would have occurred had VerticalNet,
BITC, Informatrix, Techspex, LabX, CertiSource, Isadra and NECX constituted a
single entity during such periods.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Combined revenues................................... $ 55,349,732 $ 42,625,594
Net loss............................................ (89,180,374) (47,005,966)
Net loss per share.................................. (1.35) (3.15)
</TABLE>
(3) In-Process Research and Development
The write-off of in-process research and development ("IPR&D") related to
the acquisition of Isadra (discussed in Note 2) totaled $13.6 million which was
expensed as a one time non recurring charge. The allocation of $13.6 million
represents the estimated fair value related to incomplete projects based on
risk-adjusted cash flows. At the date of the acquisition, the projects
associated with the IPR&D efforts had not yet reached technological feasibility
and had no alternative future uses. Accordingly, these costs were expensed. At
the acquisition date, Isadra was conducting development, engineering and
testing activities associated with the completion of the following next
generation technologies: i) CatSmart Business; ii) Business Publisher; and iii)
C2 Hub/Server. The projects under development, at the valuation date, are
expected to address emerging market demands for business-to-business e-
commerce.
At the acquisition date, the technologies under development were between
70 and 80 percent complete, based on project man-months and costs. Isadra had
spent approximately $3.0 million on the IPR&D and expected to spend
approximately $1.0 million to complete the IPR&D projects. Isadra anticipated
that research and development related to these projects would be completed by
early to mid-2000, after which time Isadra is expected to begin generating
economic benefits from the value of the completed IPR&D.
In allocating the purchase price, the Company considered present value
calculations of income, an analysis of project accomplishments and completion
costs, an assessment of overall contributions, as well as project risks.
The values assigned to IPR&D were determined by estimating the costs to
develop the purchased technology into commercially viable products, estimating
the resulting net cash flows from each project, excluding the cash flows
related to the portion of each project that was incomplete at the acquisition
date, and discounting the resulting net cash flows to their present value. Each
of the project forecasts were based upon future discounted cash flows, taking
into account the state of development of each in-process project, the cost to
complete that project, the expected income stream, the life cycle of the
product ultimately developed and the associated risks.
Aggregate revenue attributable to the IPR&D projects was estimated to
peak, as a percentage of total revenue, in 2000 and decline thereafter through
2003, the end of the estimated life of the IPR&D, as new product technologies
are expected to be introduced by Isadra. For the projects under development,
risk-adjusted discount rates of 50 percent were utilized to discount projected
cash flows.
F-170
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
(4) Property and Equipment
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Computer equipment and purchased software.............. $10,295,624 $1,475,773
Office equipment and furniture......................... 2,695,007 225,658
Trade show equipment................................... 40,587 40,587
Leasehold improvements................................. 2,147,368 45,864
----------- ----------
15,178,586 1,787,882
Less: accumulated depreciation and amortization........ (2,030,958) (715,819)
----------- ----------
Property and equipment, net............................ $13,147,628 $1,072,063
=========== ==========
</TABLE>
Amortization applicable to property and equipment under capital leases is
included in depreciation expense.
(5) Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
------------ ----------
<S> <C> <C>
Goodwill.............................................. $166,576,270 $2,734,981
Covenant not-to-compete............................... 850,000 --
Existing technology................................... 2,600,000 --
Assembled workforce................................... 3,000,000 --
Strategic relationships............................... 13,000,000 --
------------ ----------
186,026,270 2,734,981
Less: accumulated amortization........................ (8,102,342) (282,990)
------------ ----------
Intangible assets, net................................ $177,923,928 $2,451,991
============ ==========
</TABLE>
Amortization expense was $7.8 million and $282,990 for the year ended
December 31, 1999 and 1998, respectively.
F-171
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
(6) Investments
Investments are categorized as available-for-sale securities and
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Holding Holding Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Corporate Debt Obligations--
maturity less than 1 year..... $23,221,249 $-- $ (30,694) $23,190,555
Corporate Debt Obligations--
maturity between 1 and 5
years......................... 10,004,764 -- (64,131) 9,940,633
U.S. Government & Government
Agency Obligations--maturity
less than 1 year.............. 21,008,976 -- (68,396) 20,940,580
U.S. Government & Government
Agency Obligations--maturity
between 1 and 5 years......... 7,000,000 -- (55,450) 6,944,550
----------- --- --------- -----------
$61,234,989 $-- $(218,671) $61,016,318
=========== === ========= ===========
</TABLE>
Investments are classified on the balance sheet as current assets of
$44,131,135 and non-current assets of $16,885,183.
There were no investments held at December 31, 1998.
Proceeds from sales of securities available for sale were approximately
$133.8 million for the year ended December 31, 1999. Gross losses were
approximately $25,000 for the year ended December 31, 1999. Realized gains and
losses are computed on a specific identification basis.
(7) Joint Ventures & Equity Investments
Joint Ventures
With the acquisition of NECX, the Company acquired an ownership interest
in Electronic Commodity Exchange Asia Pte., Ltd. ("NECX Asia") and Asia
Business Venture Holdings Pte., Ltd. ("Asia Business Venture"), both of which
are joint ventures engaged in the distribution of electronic hardware. The
following is a summary of the joint ventures:
<TABLE>
<CAPTION>
Balance in
Original Other Assets at Ownership
Investment(1) December 31, 1999 Percentage
------------- ----------------- ----------
<S> <C> <C> <C>
NECX Asia............................ $542,610 $542,610 50%
Asia Business Venture................ 937,592 937,592 6
</TABLE>
- --------
(1) Original investment is based on fair value assumed on the date of the
acquisition of NECX on December 16, 1999.
The Company accounts for its ownership in NECX Asia under the equity
method. NECX Asia's total assets are approximately 2% of the Company's total
assets at December 31, 1999 and its net loss is less than 2% of the Company's
net loss for year ended December 31, 1999. The Company accounts for its
minority
F-172
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
interest in Asia Business Venture using the cost method and believes that there
has been no impairment of its investment at December 31, 1999.
Equity Investments
In July 1999, the Company acquired 414,233 shares of the Series C
preferred stock of Tradex Technologies, Inc. ("Tradex") at a cost of $1.0
million. In December 1999, Tradex entered into an Agreement and Plan of
Reorganization with Ariba, Inc. On March 10, 2000, Ariba announced that it had
completed the acquisition of Tradex. Pursuant to the terms of the Agreement and
Plan of Reorganization, the Company's investment in Tradex will be exchanged
into approximately 283,153 shares of Ariba's common stock (unaudited).
In October 1999, the Company acquired 352,112 shares of Neoforma's
("Neoforma") Series E preferred stock at a cost of $2.0 million. Additionally
the Company entered into a co-marketing strategic alliance with Neoforma which
includes a $2.0 million payment to the Company over the term of the agreement.
In January 2000, Neoforma successfully consummated an initial public offering
of its common stock, at which time our preferred stock holdings were converted
to common stock on a one-for-one basis. The Company executed a six month lock
up agreement in connection with Neoforma's IPO.
In November 1999, the Company acquired 630 shares of Zillacast Series A
preferred stock at a cost of $1.5 million. Additionally the Company entered
into a co-marketing strategic alliance with ZillaCast which includes a $750,000
payment to the Company over the term of the agreement.
In December 1999, the Company invested $1.4 million in BioSupplies.com
("BioSupplies"). The investment is held in escrow and will convert into equity
of BioSupplies upon the terms defined in the agreement. Additionally the
Company entered into a co-marketing strategic alliance with BioSupplies which
includes a $890,000 payment to the Company over the term of the agreement.
In December 1999, the Company acquired 177,778 shares of Community of
Science ("COS") Series A convertible preferred stock at a cost of $800,000.
Additionally, the Company entered into a co-marketing strategic alliance with
COS which includes a $725,000 payment to the Company over the term of the
agreement. The Company has also purchased advertising services from COS for
$200,000.
These investments are included in other investments in the accompanying
financial statements and are accounted for under the cost method since the
Company's ownership is less than 20% and the Company does not have the ability
to exercise significant influence over the investee.
(8) Line of Credit
As of June 1998, the Company reduced its line of credit with the bank
from $2.5 million to $500,000. On November 25, 1998, the agreement was
additionally amended allowing the Company to execute a $2.0 million note with
the bank. The note had an interest rate of prime plus 1.5% and matured at the
earlier of March 31, 1999 or the completion of the Company's next financing. In
connection with the loan, the Company issued warrants to purchase 82,052 shares
of the Company's common stock at an exercise price of $4 per share with an
estimated fair value of $40,000 based on the Black-Scholes model. As of
December 31, 1998, the outstanding balance for borrowings under this facility
was $2,000,000 and the weighted average interest rate for the year ended
December 31, 1998 was 10%.
F-173
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
Upon the completion of the IPO in February 1999, the line of credit was
reduced back to $500,000 and subsequently expired on June 30, 1999.
In February 2000, NECX entered into a $33.0 million revolving line of
credit. Under the terms of the loan agreement, NECX is required to satisfy
certain financial covenants, which include: minimum tangible net worth, limits
on capital expenditures and the maintenance of a minimum cash or short term
investment balance of $20.0 million required by the Company. The line of credit
is guaranteed by the Company and is secured by a pledge of the Company's
ownership in NECX and a security interest in the assets of NECX. Interest on
any outstanding balances will be paid monthly at an annual rate equal to the
prime rate, which, as of March 15, 2000, was 8.75%. The commitment fee to
originate the loan was $165,000. NECX must pay an additional fee of .375% per
annum on any unused portion of the line (unaudited).
(9) Accrued Expenses
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
----------- ----------
<S> <C> <C>
Accrued compensation and related costs................. $ 5,775,700 $ 454,230
Accrued professional fees.............................. 950,042 269,500
Accrued marketing costs................................ -- 446,334
Accrued acquisition and debt offering costs............ 7,692,824 --
Accrued payable to training suppliers.................. 767,889 --
Accrued interest payable on convertible notes.......... 1,587,945 --
Accrued withholding on employee exercise of non
qualified stock options............................... 1,010,171 --
Other.................................................. 2,316,777 411,974
----------- ----------
$20,101,348 $1,582,038
=========== ==========
</TABLE>
(10) Long-term Debt and Convertible Notes
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
------------ ----------
<S> <C> <C>
Capital leases........................................ $ 3,122,190 $ 639,940
Convertible notes..................................... 115,000,000 5,000,000
------------ ----------
118,122,190 5,639,940
Less: current portion................................. (1,372,255) (288,016)
------------ ----------
Long-term debt........................................ $116,749,935 $5,351,924
============ ==========
</TABLE>
On September 27, 1999, the Company completed the sale of $100.0 million
of 5 1/4% convertible subordinated debentures in a private placement
transaction pursuant to Section 4(2) of the Securities Act of 1933, resulting
in net proceeds of $96.3 million. Additionally, on October 12, 1999, the over-
allotment option on the convertible debt offering was exercised in full,
resulting in additional convertible debt of $15.0 million and net proceeds of
$14.6 million to the Company. The debentures have a maturity date of September
27, 2004 with semi-annual interest payments due on March 27 and September 27 of
each year beginning March 27, 2000. The debentures are convertible into shares
of the Company's common stock at an initial conversion price of $20 per share,
subject to adjustment under certain circumstances. On February 11, 2000, the
Company filed a registration statement with the Securities and Exchange
Commission covering the convertible subordinated debentures and the shares of
its common stock underlying the debentures. Once the registration statement is
F-174
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
declared effective, the Company may redeem the debentures if the price of the
Company's common stock is above $34 per share for at least 20 trading days
during the 30-day trading period ending on the trading day before the Company
mails notice that the Company intends to redeem the debentures. If the Company
redeems the debentures, the Company must redeem at a price equal to 101.3125%
of the principal amount, pay any accrued but unpaid interest and make an
interest make-whole payment equal to the present value of the interest that
would have accrued from the redemption date through September 26, 2002.
If the Company were to redeem the debentures on March 31, 2000, the
Company would be required to make an aggregate payment of $13.7 million,
excluding the semi-annual interest payment of $3.0 million the Company made on
March 27, 2000.
In addition, the Company would write off the debt issuance costs carried
on the balance sheet as a loss on the date of redemption. This amount
approximated $3.7 million at December 31, 1999.
In February, March and April 1998, Internet Capital Group lent an
aggregate of $1,550,000 to the Company, also at a rate of 9.5%. These amounts
were converted to Series D preferred stock in May 1998 (Note 12).
In May 1998, the Company repaid their outstanding term note with the bank
and three unsecured term notes due to shareholders.
On November 25, 1998, Internet Capital Group lent and certain holders of
the Series D preferred stock (the note holders) lent the Company $5.0 million
in the form of convertible notes. The note holders converted the $5.0 million
in convertible notes at the initial public offering into 1,250,000 shares of
common stock. In connection with the notes, the Company issued warrants to
purchase 328,204 shares of the Company's common stock with an estimated fair
value of $160,000 based on the Black-Scholes model at an exercise price of
$4.00 per share.
The Company has several capital leases with various financial
institutions for computer and communications equipment used in operations with
lease terms ranging from three to five years. Additionally, the Company has an
insurance premium financing agreement for directors and officers liability
insurance. The interest rates under the leases and insurance premium financing
agreement range from 8% to 20%. At December 31, 1999 and 1998, the book value
of assets held under capital leases were approximately $2.8 million and
$518,000, respectively, and the aggregate remaining minimum lease and financing
agreement payments at December 31, 1999 were approximately $3.5 million
including interest of approximately $417,000.
At December 31, 1999, long-term debt will mature as follows:
<TABLE>
<S> <C>
2000......................................................... $ 1,372,255
2001......................................................... 1,145,113
2002......................................................... 588,952
2003......................................................... 5,898
2004......................................................... 115,006,760
2005......................................................... 3,212
------------
Total...................................................... $118,122,190
============
</TABLE>
F-175
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
(11) Commitments and Contingencies
In January 1999, the Company entered into a one-year agreement with
Compaq Computer Corporation ("Compaq") and its Internet Web site known as
AltaVista. The agreement provides for the Company and AltaVista to sponsor and
promote 31 co-branded Web pages. The agreement requires the Company to pay
Compaq $1.0 million over the term of the agreement based on the number of
advertising impressions delivered. Such amount will be charged to expense as
AltaVista provides the advertising impressions. As of December 31, 1999, no
payments have been made to AltaVista. In addition, each company will provide
the other with $300,000 in barter advertising during the term of the agreement.
Both parties have satisfied their barter advertising obligation under this
agreement. In October 1999, the agreement with AltaVista was terminated and the
Company was relieved of further obligations.
In August 1999, the Company entered into a one-year agreement with Lycos.
The agreement provides for the Company and Lycos to sponsor and promote co-
branded sites. The agreement requires the Company to pay Lycos $1.0 million
over the term of the agreement based on agreed upon dates and impressions
delivered. As of December 31, 1999, the Company has made a payment of $500,000
to Lycos. In addition, each company committed to provide the other with $1.0
million in barter advertising during the term of the agreement. With the
exception of approximately $17,000 in services due to Lycos, both parties have
satisfied their barter advertising obligation under this agreement as of
December 31, 1999. In January 2000, the contract was modified to increase the
barter advertising during the term of the agreement to $3.0 million.
In November 1999, the Company entered into a marketing contract with
RealNames Corporation ("RealNames") which requires the Company to pay a $10
million platform license fee in equal quarterly payments over a two year
contact period. An additional fee of $.10 per visit is also required if
aggregate visits reach specified levels. In November 1999 RealNames also
entered into a two-year contract with the Company for $8 million in newsletter
advertising. RealNames will pay the contracted amount in equal monthly payments
over the contract life. For the year ended December 31, 1999, the Company
recognized $333,000 of revenue and $513,000 of expense related to the RealNames
contracts.
The Company has entered into non-cancelable obligations with several
content service providers and Internet search engines. Under these agreements,
exclusive of the Lycos and RealNames agreements discussed above, the Company's
commitments are as follows:
<TABLE>
<S> <C>
2000............................................................. $560,500
2001............................................................. 123,500
2002............................................................. 50,000
</TABLE>
In April 1999, the Company entered into a 10 year lease for its
headquarters commencing in July 1999. According to the terms of the lease
agreement, the Company is required to maintain certificates of deposit for an
agreed upon amount in an escrow account. The certificates of deposit with an
aggregate balance of $1,220,261 were issued in June 1999 and will mature in
five equal installments of $244,052 on August 1, 2000 and the four subsequent
years thereafter. The certificates of deposit are classified as a long-term
asset included in cash restricted on the accompanying consolidated balance
sheet.
F-176
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
Future minimum lease payments as of December 31, 1999 for the Company's
facility leases are as follows:
<TABLE>
<S> <C>
2000........................................................... $2,700,000
2001........................................................... 2,700,000
2002........................................................... 2,300,000
2003........................................................... 2,100,000
2004........................................................... 2,100,000
Thereafter..................................................... 4,300,000
</TABLE>
Rent expense under noncancelable operating leases was approximately $1.3
million, $336,000 and $81,000, for the years ended December 31, 1999, 1998 and
1997, respectively.
The Company is a party to various legal proceedings and claims, which
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or cash flows
of the Company.
(12) Capital Stock
At December 31, 1999, the Company's restated Articles of Incorporation
provides the Company with the authority to issue 90,000,000 shares of common
stock and 10,000,000 shares of blank check preferred stock.
Preferred Stock
In September 1996, the Company sold 512,821 shares of Series A preferred
stock (Series A) for $1.0 million. In July 1997, the Company sold 2,579,580
shares of Series B preferred stock (Series B) for $2.0 million. In October
1997, the Company sold 154,861 shares of Series C preferred stock (Series C)
for $200,000.
On May 11, 1998 and June 10, 1998, the Company sold 3,988,604 and 569,801
shares of Series D preferred stock (Series D), respectively, for an aggregate
amount of approximately $15.2 million.
Holders of preferred stock had the option to convert such shares into
shares of common stock on a 1:1 ratio, except for the Series A preferred stock
which converted on a ratio of 4.7619:1. Mandatory conversion occurred upon the
closing of the Company's IPO. The preferred stock voted on an as if converted
basis. The Series A, Series B and Series C, together had the right to elect two
directors of the Company and the Series D holders have the right to elect two
directors of the Company. The holders of preferred stock had no right to elect
or appoint directors after the shares convert into common stock upon the
closing of an IPO.
Preferred stock consisted of the following at December 31, 1998:
<TABLE>
<CAPTION>
December 31,
Per share 1998
liquidation Issued and
Preferred Class value Authorized Outstanding
- --------------- ----------- ---------- ------------
<S> <C> <C> <C>
Series A.................................... $1.95 512,821 512,821
Series B.................................... .78 2,615,385 2,579,580
Series C.................................... 1.31 205,128 154,861
Series D.................................... 3.51 4,615,385 4,558,405
--------- ---------
7,948,719 7,805,667
========= =========
</TABLE>
F-177
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
On February 17, 1999, in connection with the closing of the Company's
IPO, all of the preferred stock converted into 38,939,384 shares of common
stock.
Warrants
Outstanding warrants as of December 31, 1999 were:
<TABLE>
<CAPTION>
Number of Exercise Expiration
Date Granted Warrants Price Date
- ------------ --------- -------- -------------
<S> <C> <C> <C>
April 1997..................................... 15,480 $0.19 April 2007
November 1998.................................. 364,672 0.88 November 2008
November 1998.................................. 410,264 4.00 November 2008
</TABLE>
Stock Option Plans
In December 1996, the Company's Board of Directors adopted the 1996
Equity Compensation Plan (the "Plan"). Employees, key advisors and non-employee
directors of the Company are eligible to receive awards under the Plan. As of
January 1999, a total of 14.4 million shares of common stock were reserved for
issuance under this Plan.
In August 1999, the Company's Board of Directors adopted the 1999 Equity
Compensation Plan. A total of 1.2 million shares of common stock were reserved
for issuance to employees of the Company and its subsidiaries.
In October 1999, the Company's Board of Directors adopted the Equity
Compensation Plan for Employees (1999). A total of 2.8 million shares of common
stock were reserved for issuance to employees of VerticalNet and its
subsidiaries. The plan was amended and restated in November 1999 to increase
the shares of common stock authorized for issuance to 5.8 million.
The exercise price for the options is determined by the Board of
Directors, but shall not be less than 100% of the fair market value of the
common stock on the date the option is granted. Generally, the options vest
over a four-year period after the date of grant and expire ten years after the
date of grant. Option holders that terminate their employment with the Company
generally forfeit all non-vested options.
The following table summarizes the activity for the Company's stock
option plans:
<TABLE>
<CAPTION>
Weighted average
Shares exercise price
---------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997..................... -- $ --
Options granted.................................... 2,220,852 0.16
Options cancelled.................................. -- --
---------- ------
Outstanding at December 31, 1997................... 2,220,852 0.16
Options granted.................................... 6,655,608 0.83
Options exercised.................................. (8,720) 0.05
Options cancelled.................................. (532,296) 0.53
---------- ------
Outstanding at December 31, 1998................... 8,335,444 0.67
Options granted.................................... 9,928,620 30.46
Options exercised.................................. (2,214,908) 0.63
Options cancelled.................................. (544,140) 4.35
---------- ------
Outstanding at December 31, 1999................... 15,505,016 $19.58
========== ======
</TABLE>
F-178
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/31/99 Life Price at 12/31/99 Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.07 - 0.08 248,460 7.3 $ 0.07 65,190 $ 0.07
$ 0.20 - 0.25 2,698,220 7.9 $ 0.20 1,488,542 $ 0.20
$ 0.66 - 0.83 2,376,604 8.5 $ 0.69 598,130 $ 0.68
$ 1.42 - 1.42 42,430 9.0 $ 1.42 3,302 $ 1.42
$ 4.00 - 4.00 1,272,602 9.0 $ 4.00 147,464 $ 4.00
$14.17 - 20.00 4,938,700 9.6 $18.18 15,000 $15.58
$22.38 - 25.88 900,600 9.7 $24.09 -- --
$34.57 - 48.00 189,800 9.9 $41.05 10,000 $47.32
$58.00 - 82.82 2,837,600 10.0 $62.33 -- --
---------- --------- ------
15,505,016 2,327,628 $ 0.87
========== ========= ======
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plan. Had compensation cost been recognized pursuant to
SFAS No. 123, the Company's net loss would have been increased to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Net loss:
As reported.......................... $(53,479,881) $(13,594,275) $(4,778,789)
Pro forma............................ $(54,926,120) $(13,776,554) $(4,785,358)
Pro forma loss per share:
As reported.......................... $ (0.86) $ (1.32) $ (0.47)
Pro forma............................ $ (0.88) $ (1.34) $ (0.47)
</TABLE>
The per share weighted-average fair value of options issued by the
Company during 1999, 1998 and 1997 was $30.46, $0.26 and $0.05, respectively.
The following range of assumptions were used by the Company to determine
the fair value of stock options granted (the minimum value method was used for
1998 and 1997):
<TABLE>
<CAPTION>
1999 1998 1997
----------- -------- --------
<S> <C> <C> <C>
Dividend yield.................................... 0% 0% 0%
Expected volatility............................... 100% 0% 0%
Average expected option life...................... 4.09 years 5 years 5 years
Risk-free interest rate........................... 5.7% 5.3% 5.9%
</TABLE>
Employee Stock Purchase Plan
In January 1999, the Board adopted an Employee Stock Purchase Plan for
all employees meeting eligibility criteria. Under the Plan, eligible employees
may purchase shares of the Company's common stock,
F-179
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
subject to certain limitations, at 85 percent of the market value. Purchases
are limited to 10 percent of an employee's eligible compensation, up to a
maximum of 4,000 shares per purchase period. At December 31, 1999 approximately
1,056,878 remain available under the Plan. During the year ended 1999, 143,122
shares were issued to or purchased on the open market for employees at the IPO
price of $4 per share since the plan was effective on the date of the IPO.
Subsequent plan periods are for six months, the first of which began on October
31, 1999.
(13) Defined Contribution Plan
In 1997, the Company established a defined contribution plan for
qualified employees as defined under the plan. Participants may contribute 1%
to 15% of pre-tax compensation, as defined. Under the plan, the Company can
make discretionary contributions. To date, the Company has not made any
contributions to the plan.
(14) Income Taxes
The components of the net deferred tax assets as of December 31, 1998 and
1999 consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred Tax Assets:
Net operating losses................................. 33,567,221 6,730,622
Reserves............................................. 1,245,503 27,398
Depreciation & amortization.......................... 141,773 26,588
Deferred revenue and other........................... 4,284,956 881,682
----------- ----------
39,239,453 7,666,290
Valuation allowance.................................. (39,239,453) (7,666,290)
=========== ==========
Net deferred tax asset............................... -- --
=========== ==========
</TABLE>
Deferred income taxes reflect the net effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due
to the uncertainty on the Company's ability to realize the benefit of the
deferred tax assets, the deferred tax assets are fully offset by a valuation
allowance at December 31, 1999 and 1998. The net change in the valuation
allowance for deferred tax assets at December 31, 1999 and 1998 was an increase
of $31.6 million and $5.6 million, respectively.
As of December 31, 1999, the Company has approximately $76.0 million of
net operating loss carryforwards for federal income tax purposes. These
carryforwards will begin expiring in 2011 if not utilized. In addition, the
Company has net operating loss carryforwards of approximately $76.0 million in
certain states with various expiration periods beginning in 2002. The majority
of state net operating losses are subject to a $2.0 million annual limitation
and begin expiring in 2006.
F-180
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforward is limited following a greater than 50% change in
ownership within a three year period. Due to the Company's prior and current
equity transactions, a portion of the company's net operating loss
carryforwards are subject to an annual limitation. At December 31, 1999, the
Company had consolidated pre-limitation net operating loss carryforwards
available for future use of approximately $23.9 million. This amount is subject
to an annual limitation of approximately $20.9 million.
Included in the pre-limitation net operating loss carryforwards are
losses that were generated by companies acquired in 1999. The losses generated
by acquired companies prior to their acquisition generally are available to
offset future taxable income of the acquiring company. However, upon the
acquisition of these companies in 1999, their net operating losses of
approximately $3.5 million became subject to an annual limitation of
approximately $1.0 million.
Additionally, at December 31, 1999, approximately $14.0 million of the
net deferred tax asset will reduce equity and approximately $1.8 million of the
deferred tax asset will reduce goodwill to the extent such assets are reduced
and reduce future taxable income.
(15) Segment Information
Based on the manner in which the Company is managed and its resources are
allocated by management, the Company operates in two segments which are
vertical trade communities and exchange operations. The vertical trade
communities operating segment includes all revenue generating activities
associated with the vertical sites, such as advertising, e-commerce, auctions
and education. Exchange operations include market making activities for
computer and electronic equipment resulting from the acquisition of NECX in mid
December 1999.
The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements and described in the summary of
significant accounting policies. Management primarily evaluates the segments'
performance based upon the operating income (loss) before interest,
amortization and other non-cash charges. The exchange segment performance is
additionally evaluated on gross profit margin of sales which in the table is
reflected as net revenues under the exchange segment.
<TABLE>
<CAPTION>
Year Ended December 31, 1999
-----------------------------------------
Vertical Trade
Communities Exchange Totals
-------------- ------------ ------------
<S> <C> <C> <C>
Exchange transactions sales......... $ -- $ 16,500,781 $ 16,500,781
Cost of exchange transaction sales.. -- 14,171,345 14,171,345
Net revenues........................ 18,428,485 2,329,436 20,757,921
Operating income (loss) before
interest, amortization and
in-process research & development
charge............................. (33,518,667) 113,904 (33,404,763)
Interest and dividend income........ 3,447,665 369 3,448,034
Interest expense.................... (2,103,801) (2,103,801)
Amortization expense................ 6,814,547 1,004,804 7,819,351
In-process research & development
charge............................. 13,600,000 -- 13,600,000
Net loss............................ (52,589,350) (890,531) (53,479,881)
Capital expenditures................ 5,052,066 351,130 5,403,196
Segment assets...................... 161,889,953 179,014,539 340,904,492
Equity investments.................. -- 542,610 542,610
</TABLE>
F-181
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
Prior to the acquisition of NECX, the Company's operations were conducted
solely in the vertical trade communities segment. Accordingly, no segment
information has been presented for 1998 or 1997.
Approximate exchange sales by country, denominated in U.S. dollars were
as follows, based on the location to which the products were shipped (in
thousands):
<TABLE>
<CAPTION>
Ended December 31, 1999
-----------------------------------
Exchange Net
Transaction Sales Exchange Revenues
----------------- -----------------
<S> <C> <C>
United States............................... $12,425 $1,770
Hong Kong................................... 768 43
Germany..................................... 523 94
Russia...................................... 427 54
Singapore................................... 316 8
United Kingdom.............................. 257 51
Sweden...................................... 244 69
Canada...................................... 193 32
Other....................................... 1,348 208
------- ------
Total....................................... $16,501 $2,329
======= ======
</TABLE>
The only significant foreign sales made by the Company other than the
exchange operations was approximately $581,000 to South Africa in relation to
the Metropolis agreement. This transaction related to the vertical trade
communities segment.
(16) Summarized Quarterly Data (Unaudited)
Following is a summary of the quarterly results of operations for the
years ended December 31, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------
September
March 31, June 30, 30, December 31,
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
1999
Combined net revenues... $ 1,933,779 $ 3,551,180 $ 5,182,495 $ 10,090,467
Loss from operations.... (5,756,404) (7,475,444) (26,296,357) (15,295,909)
Net loss................ (5,608,758) (6,760,711) (25,826,811)* (15,283,601)
Net loss per share--
basic and diluted...... (0.14) (0.10) (0.38) (0.21)
1998
Combined net revenues... $ 377,371 $ 587,422 $ 897,006 $ 1,272,970
Loss from operations.... (2,008,935) (2,885,803) (3,454,845) (5,159,421)
Net loss................ (2,084,869) (2,871,512) (3,378,036) (5,259,858)
Net loss per share--
basic and diluted...... (0.21) (0.28) (0.33) (0.50)
</TABLE>
- --------
* Includes $13.6 million in-process research and development charge resulting
from the Isadra acquisition.
F-182
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
(17) Subsequent Events (Unaudited)
In January 2000, the Company announced plans to form a joint venture with
Softbank Commerce Corp. ("Softbank"), a wholly-owned subsidiary of Softbank
Corporation. The goal of the new company, to be called VerticalNet Japan, is to
develop, maintain and operate Japanese language vertical trade communities in
Japan.
On January 17, 2000, the Company entered into a binding letter agreement
with Microsoft Corporation with respect to a strategic relationship. Under the
terms of the letter agreement, the Company agreed with Microsoft to a three-
year commercial relationship and an equity investment by Microsoft in
VerticalNet.
On March 29, 2000, the Company entered into a definitive agreement with
Microsoft with respect to the commercial relationship. The commercial
relationship with Microsoft has a three-year term during which Microsoft will
purchase from the Company and then distribute to third party businesses at
least 80,000 of the Company's storefronts and e-commerce centers. The Company
will assist Microsoft in distributing 30,000 of these storefronts and e-
commerce centers. Microsoft will pay the Company a minimum of approximately
$161.9 million in the aggregate over the term for the storefronts and e-
commerce centers. Microsoft will provide the storefronts and e-commerce centers
it purchases from the Company to business customers for the 12 month
subscription period. For each customer, the Company will build the storefront
or e-commerce center on one of the Company's vertical trade communities. The
Company will pay Microsoft an aggregate of $60 million during the term for
advertising and promotional placements in The Microsoft Network and on
Microsoft's bCentral website and, if the pace of Microsoft's distribution of
storefronts and e-commerce centers does not meet agreed upon goals, additional
amounts for advertising and promotional placements not to exceed $15 million in
the aggregate.
Microsoft will pay the Company an aggregate of $60 million during the
term for advertising and promotional placements in our vertical trade
communities. The Company will pay Microsoft an aggregate of $18.5 million over
the term to be directed toward the development and enhancement of products and
services relating to the business-to-business marketplace and database software
technology.
The Company will use commercially reasonably efforts during the term to
adopt and use Microsoft products to operate the Company's vertical trade
communities when appropriate and feasible. The Company will pay Microsoft an
aggregate of $56.5 million over the term towards the licensing of Microsoft
products and provision of Microsoft services.
In connection with the strategic relationship, and in accordance with the
letter agreement dated January 17, 2000, Microsoft will make an initial $100
million equity investment in VerticalNet through the purchase of shares of the
Company's Series A 6% convertible redeemable preferred stock, which would be
convertible into 1,151,080 shares of the Company's common stock. Microsoft will
be entitled to registration rights and will receive the right to nominate one
member of VerticalNet's board of directors. In addition, Microsoft will receive
warrants entitling Microsoft to purchase 1,500,000 shares of the Company's
common stock at an exercise price of $69.50 per share. The share numbers and
the exercise price mentioned in this paragraph (along with other information in
these notes) are adjusted to reflect the split of our common stock to be
effected on or about March 31, 2000. The Company expects that the equity
investment by Microsoft in the Company will close in late March or April of
2000.
In February 2000, the Company announced the formation of VerticalNet
Europe, a joint venture with British Telecommunications, plc ("BT") and ICG.
The Company will be the majority shareholder in the joint
F-183
<PAGE>
VERTICALNET, INC.
Notes to Consolidated Financial Statements--(Continued)
venture which has been funded with $107 million in cash from the three
partners. The Company is contributing to the joint venture $7 million in cash
and intellectual property for the operations of vertical trade communities
within Europe. Additionally VerticalNet Europe and BT have agreed to create
VerticalNet UK Ltd. as part of the joint venture.
In February 2000, the Company signed an agreement to acquire RW
Electronics for $10.0 million of cash and 720,642 shares of the Company common
stock. Based on the average closing price of the Company's common stock between
February 16, 2000 and the day immediately preceding the date that a
registration statement covering the common stock is declared effective by the
Securities and Exchange Commission, the Company may be required to issue up to
366,702 additional shares of its common stock. The Company also agreed to
assume indebtedness of RW Electronics, including a line of credit estimated as
of March 15, 2000 to be approximately $21.0 million. RW Electronics operates an
exchange in the electronic hardware market. The consummation of this
transaction is subject to certain closing conditions. The acquisition will be
accounted for as a purchase and the estimated excess of the purchase price over
the fair value of the net assets acquired will be allocated to strategic
relationships, including customer and vendor lists, assembled workforce and
goodwill.
In March 2000, the Company acquired Tradeum, Inc. through a merger of
VERT Acquisition Corp., a wholly-owned subsidiary of the Company, with and into
Tradeum. In connection with the merger, the Company issued approximately 4.0
million shares of its common stock for all of the outstanding shares and
options in Tradeum. The merger will be accounted for as a purchase transaction.
Tradeum is a development-stage company located in San Francisco, California and
is engaged principally in the development of information technology designed to
enable the building and hosting of business-to-business exchanges, auctions and
sourcing activities.
In March 2000, the Company announced the formation of
PaintandCoatings.com Inc., a joint venture with Eastman Chemical Company, to
transform the Company's Paint and Coatings vertical trade community into a one-
stop, independent Internet marketplace for the paint and coatings industry. The
Company will be the minority shareholder in the joint venture, which was funded
with $1.5 million from the two partners. In addition to the Company's $600,000
cash contribution, the Company will provide administrative and other support
services and will license intellectual property related to the maintenance and
operation of the Web site.
To accommodate the Company's split of its common stock to be effected on
or about March 31, 2000, the Company filed, on March 29, 2000, an amendment to
its restated Articles of Incorporation to increase the number of shares of its
authorized common stock by 36,787,533 to 126,787,533 shares. The amendment was
filed to increase the number of authorized shares of common stock by the number
of outstanding shares of common stock as of March 17, 2000, the record date for
the Company's split of its common stock.
F-184
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
11,801,858 Shares
[LOGO OF INTERNET CAPITAL GROUP]
Common Stock
-----------------
P R O S P E C T U S
-----------------
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 13, 2000
OFFER TO EXCHANGE
up to 4,726,891 Shares
of Common Stock of Internet Capital Group, Inc.
for up to 9,239,559 shares of Common Stock of eCredit.com, Inc.
THE EXCHANGE OFFER, PRORATION PERIOD AND
WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M.,
NEW YORK CITY TIME ON , 2000, UNLESS EXTENDED.
-----------
Terms of the exchange offer:
--We will exchange shares of our common stock for shares of common stock
of eCredit.com, Inc. that are properly tendered and not withdrawn
prior to the exchange offer's expiration.
--As a condition to this offer prior to closing, eCredit.com, Inc. will
amend its certificate of incorporation to reclassify all outstanding
shares of preferred stock of eCredit.com, Inc. into shares of common
stock of eCredit.com, Inc.
--Unless you already agreed with us in writing not to withdraw your
shares of common stock of eCredit.com, you may withdraw tenders of
those shares at any time prior to the expiration of the exchange
offer.
--We believe the exchange will be a taxable event for U.S. federal
income tax purposes.
--We will not receive any proceeds from the exchange offer, but we will
receive a thirty percent equity ownership interest in eCredit.com. No
underwriter is being used for the exchange offer.
INTERNET CAPITAL GROUP, INC., a Delaware corporation, offers to exchange a
number of shares of Internet Capital Group's common stock, par value $.001 per
share, for each properly tendered share of common stock, par value $.001 per
share, of eCredit.com, a Delaware corporation, equal to an exchange ratio. The
exchange ratio will be calculated at the time of the exchange offer according
to a formula based on the average closing price of the Common Stock as quoted
on the NASDAQ National Market as set forth in this Prospectus and the related
Letter of Transmittal.
Our common stock is listed and principally traded on the Nasdaq National
Market under the symbol "ICGE". The common stock to be issued pursuant to the
exchange offer has been registered under the Securities Act of 1933, as
amended.
Investing in our Common Stock involves risks. See "Risk Factors" starting
on Page 10.
In those jurisdictions where securities, blue sky or other laws require the
exchange offer to be made by a licensed broker or dealer, the exchange offer
shall be deemed to be made on behalf of Internet Capital Group by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense.
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
This Prospectus covers the resale of shares of our common stock that may be
issued to eCredit.com and certain affiliates of eCredit.com in the Exchange
Offer to the extent such resales require registration under the Securities Act.
We will not receive any proceeds from the sale of shares sold by stockholders.
The stockholders, or their transferees, may offer the shares from time to time
through public or private transactions at prevailing market prices, at prices
related to prevailing market prices or at privately negotiated prices.
The date of this Prospectus is , 2000
<PAGE>
GLOSSARY OF TERMS
"Common Stock"................... Internet Capital Group's common stock, par
value $.001 per share
"eCredit.com".................... eCredit.com, Inc.
"eCredit.com Shares"............. eCredit.com's common stock, par value $.001
per share
"Exchange Offer"................. Internet Capital Group Inc. Prospectus and
Letter of Transmittal
"Exchange Ratio"................. exchange ratio set forth in the Prospectus
and Letter of Transmittal
"Expiration Date"................ date upon which the Exchange Offer expires
"Internet Capital Group" or the
"Company"....................... Internet Capital Group, Inc.
"Letter of Transmittal".......... related letter of transmittal for this
Prospectus
"Prospectus"..................... the prospectus for this offer
"Registration Statement"......... registration statement of which the
Prospectus is a part
"Securities Act"................. Securities Act of 1933, as amended
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 10
Forward-Looking Statements............................................... 25
Use of Proceeds.......................................................... 25
Dividend Policy.......................................................... 25
Comparative Per Share Data............................................... 26
Price Range of Common Stock.............................................. 27
Capitalization........................................................... 28
Internet Capital Group, Inc. Unaudited Pro Forma Information............. 31
Selected Consolidated Financial Data..................................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Internet Capital Group................................................. 39
eCredit.com............................................................ 57
Rightworks............................................................. 64
Internet Capital Group's Business........................................ 70
eCredit.com's Business................................................... 92
RightWorks' Business..................................................... 93
Management............................................................... 94
Certain Transactions..................................................... 112
Principal Shareholders of Internet Capital Group......................... 117
Security Ownership of eCredit.com Principal Stockholders and eCredit.com
Management.............................................................. 119
Selling eCredit.com Stockholders......................................... 123
Security Ownership of RightWorks Principal Stockholders and RightWorks
Management.............................................................. 125
Description of Internet Capital Group Capital Stock...................... 127
Comparison of Stockholder Rights......................................... 131
The Exchange Offer....................................................... 135
Shares Eligible for Future Sale.......................................... 152
United States Federal Income Tax Considerations.......................... 153
Plan of Distribution..................................................... 155
Legal Matters............................................................ 156
Experts.................................................................. 156
Where You Can Find More Information...................................... 157
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
THE EXCHANGE OFFER
Terms of the Exchange
Offer.................... We are offering to exchange shares of our Common
Stock for each properly tendered and not withdrawn
eCredit.com Share (up to a maximum of 9,239,559
eCredit.com Shares). If more than 9,239,559
eCredit.com Shares are properly tendered and not
withdrawn, then we will accept the shares based on
proration formulas in the Exchange Offer Agreement.
See "The Exchange Offer--Terms of the Exchange
Offer."
Purpose of the Exchange
Offer.................... As a result of the Exchange Offer, we will acquire
an equity ownership interest in eCredit.com equal
to 30% of the capital stock of eCredit.com, on a
fully diluted basis.
Expiration Date;
Withdrawal of Tender..... The Exchange Offer expires at 11:59 p.m., New York
city time, on [20th business day following
commencement of offer], 2000, unless we extend the
expiration date. You must tender your eCredit.com
Shares prior to the Expiration Date if you wish to
participate. You may wish to withdraw your tender
of eCredit.com Shares under the Exchange Offer at
any time prior to the Expiration Date unless you
have already agreed with us in writing not to
withdraw your shares. Any eCredit.com Shares not
accepted for exchange for any reason will be
returned without expense to its tendering holder as
promptly as practicable after the Expiration Date.
Conditions to the
Exchange Offer........... Our obligation to accept for exchange, or to issue
Common Stock in exchange for, any eCredit.com
Shares is subject to the satisfaction or waiver of
conditions, including the condition that we will
own at the closing of the Exchange Offer 30% of
eCredit.com's capital stock, on a fully diluted
basis, and other customary conditions relating to
the receipt of any applicable governmental or third
party approvals and the absence of any actions or
proceedings of any governmental agency or court
which could materially impair our ability to
consummate the Exchange Offer. We currently expect
that each of the conditions will be satisfied and
that no waivers will be necessary. See "The
Exchange Offer Conditions to the Exchange Offer."
Procedures for Tendering
eCredit.com Shares....... If you wish to accept the Exchange Offer and tender
your eCredit.com Shares, you must tender them,
complete, sign and date the Letter of Transmittal,
or a facsimile of the Letter of Transmittal, in
accordance with its instructions and the
instructions in this Prospectus, and mail or
otherwise deliver the Letter of Transmittal, or the
facsimile, together with certificates(s) for your
eCredit.com Shares, and any other required
documentation to the exchange agent, at the address
noted below. See "The Exchange Offer--Procedures
for Tendering eCredit.com Shares." To be eligible
to receive Common Stock under the Exchange Offer,
you must properly tender and not withdraw your
eCredit.com Shares on or prior to the Expiration
Date.
Acceptance of the
eCredit.com Shares....... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer and the proration
provision discussed below, we will accept for
4
<PAGE>
exchange any and all eCredit.com Shares that are
properly tendered and not withdrawn in the Exchange
Offer prior to the Expiration Date.
Delivery of Common
Stock.................... The exchange agent will deliver shares of our
Common Stock and cash in lieu of fractional shares
as soon as practicable after acceptance of
eCredit.com Shares for exchange. See "The Exchange
Offer--Procedures for Tendering eCredit.com
Shares."
Proration................ If more than 9,239,559 eCredit.com Shares have been
properly tendered and not withdrawn on or prior to
the Expiration Date, you may be required to tender
your shares based on the proration formulas
specified in the Exchange Offer Agreement. See "The
Exchange Offer--Terms of the Exchange Offer."
Issuance of Shares by
eCredit.com.............. If less than 9,239,559 eCredit.com Shares have been
properly tendered and not withdrawn on or prior to
the Expiration Date, eCredit.com will be required
to issue a sufficient number of shares to us to
provide us with 30% of the capital stock of
eCredit.com, on a fully diluted basis. The issuance
of additional shares by eCredit.com will increase
the number of outstanding shares and result in a
decrease in the number of shares of Internet
Capital Group received in the Exchange Offer.
Withdrawal Rights........ Subject to the conditions listed in this
Prospectus, you may withdraw tendered eCredit.com
Shares at any time on or before the Expiration
Date, unless you have already agreed in writing
with us not to withdraw your eCredit.com Shares.
See "The Exchange Offer--Withdrawal Rights."
Governmental and
Regulatory Approvals..... We are required to comply with the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as
amended, and make all filings, submissions and
notifications thereunder.
Appraisal or Dissenters'
Rights................... Holders of eCredit.com Shares do not have any
appraisal or dissenters' rights under the Delaware
General Corporation Law in connection with the
Exchange Offer.
No Fractional Shares..... We will not distribute fractional shares of our
Common Stock. Instead, holders of eCredit.com
Shares who would otherwise be entitled to receive a
fractional share of our Common Stock will be paid
in cash in lieu of the fractional share. See "The
Exchange Offer--Terms of the Exchange Offer."
Federal Income Tax
Consequences............. For a discussion of federal income tax
considerations relating to the exchange of our
Common Stock for the eCredit.com Shares, see
"United States Federal Income Tax Considerations of
the Exchange Offer."
Exchange Agent........... ChaseMellon Shareholder Services is serving as the
Exchange Agent for the Exchange Offer. Its
telephone number is (800) 777-3674.
5
<PAGE>
Failure to Exchange
eCredit.com Shares....... We will issue the Common Stock in exchange for
eCredit.com Shares only after timely receipt by the
exchange agent of the eCredit.com Shares, a
properly completed and duly executed Letter of
Transmittal and all other required documents.
Therefore, if you desire to tender your eCredit.com
Shares in exchange for our Common Stock, you should
allow sufficient time to ensure timely delivery.
Neither the exchange agent nor we are under any
duty to notify you of defects or irregularities
with respect to tenders of eCredit.com Shares for
exchange.
Any questions regarding the Exchange Offer, including the procedure for
tendering shares in the Exchange Offer and/or surrendering stock certificates
should be directed to the exchange agent as follows:
ChaseMellon Shareholder Services
Attn: Reorganization Department
P.O. Box 3301
South Hackensack, NJ 07606
Call Toll Free:
(800) 777-3674
6
<PAGE>
Dilution of eCredit.com Shares--The transactions contemplated by the Exchange
Offer will dilute your ownership interest in eCredit.com.
Even if you do not tender your eCredit.com Shares in the Exchange Offer,
your ownership interest in eCredit.com may be diluted upon the completion of
the Exchange Offer because eCredit.com is obligated to make up any shortfall,
in the event the stockholders of eCredit.com fail to tender 30% of the
outstanding eCredit.com Shares on a fully diluted basis, by tendering a
sufficient number of eCredit.com Shares to make our equity ownership interest
in eCredit.com equal to 30% on a fully diluted basis. In the event that the
only shares properly tendered and not withdrawn are the shares held by the
stockholders who have contractually committed to tender 30% of their shares,
eCredit.com would be required to issue to us [5,364,387] shares. The issuance
of additional shares by eCredit.com will increase the number of outstanding
shares and result in a decrease in the number of shares of Internet Capital
Group received in the Exchange Offer.
Proration of eCredit.com Shares--Because of the possibility of proration, you
may hold eCredit.com Shares upon completion of our Exchange Offer even if you
tender all of your Shares.
We will accept properly tendered eCredit.com Shares that are
oversubscribed subject to a proration formula. See "The Exchange Offer--Terms
of the Exchange Offer." Therefore, you may not be able to tender as many shares
of eCredit.com Shares as you would like.
Exchange Ratio--Because the Exchange Ratio is based on the price of the Common
Stock, it will vary until the date of its determination.
Upon completion of the Exchange Offer, eCredit.com Shares will be
exchanged for shares of Common Stock with the precise exchange ratio to be
determined in accordance with the Exchange Offer Agreement as described in "The
Exchange Offer--Terms of the Exchange Offer." (There are termination provisions
in the Exchange Offer Agreement associated with the price of Common Stock. See
"The Exchange Offer--Termination.") The price of the Common Stock when the
Exchange Offer takes place may vary from its price at the date of this document
and at the date of the Exchange Offer Agreement. Such variations in the price
of the Common Stock may result from changes in the business operations or
prospects of Internet Capital Group, regulatory considerations, general market
and economic conditions and other factors. At the time you tender your
eCredit.com Shares, you may not know the exact number of shares of Common Stock
you will receive when the Exchange Offer is completed. You are urged to obtain
current market quotations for the Common Stock prior to the expiration of the
Exchange Offer.
24
<PAGE>
Selling eCredit.com Stockholders
This Prospectus may be used in connection with the resale of shares of
Internet Capital Group Common Stock that may be issued to eCredit.com and
certain affiliates of eCredit.com in the Exchange Offer to the extent such
resales require registration under the Securities Act. We do not know when or
in what amounts, if any, a selling stockholder may offer shares for sale
because we do not know whether any stockholders will tender more than 30% of
their eCredit.com Shares in the Exchange Offer and the final Exchange Ratio
cannot be determined until the second business day immediately prior to the
Expiration Date of the Exchange Offer. Also, the selling stockholders may elect
to sell less than all, or none, of the shares offered by this prospectus.
The following table shows certain information with respect to the
stockholders that may resell shares of our common stock pursuant to this
Prospectus:
<TABLE>
<CAPTION>
Maximum Number of Shares of
Name of Stockholder (1) Common Stock Offered (2)(3)
----------------------- ---------------------------
<S> <C>
Bain Capital Funds.......................... 1,997,116
Battery Ventures............................ 2,808,723
Venkat Srinivasan........................... 1,858,681
eCredit.com (4)............................. 2,227,163
</TABLE>
- --------
(1) See preceding table for further information concerning listed stockholders.
(2) Assumes that the stockholder tenders all of its shares of eCredit.com
common stock in the Exchange Offer, that only stockholders who are
contractually committed to tender shares elect to tender shares in the
Exchange Offer and that all of the shares tendered by the stockholder are
accepted by Internet Capital Group. Also assumes an Exchange Ratio of
.51159, which would be the maximum Exchange Ratio based on the
capitalization of eCredit.com as of March 31, 2000.
(3) Represents maximum number of shares that could be issued in the Exchange
Offer to the stockholder.
(4) Represents maximum number of shares of Common Stock issuable in the
Exchange Offer to eCredit.com, based on its capitalization as of March 31,
2000, if no stockholders tender shares in the Exchange Offer other than
those stockholders who are contractually committed to tender their shares.
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<PAGE>
In offering the shares covered hereby, the selling stockholders, or their
pledgees, donees, transferees or other successors in interest, and any broker-
dealers and any other participating broker-dealers who execute sales for the
selling stockholders, may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales, and any profits realized by
the selling stockholders and the compensation of such broker-dealers may be
deemed to be underwriting discounts and commissions.
In order to comply with the securities laws of certain states, if
applicable, the shares must be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
We have advised the selling stockholders that the anti-manipulation rules
of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, we will make copies of this Prospectus available to the selling
stockholders for the purpose of satisfying the prospectus delivery requirements
of the Securities Act.
At the time a particular offer of shares is made, if required, a
prospectus supplement will be distributed that will set forth the number of
shares being offered and the terms of the offering, including the name of any
underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount,
commission or concession allowed or reallowed or paid to any dealer, and the
proposed selling price to the public.
To the extent that the selling stockholders cannot qualify for sale
pursuant to Rule 144 or Rule 145, we have agreed with eCredit.com to keep the
registration statement of which this Prospectus constitutes a part effective
for no more than 20 days after the closing of the Exchange Offer or such
shorter period as may be necessary to permit the selling stockholders to sell a
sufficient number of shares in order to qualify for sale pursuant to Rule 144
or Rule 145. We will file a post effective amendment to remove from
registration any of the securities being registered to the extent that the
selling stockholders qualify for sale pursuant to Rule 144 or Rule 145.
124
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
Internet Capital Group and eCredit.com are both corporations organized
under the laws of the State of Delaware. Therefore any differences between the
rights of Internet Capital Group stockholders and the rights of eCredit.com
stockholders arise principally from differences between each corporation's
certificate of incorporation and bylaws.
The following summary sets forth certain material differences between the
rights of Internet Capital Group stockholders and the rights of eCredit.com
stockholders and is qualified in its entirety by reference to Internet Capital
Group's certificate of incorporation and bylaws and eCredit.com's Fourth
Amended and Restated Certificate of Incorporation, which is expected to be
amended immediately prior to the consummation of the transaction contemplated
by the Exchange Offer to convert all issued and outstanding shares of
eCredit.com's several series of preferred stock into eCredit.com Shares and
eCredit.com's Fifth Amended and Restated Bylaws which are expected to become
effective immediately prior to the consummation of the transaction contemplated
by the Exchange Offer.
Authorized Capital Stock
The authorized capital stock of Internet Capital Group currently consists
of 300,000,000 shares of Common Stock and 10,000,000 shares of preferred stock.
The authorized capital stock of eCredit.com consists of 35,000,000 shares
of common stock and 10,000,000 shares of preferred stock.
Voting Rights
The holders of Internet Capital Group Common Stock have one vote per
share. The certificate of incorporation provides that each class of Common
Stock is entitled to vote as a class with respect to amendments to the
certificate of incorporation that adversely alter or change the powers,
preferences or special rights of that class of stock and with respect to other
matters require class votes under Delaware Law.
The eCredit.com certificate of incorporation provides that the holders of
eCredit.com common stock have one vote per share.
Preemptive Rights; Cumulative Voting
Both the Internet Capital Group certificate of incorporation and the
eCredit.Com Certificate of incorporation do not grant preemptive rights or
cumulative voting rights to its stockholders.
Action by Written Consent of Stockholders
Our certificate of incorporation and bylaws provide that shareholder
action can only be taken at an annual or special meeting of shareholders and
prohibits action by written consent in lieu of a meeting.
The eCredit.com bylaws provide that shareholder action can be taken at an
annual or special meeting of shareholders or by written consent in lieu of a
meeting.
Special Meetings of Stockholders
Our bylaws provide that special meetings of stockholders may be called
only by our Chief Executive Officer or by the Chairman or Vice Chairman of the
Board of Directors upon vote by a majority of the
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<PAGE>
members of the Board. Our shareholders are not permitted to call a special
meeting of shareholders or to require that our Board of Directors call a
special meeting.
The eCredit.com bylaws provide that special meetings of stockholders may
be called by eCredit.com's Chairman of the Board of Directors or Secretary and
shall be called by eCredit.com's President or Secretary at the request in
writing of any two directors of its Board of Directors or at the request in
writing of the holders of not less than ten percent of the shares of common
stock of eCredit.com issued and outstanding and entitled to vote at the
meeting.
Quorum and Voting Requirements for Stockholder Meetings
The Internet Capital Group bylaws state that a majority of the issued and
outstanding stock of Internet Capital Group entitled to vote at a meeting
constitutes a quorum for the transaction of business at the meeting. Where,
under the Internet Capital Group bylaws, a quorum is present, the affirmative
vote of a majority of shares entitled to vote at the meeting on the subject
matter is required to take action on all matters other than the election of
directors, who must be elected by a plurality of shares entitled to vote at the
meeting on the election of directors.
The eCredit.com bylaws state that a majority of the issued and
outstanding shares of each class of eCredit.com capital stock entitled to vote
at a meeting shall constitute a quorum for the transaction of business at the
meeting. Where, under the eCredit.com bylaws, a quorum is present, the
affirmative vote of a majority of shares entitled to vote at the meeting on the
subject matter is required to take action in all matters.
Stockholder Proposals
Our bylaws establish an advance notice procedure for our shareholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of our shareholders. The advance notice
procedure provides that only persons who are nominated by, or at the direction
of, our Board of Directors or its Chairman, or by a shareholder who has given
timely written notice to our Secretary or any Assistant Secretary prior to the
meeting at which directors are to be elected, will be eligible for election as
our directors. The advance notice procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, our Board of Directors or its Chairman or
by a shareholder who has given timely written notice to our Secretary of the
shareholder's intention to bring such business before the meeting. Under the
advance notice procedure, if a shareholder desires to submit a proposal or
nominate persons for election as directors at an annual meeting, the
shareholder must submit written notice to Internet Capital Group not less than
90 days nor more than 120 days prior to the first anniversary of the previous
year's annual meeting. In addition, under the advance notice procedure, a
shareholder's notice to Internet Capital Group proposing to nominate a person
for election as a director or relating to the conduct of business other than
the nomination of directors must contain specified information. In the event
that the number of directors to be elected is increased and there is no public
announcement naming all of the nominees or specifying the size of the increase
at least 100 days before the first anniversary of the preceding year's annual
meeting, the notice as it relates to nominees will be considered timely if it
is delivered on the tenth day following the day on which the public
announcement is first made by Internet Capital Group. If the chairman of a
meeting determines that business was not properly brought before the meeting,
in accordance with the advance notice procedure, that business shall not be
discussed or transacted.
The eCredit.com bylaws do not provide an advance notice procedure for the
purpose of making nominations of candidates for election of directors or to
bring other business before an annual meeting of its shareholders. However,
with respect to the nomination and election of directors, eCredit.com, ICG
Holdings and certain other eCredit.com shareholders are expected to enter into
a Third Amended and Restated Stockholders Agreement (the "eCredit.com
Stockholders Agreement") upon the consummation of the
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transactions contemplated by the Exchange Offer, under which the parties have
agreed to cast their votes for directors as designated under the terms of that
agreement.
Board of Directors
The Internet Capital Group Board of Directors currently consists of six
directors who serve for three year terms. The number of directors on the
Internet Capital Group Board is subject to change by action of the Internet
Capital Group Board, but cannot be less than five nor more than nine (other
than directors elected by holders of our preferred stock), the exact number to
be fixed from time to time by resolution adopted by our directors.
The eCredit.com Board of Directors currently consists of six directors.
Upon the consummation of the transactions contemplated by the Exchange Offer,
the eCredit.com Board will expand to nine directors, each of whom will be
designated and elected in accordance with the terms of the eCredit.com
Stockholders Agreement. More specifically, three of the directors shall be as
designated by ICG Holdings; eCredit.com's Chief Executive Officer shall be a
director; and the other five directors shall be as designated by at least a
majority in voting interest of certain other shareholders of eCredit.com.
Vacancies and Newly Created Directorships
Under the Internet Capital Group bylaws, any vacancy or newly-created
directorship may be filled by the affirmative vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
Under the eCredit.com bylaws, except as provided for in the eCredit.com
Stockholders Agreement, any vacancy or newly-created directorship may be filled
by the affirmative vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director. The
eCredit.com Stockholders Agreement provides that vacancies in director seats
subject to designation by a shareholder or a group of shareholders may be
filled only by designation of the shareholder or group of shareholders entitled
to designate the director's seat for which the vacancy exists.
Limitation on Director's Liability
The Internet Capital Group certificate of incorporation provides that a
director's liability to the corporation is limited to the fullest extent
permitted by the Delaware General Corporation Law. A director shall not be
personally liable for monetary damages for his acts or omissions unless the
director breached or failed to perform his duties and the breach or failure
constituted recklessness, self-dealing or willful misconduct.
The eCredit.com certificate of incorporation provides that, to the
fullest extent permitted by the Delaware General Corporation Law, a director
shall not be personally liable for monetary damages for a breach of fiduciary
duty as a director.
Removal of Directors
The Internet Capital Group certificate of incorporation and its bylaws
provide for the removal of directors for cause upon the approval of a majority
of the then outstanding stock entitled to vote generally in the election of
Directors.
Under the eCredit.com bylaws, except as provided for in the eCredit.com
Stockholders Agreement, any director may be removed, either with or without
cause, at any time by the affirmative vote of the holders of record of a
majority of the outstanding shares of stock entitled to vote in the election of
directors, at a special meeting of the stockholders called for the purpose.
Under the eCredit Stockholders Agreement, directors
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designated for election by a particular shareholder or group of shareholders
may only be removed at the request of the shareholder or group of shareholders.
Indemnification
We have included in our certificate of incorporation and bylaws
provisions to eliminate the personal liability of our directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware General Corporation Law, and to indemnify our directors and
officers to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, including circumstances in which indemnification is otherwise
discretionary. We believe that these provisions are necessary to attract and
retain qualified persons as directors and officers.
The eCredit.com bylaws provide that, to the fullest extent permitted by
the Delaware General Corporation Law, each director or officer who is made a
party or is threatened to be made a party to or is involved in any action by
reason of the fact of his office with eCredit.com or another entity on behalf
of eCredit.com shall be indemnified and held harmless by eCredit.com to the
fullest extent permitted by the Delaware General Corporation Law against all
expense, liability and loss. eCredit.com believes that this level of
indemnification is necessary to attract and retain qualified persons as
directors and officers.
Amendments to Certificate of Incorporation and Bylaws
The provisions of our certificate of incorporation that pertain to
authorized capital, powers of the Board of Directors, the inability of
stockholders to take action without a meeting, rights of classes of stock, and
amendments to the certificate of incorporation and bylaws are subject to
amendment, alteration, repeal, or rescission by the affirmative vote of the
holder of not less than two-thirds (66 2/3%) of the outstanding shares of
voting securities. Internet Capital Group may amend, alter or repeal all other
sections of the certificate of incorporation in the manner prescribed by the
Delaware General Corporation Law. Our certificate of incorporation provides
that our bylaws are subject to adoption, amendment, alteration, repeal, or
rescission either by our Board of Directors without the assent or vote of our
shareholders, or by the affirmative vote of the holders of not less than two-
thirds (66 2/3%) of the outstanding shares of voting securities.
eCredit.com may amend, alter or repeal all sections of its certificate of
incorporation in the manner prescribed by the Delaware General Corporation Law.
The eCredit.com certificate of incorporation provides that the stockholders of
eCredit.com are expressly authorized to make, alter or repeal the eCredit.com
bylaws.
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THE EXCHANGE OFFER
Terms of the Exchange Offer
We are offering to exchange, upon the terms and subject to the conditions
of the Exchange Offer Agreement, eCredit.com Shares (up to a maximum of
9,239,559 shares) for shares of our Common Stock equal to a number of shares
determined by using the Exchange Ratio. The Exchange Ratio has not been fixed
in the Exchange Offer Agreement, but will be calculated at the time of the
Exchange Offer according to the formula contained in the Exchange Offer
Agreement. The formula is based on the average closing price of the Common
Stock as quoted on the Nasdaq National Market. As a result, the Exchange Ratio
will vary with the average closing price and will generally increase if the
average closing price of Common Stock decreases, and vice versa. Under this
formula, the Exchange Ratio will be obtained by dividing:
. the Aggregate Number of shares of Common Stock by
. the number of eCredit.com Shares that are issued and outstanding
on the Expiration Date calculated on a fully-diluted basis
multiplied by 30%.
The Aggregate Number of shares of Common Stock means a number of shares
of Common Stock equal to the quotient obtained by dividing $450,000,000 by the
average of the closing prices per share of the Common Stock on the Nasdaq
National Market for the three consecutive days on which the trading has
occurred prior to the second trading day immediately before the Expiration
Date. If the average of the closing prices is equal to or less than $95.20, the
average will be deemed to be $95.20 and, if the average is equal to or greater
than $142.80, the average will be deemed to be $142.80.
Only whole shares of Common Stock will be issued under the Exchange
Offer. Instead of fractional shares to which a holder of eCredit.com Shares
otherwise would be entitled, we will pay the holder of eCredit.com Shares cash
based on the closing price of the Common Stock on the Nasdaq National Market on
the Expiration Date and we will not issue certificates or scrip representing
fractional shares of Common Stock.
eCredit.com may tender in the Exchange Offer eCredit.com Shares that
eCredit.com has purchased from the employees of its foreign subsidiaries. The
amount of shares that eCredit.com may tender on behalf of these employees may
equal up to 30% of the foreign employees' fully-diluted equity holdings in
eCredit.com.
If the holders of eCredit.com Shares tender more than [9,239,559]
eCredit.com Shares, then the Exchange Offer will be over-subscribed. We will
accept the eCredit.com Shares that are properly tendered and not withdrawn on a
pro-rata basis as follows:
. First, all holders of eCredit.com Shares who are employees of
eCredit.com or its subsidiaries will have a number of shares
accepted for exchange that will result in 30% of their fully-
diluted equity holdings in eCredit.com being accepted for
exchange, or if less than 30% of their fully-diluted equity
holdings in eCredit.com are tendered, such lesser percent.
. Second, with respect to holders who are not employees of
eCredit.com or its subsidiaries and who have properly tendered and
not withdrawn 30% or less of their fully-diluted equity holdings
in eCredit.com, all shares so tendered will be accepted for
exchange.
. Third, with respect to holders who are not employees and who have
properly tendered and not withdrawn more than 30% of their fully-
diluted equity holdings in eCredit.com, the holders will first
have a number of shares accepted for exchange that will result in
the acceptance of 30% of the holders' fully-diluted equity
holdings in eCredit.com.
. To the extent that, after acceptance of all the foregoing shares,
less than [9,239,559] shares have been accepted for exchange, a
pro-rata portion of shares tendered by holders who are
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not employees in excess of 30% of their fully-diluted holdings
will be accepted for exchange based upon the number of shares
tendered by those holders in excess of 30% of their fully-diluted
holdings such that a total of 9,239,559 shares are accepted for
exchange.
Under the Exchange Offer Agreement, if less than 9,239,559 eCredit.com
Shares are properly tendered and not withdrawn, eCredit.com will sell to us a
number of eCredit.com Shares sufficient to provide us with 30% of the fully-
diluted number of eCredit.com Shares. Assuming compliance by stockholders who
have contractually committed to tender 30% of their eCredit.com Shares, the
maximum number of shares that eCredit.com could be required to issue to us in
connection with the Exchange Offer is [5,364,387] shares. The issuance of this
number of eCredit.com Shares would increase the total number of outstanding
eCredit.com Shares used to determine the Exchange Ratio and reduce the number
of shares of Common Stock that you would receive in the Exchange Offer.
Reasons for the Exchange Offer
Internet Capital Group's Reasons for the Exchange Offer:
Internet Capital Group's Board of Directors and management believe that
the Exchange Offer will benefit Internet Capital Group and its stockholders for
the following reasons:
. it will enhance Internet Capital Group's strategy to build open,
collaborative platforms that will enable Internet Capital Group's
partner companies and others to leverage the reach and immediacy
of the Internet;
. it will aid Internet Capital Group in providing a complete
infrastructure solution for Internet Capital Group's partner
companies, by adding eCredit.com's experience in financial
fulfillment to its partner companies;
. it will enable Internet Capital Group to join with a market leader
like eCredit.com in connecting businesses to financing partners
and global information sources to permit real-time, point-of-sale
credit and financing decisions; and
. it will help Internet Capital Group reach its goal of building the
dominant B2B e-commerce network of companies across the top 50
global markets.
eCredit.com's Reasons for the Exchange Offer
eCredit.com's Board of Directors and management believe that the Exchange
Offer will benefit eCredit.com and its stockholders for the following reasons:
. eCredit.com stockholders will have an opportunity to receive
significant value and liquidity for a portion of their shares,
while retaining a significant equity interest in eCredit.com;
. the new market opportunities provided to eCredit.com in working
with Internet Capital Group's partnership companies; and
. the benefits of accessing the experience of Internet Capital
Group's management regarding B2B e-commerce networks.
As a result of the Exchange Offer, Internet Capital Group will acquire an
equity ownership in eCredit.com, equal to 30% of the capital stock of
eCredit.com, on a fully diluted basis.
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Conditions to the Exchange Offer
Our obligations to effect the Exchange Offer are subject to the
satisfaction or waiver of the following conditions:
. the total number of eCredit.com Shares properly tendered and not
withdrawn must equal at least 9,239,559 shares (provided that
eCredit.com has the right to issue us a number of shares that will
result in our owning 30% of the capital stock of eCredit.com on a
fully diluted basis, in which case we will be obligated to accept
for exchange the eCredit.com Shares that have been properly
tendered and not withdrawn);
. eCredit.com and the holders of eCredit.com Shares who are parties
to the Exchange Offer Agreement must have performed their
agreements and covenants under the Exchange Offer Agreement
required to be performed by them prior to the Expiration Date;
. the representations and warranties of the holders of eCredit.com
Shares who are parties to the Exchange Offer Agreement must be
true and correct as of the Expiration Date;
. since the date of the Exchange Offer Agreement, there has not
occurred any material adverse effect (as defined in the Exchange
Offer Agreement), or any event, circumstance or change that is
reasonably likely to have a material adverse effect;
. the Exchange Offer must comply with all applicable law and
applicable interpretations of the staff of the Securities and
Exchange Commission;
. eCredit.com must amend its certificate of incorporation to provide
for the reclassification of all shares of all series of its
preferred stock into eCredit.com Shares and must amend its bylaws
in accordance with the Exchange Offer Agreement;
. the stockholders of eCredit.com that are parties to the Exchange
Offer Agreement and eCredit.com and its subsidiaries must obtain
all appropriate consents, waivers, approvals and authorizations;
. the Registration Statement must be declared effective by the staff
of the Securities and Exchange Commission and there shall be no
stop order in respect of the Registration Statement;
. the shares of Common Stock issuable pursuant to the Exchange Offer
must be approved for listing on the Nasdaq National Market System
or the New York Stock Exchange;
. eCredit.com and the holders of eCredit.com shares who are parties
to the Exchange Offer Agreement must deliver legal opinions and
other documentation required by the Exchange Offer Agreement;
. three representatives of Internet Capital Group must be elected as
members of eCredit.com's Board of Directors;
. Internet Capital Group must receive all applicable government
approvals for the Exchange Offer required to be obtained or filed
by eCredit.com or its stockholders; and
. no actions or proceedings of any governmental agency or court with
jurisdiction over the Exchange Offer can exist which could
materially impair our ability to consummate the Exchange Offer.
The conditions to the Exchange Offer listed above are for the benefit of
Internet Capital Group and may be waived by Internet Capital Group, in whole or
in part at any time and from time to time, in its sole discretion.
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The obligation of eCredit.com and its stockholders who are parties to the
Exchange Offer Agreement to effect the Exchange Offer are subject to the
satisfaction or waiver of the following conditions:
. Internet Capital Group and ICG Holdings, Inc. must have performed
their agreements and covenants under the Exchange Offer Agreement
required to be performed by them prior to the Expiration Date;
. Internet Capital Group's representations and warranties must be
true and correct in all material respects as of the Expiration
Date;
. since the date of the Exchange Offer Agreement, there has not
occurred any material adverse effect (as defined in the Exchange
Offer Agreement), or any event, circumstance or change that is
reasonably likely to have a material adverse effect on Internet
Capital Group and its subsidiaries under the Exchange Offer
Agreement;
. Internet Capital Group and ICG Holdings, Inc. must obtain all
appropriate consents, waivers, approvals and authorizations;
. the Registration Statement must be declared effective by the staff
of the Securities and Exchange Commission and there shall be no
stop order in respect of the Registration Statement;
. the shares of Common Stock issuable under the Exchange Offer must
be approved for listing on the Nasdaq National Market System or
the New York Stock Exchange;
. Internet Capital Group must deliver legal opinions and other
documentation required by the Exchange Offer Agreement;
. the holders of eCredit.com Shares must receive all applicable
governmental approvals required to be obtained or filed by
Internet Capital Group and ICG Holdings, Inc.;
. no actions or proceedings of any governmental agency or court with
jurisdiction over the Exchange Offer can exist which prohibit any
holder of eCredit.com Shares from consummating the Exchange Offer;
and
. any shares of the Common Stock issuable pursuant to the Exchange
Offer cannot be considered "restricted securities" for the
purposes of Rule 144 or 145 under the Securities Act.
Representations and Warranties
The Exchange Offer Agreement contains various representations and
warranties of eCredit.com in favor of us, relating to, among other things, the
following:
. eCredit.com's due organization, qualification to do business and
good standing and similar corporate matters;
. eCredit.com's authorization, execution and delivery and the
enforceability of the Exchange Offer Agreement and the other
documents contemplated by the Exchange Offer Agreement;
. the absence of conflicts with and the compliance with corporate
governance documents, agreements, laws, statutes and regulations;
. the identity and ownership of eCredit.com's subsidiaries;
. eCredit.com's capitalization;
. eCredit.com's financial statements;
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. pending or threatened investigations or litigation;
. the payment of fees to brokers or advisors;
. tax matters;
. the absence of undisclosed or contingent liabilities;
. eCredit.com's real property;
. eCredit.com's intellectual property;
. eCredit.com's insurance policies;
. environmental matters;
. eCredit.com's permits;
. eCredit.com's employee benefit plans and labor relations;
. the absence of material changes or events;
. eCredit.com's transactions with affiliates;
. eCredit.com's material contracts and commitments;
. the accuracy of eCredit.com's books and records;
. the accuracy of disclosures made by eCredit.com;
. anti-takeover provisions under Delaware General Corporation Law;
and
. approval of the Exchange Offer Agreement and the transactions
contemplated by the Exchange Offer Agreement by eCredit.com's
Board of Directors.
The Exchange Offer Agreement also includes representations and warranties
made in favor of us by the holders of eCredit.com Shares who are parties to the
Exchange Offer Agreement, relating to, among other things, the following:
. their authority to enter into in the Exchange Offer Agreement and,
for those holders who are not individuals, their due organization
and good standing;
. their ownership of eCredit.com Shares;
. the absence of conflicts with and the compliance with corporate
documents, agreements, laws, statutes and regulations;
. the payment of fees to brokers or advisors; and
. the accuracy of their disclosures.
The Exchange Offer Agreement contains various representations and
warranties made by us in favor of eCredit.com and the holders of eCredit.com
Shares who are parties to the Exchange Offer Agreement, relating to, among
other things, the following:
. Internet Capital Group's and ICG Holdings, Inc.'s due
organization, qualification to do business and good standing and
similar corporate matters;
. Internet Capital Group's and ICG Holdings, Inc.'s authorization,
execution and delivery and the enforceability of the Exchange
Offer Agreement and the other documents contemplated by the
Exchange Offer Agreement;
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. the absence of conflicts with and the compliance with corporate
governance documents, agreements, laws, statutes and regulations;
. the payment of fees to brokers or advisors;
. Internet Capital Group's capitalization;
. the availability to eCredit.com and legal compliance of Internet
Capital Group's filings made with the Securities and Exchange
Commission;
. the absence of material changes or events;
. pending or threatened investigations or litigation;
. Internet Capital Group's compliance with laws;
. the accuracy of disclosures made by Internet Capital Group; and
. anti-takeover provisions under Delaware General Corporate Law.
Subject to limited exceptions for fraud and knowing misrepresentations,
eCredit.com's representations and warranties terminate on the earlier to occur
of (i) 60 days after its delivery to Internet Capital Group of certain
financial statements for the fiscal year ended December 31, 2000 or (ii) the
effective date of a registration statement for an initial public offering of
eCredit.com's common stock, and Internet Capital Group's representations and
warranties terminate on the earlier to occur of (i) 60 days after the filing of
its Form 10-K for the year ending December 31, 2000 or (ii) the effective date
of a registration statement for an initial public offering of eCredit.com's
common stock. The representations and warranties of the holders of eCredit.com
Shares who are parties to the Exchange Offer Agreement survive the closing
contemplated by the Exchange Offer Agreement.
Conduct of Business of eCredit.com Pending Closing of the Exchange Offer
The Exchange Offer Agreement requires that until the closing contemplated
by the Exchange Offer Agreement, eCredit.com will conduct its business in the
ordinary course consistent with past practice. eCredit.com is required to use
commercially reasonable efforts to preserve intact its current business
organization, keep available the services of its present officers and employees
and maintain satisfactory relationships with suppliers, contractors,
distributors, customers and others having business relationships with it.
eCredit.com has also agreed that, prior to the closing, without Internet
Capital Group's written consent, it would not, and the holders of eCredit.com
Shares who are parties to the Exchange Offer Agreement would cause eCredit.com
not to do the following:
. change its accounting practices, methods or assumptions;
. write down the value of any of its assets;
. cancel any debts or waive any of its claims or rights;
. subject to exceptions, including the licensing of its intellectual
property entered into in the ordinary course of business, sell,
transfer, or otherwise dispose of any of its properties or assets;
. permit to lapse any rights to the use of any of its intellectual
property or disclose (except as necessary in the conduct of its
business) to any person, other than representatives of Internet
Capital Group, any trade secret, formula, process or know-how of
eCredit.com that is not a matter of public knowledge;
. grant increases in the compensation, except for normal increases
granted in the ordinary course of business consistent with past
practices, or enter into or amend any employment,
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consulting or similar agreement or make any agreement or
commitment to pay any severance or similar compensation;
. make material capital expenditures and commitments or any
additions to property, plant, equipment or intangible capital
assets;
. declare, pay or set aside for payment any dividend or other
distribution in respect of its equity securities or redeem,
purchase or otherwise acquire, or offer, sell or issue, directly
or indirectly, any equity or other securities of eCredit.com, or
merge or consolidate with any person, or adopt any plan of
liquidation or dissolution or other reorganization, or acquire the
stock, assets or business of any other person, except that in
connection with the Exchange Offer eCredit.com may purchase
eCredit.com Shares from its employees located at the foreign
subsidiaries;
. pay, distribute, loan or advance any amount to, or sell, transfer
or lease any properties or assets (real, personal or mixed,
tangible or intangible) to, or enter into any agreement or
arrangement with, any of its stockholders, or any officers or
directors of eCredit.com;
. make any election for tax purposes;
. incur any liabilities or obligations for the borrowing of money or
the payment of money not in the ordinary course of business
consistent with past practice;
. pay, discharge or satisfy any claim, liabilities or obligations
not in the ordinary course of business consistent with past
practice of liabilities and obligations; or
. agree, whether in writing or otherwise, to take any action
described above.
Notices
eCredit.com and Internet Capital Group have agreed to give the other
party prompt notice of the following:
. its receipt of any notice or other communication from any third
party claiming that its consent is or may be required to
consummate the transactions contemplated by the Exchange Offer
Agreement;
. its receipt of any notice or other communication from any
governmental authority in connection with the transactions
contemplated by the Exchange Offer Agreement; and
. any claim, action, or proceeding which could reasonably be
expected to materially adversely affect the ability of either
party to consummate the transactions contemplated by the Exchange
Offer Agreement.
Access to Information; Confidentiality
Prior to the closing contemplated by the Exchange Offer Agreement,
eCredit.com will give Internet Capital Group and its representatives access to
its facilities and to inspect all of its contracts, agreements, commitments,
books and records, as well as access to eCredit.com's personnel and auditors
at all reasonable times and upon reasonable notice by Internet Capital Group.
Internet Capital Group agreed to keep the information provided to it by
eCredit.com confidential in accordance with the terms of the Nondisclosure
Agreement, dated as of December 1, 1999, between eCredit.com and Internet
Capital Group.
In addition, after the closing, eCredit.com has agreed to provide us
with financial and other reports until the earlier to occur of (i) the closing
of an initial public offering by eCredit.com or (ii) the drop in Internet
Capital Group's equity interest in eCredit.com below 15% of the number of
eCredit.com Shares that we held as
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of the closing of the Exchange Offer Agreement. eCredit.com also agreed to give
Internet Capital Group and its representatives access at all reasonable times
and upon reasonable notice to eCredit.com's properties, to examine their
records or discuss their affairs, as may reasonably be requested by Internet
Capital Group.
Filings; Other Actions
Before we can complete the Exchange Offer, Internet Capital Group and
eCredit.com must satisfy all regulatory requirements and obtain the approval of
all regulatory agencies having jurisdiction over the Exchange Offer. To
facilitate the regulatory review and approval process, Internet Capital Group
and eCredit.com have agreed to promptly make all necessary filings, seek all
required approvals of relevant regulatory agencies and use reasonable efforts
to take all actions necessary to complete the Exchange Offer. Accordingly, we
must make filings and other required submissions under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. We will also make any other
filings or submissions and seek the approval of all other applicable regulatory
agencies. This includes our prompt compliance with requests by these agencies
for additional information or documentation following our initial filings or
submissions.
Furthermore, we will each make reasonable efforts to resolve objections
to the Exchange Offer raised by regulatory agencies. We will also consult with
each other regarding appropriate responses to requests from regulatory
agencies. Internet Capital Group and eCredit.com have agreed, however, that
neither is required to litigate or contest any action prohibiting the
consummation of the Exchange Offer beyond the earlier to occur of (i) July 15,
2000 or (ii) the date of a ruling preliminarily enjoining the Exchange Offer by
a court of competent jurisdiction.
Amendment to Certificate of Incorporation and Bylaws
eCredit.com will, no later than the date of closing of the Exchange
Offer, amend its Certificate of Incorporation and Bylaws.
No Solicitation
Until the closing contemplated by the Exchange Offer Agreement,
eCredit.com and the holders of eCredit.com Shares who are parties to the
Exchange Offer Agreement will not solicit, initiate, knowingly encourage, agree
to, approve or recommend, engage in negotiations or discussions concerning,
provide any non-public information to any person or entity relating to, any
inquiries or proposals that constitute, or could reasonably be expected to lead
to, a proposal or offer for a merger, consolidation, business combination, sale
of all or a material portion of the assets, sale of shares of capital stock or
any similar transaction involving eCredit.com or its business, other than the
transactions contemplated by the Exchange Offer Agreement. eCredit.com and the
Stockholders have agreed to notify Internet Capital Group immediately if they,
or their representatives, receive any such proposal.
Additional Shares in Connection with Initial Public Offering
If eCredit.com consummates an initial public offering of its common
stock, it must offer to Internet Capital Group the opportunity to purchase in a
private placement up to 33% of the common stock to be offered by eCredit.com in
the public offering at the same price as that at which shares are offered to
the public. Internet Capital Group has committed to purchase in the private
placement at least 13% of the shares offered by eCredit.com in the initial
public offering.
Acceleration of Options
Prior to the expiration of the Exchange Offer, eCredit.com must
accelerate the vesting of its employees' and directors' options to purchase
eCredit.com Shares and eCredit.com Shares which are subject to
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vesting restrictions to allow each employee and director to tender 30% of his
or her total number of shares on a fully-diluted basis, including options and
restricted shares, in the Exchange Offer.
After the closing contemplated by the Exchange Offer Agreement,
eCredit.com must accelerate the vesting of its employees' options so that each
employee (excluding senior management employees) will have vested options to
purchase the same number of eCredit.com Shares that the employee had as of the
date of the Exchange Offer Agreement. eCredit.com's senior managers will have
the vesting of their options and restricted shares similarly accelerated
immediately prior to the closing of an initial public offering.
Additional Covenants
eCredit.com also has agreed that:
. except as specified in the Exchange Offer Agreement, it would not
issue any shares or rights in the shares of its capital stock; and
. its Board of Directors would, in accordance with Rule 14e-2 of the
Securities Exchange Act of 1934, as amended, issue a statement
recommending acceptance of the Exchange Offer.
The holders of eCredit.com Shares who are parties to the Exchange Offer
Agreement have agreed that they will not make any other transfers of their
eCredit.com Shares until the closing contemplated by the Exchange Offer
Agreement.
Indemnification
Subject to monetary and other limitations, the parties to the Exchange
Offer Agreement have indemnified each other for losses caused by the
indemnifying parties' misrepresentation or breach of warranty or failure or
breach of covenant or other agreement contained in the Exchange Offer Agreement
or any agreement or document delivered under the terms of the Exchange offer
Agreement.
Termination
The Exchange Offer Agreement may be terminated at any time prior to the
Exchange Offer:
. by mutual written agreement of Internet Capital Group and
eCredit.com;
. by either Internet Capital Group or eCredit.com, if the closing
contemplated by the Exchange Offer Agreement has not occurred by
July 1, 2000, and the terminating party is not in material breach
of the Exchange Offer Agreement, unless this Registration
Statement has not been declared effective by the staff of the
Securities and Exchange Commission on or prior to May 15, 2000, in
which case eCredit.com cannot terminate the Exchange Offer
Agreement until July 15, 2000;
. by either Internet Capital Group (if neither Internet Capital
Group nor ICG Holdings, Inc. is in material breach of the Exchange
Offer Agreement) or eCredit.com (if neither eCredit.com nor any
holders of eCredit.com Shares who are parties to the Exchange
Offer Agreement are in material breach of the Exchange Offer
Agreement) by written notice to the other party if either:
. any of the representations and warranties of eCredit.com or any
holders of eCredit.com Shares who are parties to the Exchange
Offer Agreement or Internet Capital Group or ICG Holdings, Inc.
were incorrect when made or at any time thereafter or;
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. eCredit.com or any holders eCredit.com Shares who are parties
to the Exchange Offer Agreement or Internet Capital Group or
ICG Holdings, Inc. are in material breach of any of their
covenants or agreements in the Exchange Offer Agreement and the
breach continues uncured for 10 calendar days after written
notice of the breach;
. by either Internet Capital Group or eCredit.com, by written notice
to the other party, if a court of competent jurisdiction or a
governmental agency issues an order, decree or ruling or takes any
other action which permanently restrains, enjoins or otherwise
prohibits the Exchange Offer, and the action shall have become
final and non-appealable; or
. by eCredit.com, if Internet Capital Group's average closing price
(as defined in the Exchange Offer Agreement) decreases by more
than 30% as compared to an index of comparable stocks, consisting
of Ariba, Inc., Chemdex Corporation, Commerce One, Inc.,
FreeMarkets, Inc., Healtheon Corporation, pcOrder.com, Inc.,
Purchase Pro.com, Inc., SciQuest.com, Inc., VeriSign, Inc. and
VerticalNet, Inc.
If any party to the Exchange Offer Agreement terminates the agreement for
of any of the reasons above, all obligations of the parties will terminate and
there will be no liability, except for liability for breaches of the Exchange
Offer Agreement, by any party. Some of the representations and warranties made
by the parties will survive any termination of the Exchange Offer Agreement.
Expiration Date; Extension; Amendments
The Exchange Offer expires at 11:59 p.m. New York city time, on [20th
business day following commencement of Offer], 2000, or the Expiration Date
unless we decide to extend the Exchange Offer in the event that our closing
conditions have not been satisfied or waived, or if required by the securities
laws.
Under the Exchange Offer Agreement, Internet Capital Group has the right,
in its sole discretion, to modify and make changes to the terms and conditions
of the Exchange Offer. Internet Capital Group must, however, obtain the prior
consent of eCredit.com, to make modifications or changes which:
. decrease the consideration payable in the Exchange Offer (except
as permitted by the Exchange Offer Agreement);
. change the form of consideration payable in the Exchange Offer
(other than by adding consideration);
. change the minimum or maximum number of eCredit.com Shares the
holders must tender;
. change the conditions to the Exchange Offer in a manner adverse to
the holders of eCredit.com Shares who are parties to the Exchange
Offer;
. impose additional material conditions to the Exchange Offer
(except for additional consideration payable to the holders of
eCredit.com Shares); or
. are otherwise inconsistent with the terms of the Exchange Offer
Agreement.
Internet Capital Group may, without the consent of eCredit.com:
. extend the Exchange Offer at any time or from time to time as
Internet Capital Group may determine in its sole discretion if at
the then scheduled Expiration Date any of the conditions to
Internet Capital Group's obligations to accept have not been
satisfied or waived (Internet Capital Group may set the time
period for each extension, but no extension will exceed 10
business days); and
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. extend the Exchange Offer for any period of time required by any
rule, regulation, interpretation or position of the Securities and
Exchange Commission or its staff applicable to the Exchange Offer
(including any extension necessary to permit this Registration
Statement to become effective).
Any extension, delay, waiver, amendment or termination of the Exchange
Offer will be promptly followed by a public announcement. The announcement of
an extension will be issued no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date in accordance
with Rule 14e-1(d) under the Securities and Exchange Act of 1934 as amended, or
the Exchange Act, which requires that material changes be promptly communicated
to holders of securities. Subject to applicable law and without limiting
Internet Capital Group's obligation under the Rule or the way in which Internet
Capital Group may choose to make any public announcement, Internet Capital
Group will communicate the extension by making a press release to an
appropriate news agency.
If Internet Capital Group extends the Exchange Offer, or if Internet
Capital Group (whether before or after its acceptance for exchange of
eCredit.com Shares) is delayed in its exchange or is unable to exchange Common
Stock for eCredit.com Shares for any reason, then, without prejudice to
Internet Capital Group's rights under the Exchange Offer, the exchange agent
may retain tendered eCredit.com Shares on behalf of Internet Capital Group, and
holders of those shares may not withdraw them except in accordance with the
procedures in "The Exchange Offer-Withdrawal Rights." The ability of Internet
Capital Group to delay the exchange is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by, or on behalf of, holders of securities
promptly after the termination or withdrawal of the Exchange Offer.
If Internet Capital Group makes a material change in the terms of the
Exchange Offer or the information concerning the Exchange Offer or waives a
material condition of the Exchange Offer, Internet Capital Group will
disseminate additional tender Exchange Offer materials and extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act. The minimum
period during which the Exchange Offer must remain open following material
changes in the terms of the Exchange Offer or information concerning the
Exchange Offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. In a
public release, the Commission has stated its view that an exchange offer must
remain open for a minimum period of time following a material change in the
terms of the exchange offer and that waiver of a material condition, such as
the minimum number of eCredit.com Shares the holders must tender, is a material
change in the terms of such exchange offer. The release states that an exchange
offer should remain open for a minimum of five business days from the date a
material change is first published, or sent or given to securityholders and
that, if material changes are made with respect to information not materially
less significant than the exchange offer price and the number of shares being
sought, a minimum of ten business days may be required to allow adequate
dissemination and investor response. The requirement to extend the exchange
offer does not apply if the number of business days remaining between the
occurrence of the change and the then scheduled expiration date equals or
exceeds the minimum extension period that would be required because of the
change. If, prior to the Expiration Date, Internet Capital Group increases the
consideration offered to holders of eCredit.com Shares under the Exchange
Offer, the increased consideration will be paid to all holders whose
eCredit.com Shares are accepted in the Exchange Offer whether or not they were
tendered prior to the announced increase.
eCredit.com has provided Internet Capital Group with eCredit.com's
securityholder lists and security position listings for the purpose of
disseminating the Exchange Offer to securityholders. This Exchange Offer, the
related Letter of Transmittal and other relevant documents will be mailed to
record holders of eCredit.com whose names appear on eCredit.com's
securityholder lists.
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Period for Tendering eCredit.com Shares
Upon the terms and subject to the conditions in this Prospectus and in
the accompanying Letter of Transmittal (which together constitute the Exchange
Offer), we will accept for exchange eCredit.com Shares which are properly
tendered and not withdrawn as permitted below on or prior to the Expiration
Date.
This Prospectus, together with the Letter of Transmittal, is first being
sent on or about , 2000 to all holders of eCredit.com Shares known to us.
Our obligation to accept eCredit.com Shares for exchange under the Exchange
Offer is subject to conditions as set forth under "Conditions to Exchange
Offer" above.
If there is an extension of the Exchange Offer during any extension, all
eCredit.com Shares previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by us. Any eCredit.com Shares not
accepted for exchange for any reason will be returned without expense to the
tendering holder as promptly as practicable after the expiration or termination
of the Exchange Offer.
Holders of eCredit.com Shares do not have any appraisal or dissenter's
rights under the Delaware General Corporation Law in connection with the
Exchange Offer.
Procedures for Tendering eCredit.com Shares
The tender to us of eCredit.com Shares by a holder of eCredit.com Shares
as set forth below and the acceptance of the tender by us will constitute a
binding agreement between the tendering holder and us upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
eCredit.com Shares for exchange under the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by the Letter of Transmittal, to the exchange agent on or
prior to the Expiration Date. In addition, the exchange agent must receive
certificates for the eCredit.com Shares along with the Letter of Transmittal.
The method of delivery of the eCredit.com Shares, the Letter of
Transmittal and all other required documents is at your election and risk. If
the delivery is by mail, we recommend that you use registered mail, properly
insured, with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. You should not send Letters of
Transmittal or eCredit.com Shares to us.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the eCredit.com Shares surrendered for
exchange are tendered:
. by a registered holder of the eCredit.com Shares who has not
completed the box entitled "Special Issuance Instruction" or
"Special Delivery Instruction" on the Letter of Transmittal; or
. for the account of a firm which is a member of a registered
national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United
States.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantees
must be by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
by a commercial bank or trust company having an office or correspondent in the
United States. If the eCredit.com Shares are registered in the name of a person
other than a signer of the Letter of Transmittal, the eCredit.com Shares
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of
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transfer or exchange, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder with the signature on the
eCredit.com Shares guaranteed by a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States unless the holder is a firm which is a
member of a registered national securities exchange or a member of the National
association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States. We shall be deemed to
have accepted properly tendered eCredit.com Shares for exchange when, as and if
we have given oral and written notice to the exchange agent.
In all cases, issuance of shares of Common Stock for eCredit.com Shares
that are accepted for exchange under the Exchange Offer will be made only after
timely receipt by the exchange agent of:
. certificates for the eCredit.com Shares;
. a properly completed and duly executed Letter of Transmittal; and
. all other required documents.
If any tendered eCredit.com Shares are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if eCredit.com
Shares are submitted for a greater amount than the holder desires to exchange,
the unaccepted or non-exchanged eCredit.com Shares will be returned without
expense to the tendering holder of the eCredit.com Shares as promptly as
practicable after the Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the eCredit.com Shares tendered for exchange will be
determined by us in our sole discretion. This determination shall be final and
binding. We reserve the absolute right to reject any and all tenders of any
particular eCredit.com Shares not properly tendered or to not accept any
particular eCredit.com Shares which acceptance might, in our judgment or our
counsel's judgment, be unlawful. We also reserve the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular eCredit.com Shares either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender eCredit.com Shares in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular eCredit.com
Shares either before or after the Expiration Date (including the Letter of
Transmittal and the instructions to the letter of Transmittal) by us shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of eCredit.com Shares for exchange must be cured
within a reasonable period of time as we shall determine. Neither we, the
exchange agent nor any other person shall be under any duty to give
notification of any defect or irregularity regarding any tendered eCredit.com
Shares for exchange, nor shall any of them incur any liability for failure to
give notification.
If the Letter of Transmittal or any eCredit.com Shares or powers of
attorney are signed by trustees, executors, administrators, guardians,
attorney-in-fact, officers of corporations or others acting in fiduciary or
representative capacity, these persons should so indicate when signing, and,
unless waived by us, proper evidence satisfactory to us of their authority to
so act must be submitted.
By tendering, each holder of eCredit.com Shares will represent to us in
writing that, among other things:
. the Common Stock acquired under the Exchange Offer is being
obtained in the ordinary course of business of the holder and any
beneficial holder;
. neither the holder nor any beneficial holder has an arrangement or
understanding with any person to participate in the distribution
of the Common Stock; and
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. neither the holder, nor any beneficial holder is an "affiliate,"
as defined under Rule 405 of the Securities Act, of our company.
If the holder is not a broker-dealer, the holder must represent
that it is not engaged in nor does it intend to engage in
distribution of the Common Stock.
If any holder or any beneficial holder is an "affiliate," as defined
under Rule 405 of the Securities Act, of ours, or is engaged in, or intends to
engage in, or has an arrangement or understanding with any person to
participate in, a distribution of the shares of Common Stock to be acquired
under the Exchange Offer, the holder or any other person (1) may not rely on
the applicable interpretation of the staff of the Securities and Exchange
Commission and (2) must comply with the registration and Prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Procedures for Distributing Internet Capital Group Common Stock
Unless another option has been selected by a holder of eCredit.com Shares
in accordance with the Letter of Transmittal, the exchange agent will send
certificates representing the shares of Common Stock via a reputable overnight
courier within five to seven days of the closing contemplated by the Exchange
Offer Agreement.
Return of eCredit.com Shares
If any tendered eCredit.com Shares are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer, the tendered
eCredit.com Shares will be returned without expense to the tendering holder of
the shares.
Withdrawal Rights
Tenders of eCredit.com Shares may be withdrawn at any time prior to the
closing of the Exchange Offer unless you are a holder of eCredit.com Shares
that has already agreed with us in writing not to withdraw your eCredit.com
Shares. For a withdrawal to be effective, a written notice of withdrawal must
be received by the exchange agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must:
. specify the name of the person having tendered the eCredit.com
Shares to be withdrawn;
. identify the eCredit.com Shares to be withdrawn (including the
certificate number of eCredit.com Shares); and
. where certificates for eCredit.com Shares have been transmitted
specify the name in which the eCredit.com Shares are registered,
if different from that of the withdrawing holder.
If certificates for eCredit.com Shares have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States unless the holder is a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States.
Acceptance of eCredit Shares and Delivery of Common Stock
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, we will accept, promptly after the Expiration Date, all eCredit.com
Shares properly tendered and not withdrawn, up to a maximum
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amount of [9,239,559] eCredit.com Shares, and will issue the Common Stock
promptly after acceptance of the eCredit.com Shares. See "Conditions to
Exchange Offer" above. For purposes of the Exchange Offer, we shall be deemed
to have accepted properly tendered eCredit.com Shares for exchange when, as and
if we have given oral and written notice to the exchange agent.
Ancillary Agreements Entered into in Connection with the Exchange Offer
Agreement
Third Amended and Restated Stockholders Agreement
At the time of the closing contemplated by the Exchange Offer Agreement,
eCredit.com, Internet Capital Group and certain stockholders of eCredit.com
will enter into a Third Amended and Restated Stockholders Agreement (the
"Shareholders Agreement"), containing agreements among them regarding the
capital stock and corporate governance of eCredit.com.
The Shareholders Agreement contains provisions which, with some
exceptions, restrict the ability of the shareholders to transfer any
eCredit.com Shares and options, rights and convertible securities exercisable
for or convertible into eCredit.com Shares (the "Securities"). If any party to
the Shareholders Agreement other than Internet Capital Group proposes to sell
(prior to an initial public offering of the capital stock of eCredit.com) any
Securities, the seller must first offer to the other shareholders and
eCredit.com the opportunity to purchase the Securities, in the manner
prescribed in the Shareholders Agreement. Subject to certain limitations, none
of the shareholders may sell any of their Securities without offering certain
other shareholders, including Internet Capital Group and other significant
shareholders, a pro rata opportunity to participate in the sale. If holders of
2/3 of the capital stock of eCredit.com held by Internet Capital Group and
other significant shareholders approve the sale of eCredit.com, each
shareholder has agreed to consent to the sale, and if the sale includes the
sale of stock, each shareholder has agreed to sell all of the shareholder's
Securities on the terms and conditions approved by the holders of 2/3 of the
capital stock of eCredit.com.
According to the Shareholders Agreement, the board of directors of
eCredit.com must be composed of nine directors to be composed as follows:
eCredit.com's chief executive officer; three directors designated by Internet
Capital Group (subject to reduction based on Internet Capital Group's ownership
of eCredit.com capital stock); and five directors designated by the significant
shareholders having at least 50% of the voting power of the shares held by the
significant shareholders.
Third Amended and Restated Rights Agreement
At the time of the closing contemplated by the Exchange Offer Agreement,
eCredit.com, Internet Capital Group and other shareholders of eCredit.com will
enter into a Third Amended and Restated Rights Agreement (the "Rights
Agreement"). According to the Rights Agreement, upon the request of the parties
to the Rights Agreement who hold a majority of the total shares owned by the
parties to the Rights Agreement, eCredit.com will, on up to four occasions,
prepare and file a registration statement with the Securities and Exchange
Commission concerning the distribution of all or part of the shares held by
them and use its best efforts to cause the registration statement to become
effective. If at any time eCredit.com files a registration statement for the
eCredit.com Shares because of a request of the parties to the Rights Agreement,
eCredit.com will use its best efforts to allow all parties to the Rights
Agreement to have their shares included in the registered offering of
eCredit.com Shares. eCredit.com also will use its best efforts to allow all
parties to the Rights Agreement to have their shares included in a registered
offering of any of its securities for sale to the public (other than offerings
under registration statements on Form S-8 or S-4 or similar forms not available
for registering the shares held by the parties to the Rights Agreement). If the
sale is pursuant to an underwritten public offering of the common stock of
eCredit.com, the number of shares owned by the parties to the Rights Agreement
that would be covered by that registration statement may be reduced. The Rights
Agreement also contains restrictions on transfers by the parties.
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Post IPO Agreement
At the time of the closing contemplated by the Exchange Offer Agreement,
eCredit.com, Internet Capital Group and certain stockholders of eCredit.com
also will enter into a Post IPO Agreement (the "IPO Agreement"), containing
agreements among them regarding the capital stock and corporate governance of
eCredit.com. from and after the completion of an initial public offering of the
common stock of eCredit.com.
The IPO Agreement contains provisions which, with some exceptions,
restrict the ability of the shareholders who are parties to the IPO Agreement
to transfer any Securities. For a period of 24 months following the completion
of an initial public offering, if any party to the IPO Agreement who owns more
than 1% of the capital stock of eCredit.com other than Internet Capital Group
proposes to sell any Securities, the seller must first offer to Internet
Capital Group the opportunity to purchase the Securities, in the manner
prescribed in the IPO Agreement.
According to the IPO Agreement, the board of directors of eCredit.com
must include one director designated by Internet Capital Group until Internet
Capital Group and its affiliates no longer own five percent or more of the
capital stock of eCredit.com for an uninterrupted period of not less than 20
business days.
Common Stock Purchase Warrant
At the time of the closing contemplated by the Exchange Offer Agreement,
eCredit.com will grant ICG Holdings, Inc. ("Holdings") a Common Stock Purchase
Warrant, which entitles Holdings to purchase eCredit.com's common stock in
accordance with its terms.
The Warrant permits Holdings to purchase 5% of eCredit.com's common stock
on a fully diluted basis, calculated as of the closing contemplated by the
Exchange Offer Agreement. Holdings may exercise the Warrant in part from time
to time or in its entirety beginning on the effective date of a registration
statement filed to register eCredit.com's common stock in an initial public
offering until the fourth anniversary of the effective date. Holdings may
exercise its purchase rights under the Warrant before the effective date if a
change of control of eCredit.com occurs prior to an initial public offering.
The Warrant provides a formula for determining what Holdings' purchase price
for the eCredit.com common stock will be.
Exchange Agent
ChaseMellon Shareholder Services has been appointed as exchange agent for
the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the exchange agent addressed as follows:
Attn: Reorganization Department
P.O. Box 3301
South Hackensack, NJ 07606
Call Toll Free:
(800) 777-3674
Fees and Expenses
Each party to the Exchange Offer Agreement will bear its own expenses
incurred in connection with the Exchange Offer. Internet Capital Group and
eCredit.com, however, will share equally any filing fees under the Hart-Scott-
Rodino Antitrust improvements Act of 1976, as amended, and eCredit.com will
bear legal expenses of any holder of eCredit.com Shares who are parties to the
Exchange Offer Agreement in connection with the negotiation and execution of
the Exchange Offer Agreement (not to exceed $10,000 for a single stockholder or
$100,000 in the aggregate).
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The exchange agent will receive reasonable and customary compensation for
its services and will be indemnified against certain liabilities and expenses
in connection with the performance of its services, including certain
liabilities under the federal securities laws. We will not pay any fees or
commissions to any broker or dealer or other persons for soliciting tenders of
eCredit.com Shares pursuant to the Exchange Offer. We will reimburse brokers,
dealers, commercial banks and trust companies for reasonable expenses incurred
by them in forwarding material to their customers.
We will pay the cash expenses to be incurred in connection with the
Registration Statement and both Exchange Offers being done as part of this
Registration Statement, which are estimated in the aggregate to be
approximately 1,250,000. These expenses include registration fees, fees and
expenses of the exchange agent, accounting and legal fees and printing costs,
among others.
Participation in the Exchange Offer is voluntary. Holders of the
eCredit.com Shares are urged to consult their financial and tax advisors in
making their own decisions on what action to take.
Accounting Treatment
We will account for the eCredit.com Shares which we acquire pursuant to
our Exchange Offer under the purchase method of accounting.
Consequences Of Failure To Exchange; Resales Of Common Stock
Holders of eCredit.com Shares who do not exchange their eCredit.com
Shares for Common Stock in the Exchange Offer will continue to be subject to
the restrictions on transfer as a consequence of the issuance of the
eCredit.com Shares in accordance with exemptions from, or in transactions not
subject to, the registration requirements of, the Securities Act and applicable
state securities laws. Holders of eCredit.com Shares do not have any appraisal
or dissenters' rights under the Delaware General Corporation Law in connection
with the Exchange Offer. In general, the eCredit.com Shares may not be offered
or sold unless registered under the Securities Act, except in accordance with
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain federal income tax consequences of
the Exchange Offer. This summary may not apply to certain classes of persons,
including, without limitation, foreign persons, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who
acquired eCredit.com Shares pursuant to the exercise of employee stock options
or rights or otherwise as compensation and persons who hold eCredit.com Shares
as part of a straddle or conversion transaction. This summary is based upon
laws, regulations rulings and decisions, all of which are subject to change
(possibly with retroactive effect), and no ruling has been or will be requested
from the Internal Revenue Service (the "Service") on the tax consequences of
the Exchange Offer.
We have not and will not seek any rulings or opinions from the Internal
Revenue Service with respect to the matters discussed below. There can be no
assurance that the Internal Revenue Service will not take positions about the
tax treatment of the Exchange Offer or the securities which are different from
those that we discuss.
This summary does not address state, local or foreign tax consequences of
the Exchange Offer. Consequently, each holder should consult such holder's own
tax advisor as to the specific tax consequences of the Exchange Offer to such
holder.
General
The following is a general summary regarding the material U.S. Federal
income and estate tax aspects of the Exchange Offer and the ownership and
disposition of the Common Stock. This discussion contains general information
only and is limited in the following ways:
. The discussion only covers holders of the Common Stock that
receive the Common Stock in the Exchange Offer.
. The discussion only covers persons that hold both the eCredit.com
Shares and the Common Stock as capital assets (that is, for
investment purposes), and that do not have a special tax status.
. The discussion covers only the general tax consequences to holders
of the securities. It does not cover tax consequences that depend
upon a holder's individual tax circumstances.
. The discussion is based on current law. Changes in the law may
change the tax treatment of the Exchange Offer and the securities
on a prospective or retroactive basis.
. The discussion is limited to U.S. holders, which includes:
. a citizen or resident of the United States;
. a corporation or other entity taxable as a corporation
created or organized under U.S. law (Federal or state);
. an estate the income of which is subject to U.S. Federal
income taxation regardless of its sources;
. a trust if a U.S. court is able to exercise primary
jurisdiction over administration of the trust and one or
more U.S. persons have authority to control all
substantial decisions of the trust; or
. any other person whose worldwide income and gain is
otherwise subject to U.S. Federal income taxation on a
net basis.
. The discussion does not cover state, local or foreign law.
. The discussion does not apply to holders owning 10% or more of our
voting stock, or corporate holders that are controlled foreign
corporations with respect to us.
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This discussion does not purport to deal with all aspects of federal taxation
that may be relevant to the decision to exchange eCredit.com Shares for Common
Stock. Each investor should consult with its own tax advisor concerning the
application of the federal tax laws and other laws to its particular situation
before determining whether to exchange eCredit.com Shares for Common Stock.
Tax Consequences to U.S. Holders
The Exchange Offer
Your exchange of eCredit.com Shares for Common Stock in the Exchange
Offer will be a taxable event. Accordingly, if you exchange your eCredit.com
Shares for Common Stock pursuant to the Exchange Offer:
. you will recognize capital gain or loss in connection with the
exchange in an amount equal to the difference between the fair
market value of the Common Stock received and any cash received in
lieu of a fractional share and your tax basis in your eCredit.com
Shares surrendered in the exchange;
. you will have a tax basis in the Common Stock equal to the fair
market value of the Common Stock on the Expiration Date;
. any capital gain or loss that you recognize will be long-term
capital gain or loss if you held the eCredit.com Shares for more
than one year; and
. your holding period for the Common Stock that you receive will
begin on the day following the date of the exchange.
Information Reporting and Backup Withholding
The payment of cash in lieu of a fractional share of eCredit.com Shares
may be subject to the information reporting and backup withholding rules. If
you do not provide the exchange agent with your taxpayer identification number
in connection with the Exchange Offer, you may be subject to a penalty and the
exchange agent may be required to withhold up to 31% of any cash payments.
Backup withholding is not an additional tax. The tax liability of persons
subject to backup withholding will be reduced by the amount of the tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service. You should consult your tax advisor about the tax rules
concerning information reporting requirements and backup withholding.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH
HOLDER OF ECREDIT.COM SHARES THAT EXCHANGES ECREDIT.COM SHARES FOR COMMON STOCK
IN THE EXCHANGE OFFER SHOULD CONSULT WITH ITS OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES (INCLUDING APPLICABLE STATE, LOCAL AND FOREIGN TAX
LAWS) TO SUCH HOLDER OF THE EXCHANGE OFFER AND THE OWNERSHIP AND DISPOSITION OF
THE COMMON STOCK.
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PLAN OF DISTRIBUTION
The shares covered hereby may be offered and sold from time to time by
the selling stockholders, or by their pledgees, donees, transferees or other
successors in interest. Such sales may be made in the over-the-counter market
or otherwise, at prices and under terms then prevailing or at prices related to
the then current market price or in negotiated transactions, including pursuant
to one or more of the following methods:
. purchases by a broker-dealer as principal and resale by such broker-
dealer for its own account pursuant to this prospectus;
. ordinary brokerage transactions and transactions in which the broker
solicits purchasers;
. block trade in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
. an over-the-counter distribution in accordance with the rules of the
Nasdaq National Market; and
. in privately negotiated transactions.
To the extent required but only for so long as we have agreed to keep
this prospectus effective, this prospectus may be amended and supplemented from
time to time to describe a specific plan of distribution. In connection with
distributions of the shares or otherwise, the selling stockholders may enter
into hedging transactions with broker-dealers or other financial institutions.
In connection with such transactions, broker-dealers or other financial
institutions may engage in short sales of the common stock in the course of
hedging the positions they assume with selling stockholders. The selling
stockholders may also sell the common stock short and redeliver the shares to
close out such short positions. The selling stockholders may also enter into
option or other transactions with broker-dealers or other financial
institutions that require the delivery to such broker-dealer or other financial
institution of shares offered by this prospectus, which shares such broker-
dealer or financial institution may resell pursuant to this prospectus (as
supplemented or amended to reflect such transaction). The selling stockholders
may also pledge shares to a broker-dealer or other financial institution, and,
upon a default, such broker-dealer or other financial institution may effect
sales of the pledged shares pursuant to this prospectus (as supplemented or
amended to reflect such transaction). In addition, any shares that qualify for
sale pursuant to Rule 144 or Rule 145 will be sold under Rule 144 or Rule 145
rather than pursuant to this prospectus.
In effecting sales, broker-dealers or agents engaged by the selling
stockholders, or by their pledgees, donees, transferees or other successors in
interest, may arrange for other broker-dealers to participate. Broker-dealers
or agents may receive commissions, discounts or concessions from the selling
stockholders, or from their pledgees, donees, transferees or other successors
in interest in amounts to be negotiated immediately prior to the sale.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 13, 2000
OFFER TO EXCHANGE
up to 6,471,251 Shares
of Common Stock of Internet Capital Group, Inc.
for Series B Preferred Shares of RightWorks Corporation
THE EXCHANGE OFFER AND
WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M.,
NEW YORK CITY TIME ON , 2000, UNLESS EXTENDED.
-----------
Terms of the exchange offer:
--We will exchange shares of our common stock for shares of Series B
Preferred Stock of RightWorks Corporation that are properly tendered
and not withdrawn prior to the exchange offer's expiration.
--As a condition to this offer prior to closing, RightWorks Corporation
will amend its articles of incorporation to reclassify all outstanding
shares of preferred stock of RightWorks Corporation into shares of
Series B Preferred Stock of RightWorks Corporation.
--Unless you already agreed with us in writing not to withdraw your
shares of Series B Preferred Stock of RightWorks Corporation, you may
withdraw tenders of those shares at any time prior to the expiration of
the exchange offer.
--We believe the exchange should not be a taxable event for U.S. federal
income tax purposes.
--We will not receive any proceeds from the exchange offer, but we will
receive at least a 50% equity ownership interest in RightWorks
Corporation. No underwriter is being used for the exchange offer.
INTERNET CAPITAL GROUP, INC., a Delaware corporation, offers to exchange a
number of shares of Internet Capital Group's common stock, par value $.001 per
share, for properly tendered shares of common stock, par value $.001 per share,
of RightWorks Corporation, a California corporation, equal to an exchange
ratio. The exchange ratio will be calculated at the time of the exchange offer
as set forth in this Prospectus and the related Letter of Transmittal based on
the number of shares of RightWorks common stock immediately prior to the
consummation of the exchange offer.
Our common stock is listed and principally traded on the Nasdaq National
Market under the symbol "ICGE". The common stock to be issued pursuant to the
exchange offer has been registered under the Securities Act of 1933, as
amended.
Investing in our Common Stock involves risks. See "Risk Factors" starting
on Page 10.
In those jurisdictions where securities, blue sky or other laws require the
exchange offer to be made by a licensed broker or dealer, the exchange offer
shall be deemed to be made on behalf of Internet Capital Group by one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed on the
adequacy or accuracy of this Prospectus. Any representation to the contrary is
a criminal offense.
The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
The date of this Prospectus is , 2000
<PAGE>
GLOSSARY OF TERMS
"Common Stock"................... Internet Capital Group's common stock, par
value $.001 per share
"Exchange Offer"................. Internet Capital Group Inc. Prospectus and
Letter of Transmittal
"Exchange Ratio"................. exchange ratio set forth in the Prospectus
and Letter of Transmittal
"Expiration Date"................ date upon which the Exchange Offer expires
"Internet Capital Group" or the
"Company"....................... Internet Capital Group, Inc.
"Letter of Transmittal".......... related letter of transmittal for this
Prospectus
"Prospectus"..................... the prospectus for this offer
"Registration Statement"......... registration statement of which the
Prospectus is a part
"RightWorks"..................... RightWorks Corporation
"RightWorks Series B Preferred
Shares"......................... RightWorks Series B Preferred Stock, par
value $.001 per share
"Securities Act"................. Securities Act of 1933, as amended
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 10
Forward-Looking Statements............................................... 25
Use of Proceeds.......................................................... 25
Dividend Policy.......................................................... 25
Comparative Per Share Data............................................... 26
Price Range of Common Stock.............................................. 27
Capitalization........................................................... 28
Internet Capital Group, Inc. Unaudited Pro Forma Information............. 31
Selected Consolidated Financial Data..................................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 39
Internet Capital Group................................................. 39
eCredit.com............................................................ 57
RightWorks............................................................. 64
Internet Capital Group's Business........................................ 70
eCredit.com's Business................................................... 92
RightWorks' Business..................................................... 93
Management............................................................... 94
Certain Transactions..................................................... 112
Principal Shareholders of Internet Capital Group......................... 117
Security Ownership of eCredit.com Principal Stockholders and eCredit.com
Management.............................................................. 119
Security Ownership of RightWorks Principal Stockholders and RightWorks
Management.............................................................. 123
Description of Internet Capital Group Capital Stock...................... 125
Comparison of Stockholder Rights......................................... 129
The Exchange Offer....................................................... 135
Shares Eligible for Future Sale.......................................... 152
United States Federal Income Tax Considerations.......................... 153
Legal Matters............................................................ 157
Experts.................................................................. 157
Where You Can Find More Information...................................... 158
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
THE EXCHANGE OFFER
Terms of the Exchange
Offer...................... We are offering to exchange shares of our Common
Stock for each properly tendered and not
withdrawn RightWorks Series B Preferred Share.
See "The Exchange Offer--Terms of the Exchange
Offer."
Purpose of the Exchange
Offer...................... As a result of the Exchange Offer, we will
acquire an equity ownership interest in
RightWorks equal to at least 50% of the capital
stock of RightWorks, on a fully diluted basis.
Expiration Date;
Withdrawal of Tender....... The Exchange Offer expires at 11:59 p.m., New
York city time, on [20th business day following
commencement of offer], 2000, unless we extend
the expiration date. You must tender your
RightWorks Series B Preferred Shares prior to the
Expiration Date if you wish to participate. You
may withdraw your tender of RightWorks Series B
Preferred Shares under the Exchange Offer at any
time prior to the Expiration Date unless you have
already agreed with us in writing not to withdraw
your shares. Any RightWorks Series B Preferred
Shares not accepted for exchange for any reason
will be returned without expense to its tendering
holder as promptly as practicable after the
Expiration Date.
Conditions to the Exchange
Offer...................... Our obligation to accept for exchange, or to
issue Common Stock in exchange for, any tendered
RightWorks Series B Preferred Shares is subject
to the satisfaction or waiver of conditions,
including the condition that we will own at least
50% of RightWorks' capital stock, on a fully
diluted basis, at the closing of the Exchange
Offer, and other customary conditions relating to
the receipt of any applicable governmental or
third party approvals and the absence of any
actions or proceedings of any governmental agency
or court which could materially impair our
ability to consummate the Exchange Offer. We
currently expect that each of the conditions will
be satisfied and that no waivers will be
necessary. See "The Exchange Offer--Conditions to
the Exchange Offer."
Procedures for Tendering
RightWorks Series B
Preferred Shares........... If you wish to accept the Exchange Offer and
tender your RightWorks Series B Preferred Shares,
you must tender them, complete, sign and date the
Letter of Transmittal, or a facsimile of the
Letter of Transmittal, in accordance with its
instructions and the instructions in this
Prospectus, and mail or otherwise deliver the
Letter of Transmittal, or the facsimile, together
with certificates(s) for your RightWorks Series B
Preferred Shares, and any other required
documentation to the exchange agent, at the
address noted below. See "The Exchange Offer--
Procedures for Tendering RightWorks Series B
Preferred Shares." To be eligible to receive
Common Stock under the Exchange Offer, you must
properly tender and not withdraw your RightWorks
Series B Preferred Shares on or prior to the
expiration date.
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Acceptance of the
RightWorks Series B
Preferred Shares........... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, we will accept
for exchange any and all RightWorks Series B
Preferred Shares that are properly tendered and
not withdrawn in the Exchange Offer prior to the
Expiration Date.
Delivery of Common Stock... The exchange agent will deliver shares of our
Common Stock and cash in lieu of fractional
shares as soon as practicable after acceptance of
RightWorks Series B Preferred Shares for
exchange. See "The Exchange Offer--Procedures for
Tendering RightWorks Series B Preferred Shares."
Additional Exchange of
Stock by Ms. Kola.......... If less than 50% of the capital stock of
RightWorks, on a fully diluted basis, has been
properly tendered and not withdrawn on or prior
to the Expiration Date, Ms. Kola will be required
to exchange a sufficient number of shares to us
to provide us with 50% of the capital stock of
RightWorks, on a fully diluted basis.
Withdrawal Rights.......... Subject to the conditions listed in this
Prospectus, you may withdraw tendered RightWorks
Series B Preferred Shares at any time on or
before the Expiration Date, unless you have
already agreed in writing with us not to withdraw
your RightWorks Series B Preferred Shares. See
"The Exchange Offer--Withdrawal Rights."
Governmental and
Regulatory Approvals....... We are required to comply with the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as
amended, and make all filings, submissions and
notifications thereunder.
Appraisal or Dissenters'
Rights..................... Holders of RightWorks Series B Preferred Shares
do not have any appraisal or dissenters' rights
under the California General Corporation Law in
connection with the Exchange Offer.
No Fractional Shares....... We will not distribute fractional shares of our
Common Stock. Instead, holders of RightWorks
Series B Preferred Shares who would otherwise be
entitled to receive a fractional share of our
Common Stock will be paid in cash in lieu of the
fractional share. See "The Exchange Offer--Terms
of the Exchange Offer."
Federal Income Tax
Consequences............... The RightWorks Exchange Offer is intended to
qualify for U.S. federal income tax purposes as a
reorganization within the meaning of section
368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). Assuming the RightWorks
Exchange Offer so qualifies, in general, no gain
or loss will be recognized by holders of
RightWorks Series B Preferred Shares with respect
to the exchange for Internet Capital Group Common
Stock, except with respect to cash received in
lieu of fractional shares, and no gain or loss
will be recognized by Internet Capital Group or
RightWorks. No ruling has been requested from the
Internal Revenue Service regarding the federal
income tax consequences of the RightWorks
Exchange Offer. It is a condition to RightWorks'
and Internet Capital Group's respective
obligations to
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consummate the RightWorks Exchange Offer that
they receive, from their respective legal
counsel, tax opinions to the effect that the
RightWorks Exchange Offer should constitute a
reorganization under the Code. All shareholders
of RightWorks are urged to consult their own tax
advisors as to the specific tax consequences to
them of the Exchange Offer. For a discussion of
federal income tax considerations relating to the
exchange of our Common Stock for the RightWorks
Series B Preferred Shares, see "United States
Federal Income Tax Considerations of the Exchange
Offer."
Exchange Agent............. ChaseMellon Shareholder Services is serving as
the Exchange Agent for the Exchange Offer. Its
telephone number is (800) 777-3674.
Failure to Exchange
RightWorks Series B
Preferred Shares........... We will issue the Common Stock in exchange for
RightWorks Series B Preferred Shares only after
timely receipt by the exchange agent of the
RightWorks Series B Preferred Shares
certificate(s), a properly completed and duly
executed Letter of Transmittal and all other
required documents. Therefore, if you desire to
tender your RightWorks Series B Preferred Shares
in exchange for our Common Stock, you should
allow sufficient time to ensure timely delivery.
Neither the exchange agent nor we are under any
duty to notify you of defects or irregularities
with respect to tenders of RightWorks Series B
Preferred Shares for exchange.
Lock-Up Registration....... Each share of our Common Stock issued to you in
exchange for your RightWorks Series B Preferred
Shares is subject to a lock-up restriction.
Pursuant to this lock-up restriction, as a
condition to the receipt of our Common Stock, 50%
of the shares of our Common Stock that you
receive in the Exchange Offer may not be sold,
transferred, hypothecated, pledged, be the
subject of an equity swap or similar agreement or
otherwise be transferred without our prior
written consent for a period of 90 days after the
closing of the Exchange Offer. The remaining 50%
of the shares of our Common Stock that you
receive in the Exchange Offer may be sold or
otherwise transferred 180 days after the closing
of the Exchange Offer.
Any questions regarding the Exchange Offer, including the procedure for
tendering shares in the Exchange Offer and/or the surrender of stock
certificates should be directed to the exchange agent as follows:
ChaseMellon Shareholder Services
P.O. Box 3301
South Hackensack, NJ 07606
Call Toll Free:
(800) 777-3674
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Exchange Ratio--Because the Exchange Ratio is based on the number of fully
diluted shares of RightWorks, it may vary until the date of its determination.
Upon completion of the Exchange Offer, RightWorks Series B Preferred
Shares will be exchanged for shares of Common Stock with the precise exchange
ratio to be determined in accordance with the Recapitalization and Exchange
Offer Agreement and Plan of Reorganization as described in "The Exchange
Offer--Terms of the Exchange Offer." At the time you tender your RightWorks
Series B Preferred Shares, you may not know the exact number of shares of
Common Stock you will receive when the Exchange Offer is completed.
Government Regulation--Our need for governmental approvals may delay
consummation of the Exchange Offer
The consummation of the Exchange Offer is conditioned upon the expiration
or termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976. In addition, other filings with
notifications to and authorizations and approvals of various governmental
agencies with respect to the Exchange Offer and the other transactions
contemplated by the Recapitalization and Exchange Offer Agreement relating
primarily to antitrust issues, must be made and received prior to the
consummation of the Exchange Offer. ICG and RightWorks are seeking to obtain
all required regulatory approvals prior to the scheduled completion of the
Exchange Offer.
You should be aware that:
.all required regulatory approvals may not be obtained on that
timetable;
. restrictions on the operations of ICG and RightWorks may be sought
by governmental agencies as a condition to obtaining such
approvals; and
.operating restrictions imposed could adversely affect the value of
ICG and RightWorks.
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COMPARISON OF STOCKHOLDER RIGHTS
Internet Capital Group is a corporation organized under the laws of the
State of Delaware. RightWorks Corporation is a corporation organized under the
laws of the State of California.
The following summary sets forth certain material differences between the
rights of Internet Capital Group stockholders and the rights of RightWorks
stockholders and is qualified in its entirety by reference to Internet Capital
Group's Certificate of Incorporation and Bylaws and RightWorks' Eleventh
Amended and Restated Articles of Incorporation and Bylaws, which are expected
to be amended immediately prior to the consummation of the transaction
contemplated by the Exchange Offer. The RightWorks' Amended Articles will
convert all issued and outstanding shares of RightWorks' several series of
Preferred Stock into RightWorks Series B Preferred Stock. Upon consummation of
the transaction contemplated by the Exchange Offer, the RightWorks Series B
Preferred shareholders that elect to tender their shares to Internet Capital
Group will become stockholders of Internet Capital Group, and these RightWorks
shareholders' rights will cease to be defined and governed by the California
General Corporation Law, and will instead be defined and governed by the
Delaware General Corporation Law.
Authorized Capital Stock
Our authorized capital stock currently consists of 300,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock.
The authorized capital stock of RightWorks consists of 100,000,000 shares
of Common Stock and 87,276,219 shares of Preferred Stock.
Voting Rights
Our holders of Common Stock have one vote per share. The Certificate of
Incorporation provides that each class of Common Stock is entitled to vote as a
class with respect to amendments to the Certificate of Incorporation that
adversely alter or change the powers, preferences or special rights of that
class of stock and with respect to other matters require class votes under
Delaware Law.
The RightWorks Articles of Incorporation provide that the holders of
RightWorks Class A Common Stock and Series A Preferred Stock have one vote per
share. The holders of RightWorks Series B Preferred Stock have that number of
votes as could be cast by the share(s) of Class B Common Stock into which
Series B Preferred Stock is convertible, provided that upon the consummation of
the exchange offer, the number of shares of Series B Preferred Stock tendered
and not withdrawn must constitute at least 80% of the total voting power of
RightWorks on a fully-diluted basis.
Preemptive Rights; Cumulative Voting
Our Certificate of Incorporation does not grant preemptive rights or
cumulative voting rights to its stockholders.
The RightWorks Articles of Incorporation do not grant preemptive rights.
The RightWorks Bylaws do grant cumulative voting rights to its stockholders.
Action by Written Consent of Stockholders
Our Certificate of Incorporation and Bylaws provide that shareholder
action can only be taken at an annual or special meeting of shareholders and
prohibits action by written consent in lieu of a meeting.
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The RightWorks Bylaws provide that shareholder action can be taken at an
annual or special meeting of shareholders or by written consent in lieu of a
meeting.
Special Meetings of Stockholders
Our Bylaws provide that special meetings of stockholders may be called
only by our Chief Executive Officer or by the Chairman or Vice Chairman of the
Board of Directors upon vote by a majority of the members of the Board. Our
shareholders are not permitted to call a special meeting of shareholders or to
require that our Board of Directors call a special meeting.
The RightWorks Bylaws provide that special meetings of stockholders may
be called by RightWorks' Chairman of the Board, by the President, by the Board
of Directors, or at the request in writing of the holders of not less than ten
percent of the shares of Common Stock of RightWorks issued and outstanding and
entitled to vote at the meeting.
Quorum and Voting Requirements for Stockholder Meetings
Our Bylaws state that a majority of the issued and outstanding stock of
Internet Capital Group entitled to vote at a meeting constitutes a quorum for
the transaction of business at the meeting. Where, under the Internet Capital
Group Bylaws, a quorum is present, the affirmative vote of a majority of shares
entitled to vote at the meeting on the subject matter is required to take
action on all matters other than the election of directors, who must be elected
by a plurality of shares entitled to vote at the meeting on the election of
directors.
The RightWorks Bylaws state that a majority of the shares entitled to
vote at a meeting shall constitute a quorum for the transaction of business at
the meeting. Where, under the RightWorks Bylaws, a quorum is present, the
affirmative vote of a majority of shares entitled to vote at the meeting on the
subject matter is required to take action in all matters.
Stockholder Proposals
Our Bylaws establish an advance notice procedure for our shareholders to
make nominations of candidates for election as directors or to bring other
business before an annual meeting of our shareholders. The advance notice
procedure provides that only persons who are nominated by, or at the direction
of, our Board of Directors or its Chairman, or by a shareholder who has given
timely written notice to our Secretary or any Assistant Secretary prior to the
meeting at which directors are to be elected, will be eligible for election as
our directors. The advance notice procedure also provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, our Board of Directors or its Chairman or
by a shareholder who has given timely written notice to our Secretary of the
shareholder's intention to bring such business before the meeting. Under the
advance notice procedure, if a shareholder desires to submit a proposal or
nominate persons for election as directors at an annual meeting, the
shareholder must submit written notice to Internet Capital Group not less than
90 days nor more than 120 days prior to the first anniversary of the previous
year's annual meeting. In addition, under the advance notice procedure, a
shareholder's notice to Internet Capital Group proposing to nominate a person
for election as a director or relating to the conduct of business other than
the nomination of directors must contain specified information. In the event
that the number of directors to be elected is increased and there is no public
announcement naming all of the nominees or specifying the size of the increase
at least 100 days before the first anniversary of the preceding year's annual
meeting, the notice as it relates to nominees will be considered timely if it
is delivered on the tenth day following the day on which the public
announcement is first made by Internet Capital Group. If the chairman of a
meeting determines that business was not properly brought before the meeting,
in accordance with the advance notice procedure, that business shall not be
discussed or transacted.
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The RightWorks Bylaws do not provide an advance notice procedure for the
purpose of making nominations of candidates for election of directors or to
bring other business before an annual meeting of its shareholders.
Board of Directors
The Internet Capital Group Board of Directors currently consists of six
directors who serve for three year terms. The number of directors on the
Internet Capital Group Board is subject to change by action of the Internet
Capital Group Board, but cannot be less than five nor more than nine (other
than directors elected by holders of our Preferred Stock), the exact number to
be fixed from time to time by resolution adopted by our directors.
The RightWorks Board of Directors currently consists of five directors.
An amendment to the Bylaws reducing the minimum number of directors to a number
less than five cannot be adopted if the votes cast against its adoption at a
meeting or the shares not consenting in the case of action by written consent
are equal to more than 16 2/3% of the outstanding shares entitled to vote.
Vacancies and Newly Created Directorships
Under the Internet Capital Group Bylaws, any vacancy or newly-created
directorship may be filled by the affirmative vote of a majority of the
remaining directors then in office, although less than a quorum, or by the sole
remaining director.
Under the RightWorks Bylaws, any vacancy, except for a vacancy caused by
the removal of a director, may be filled by the affirmative vote of a majority
of the remaining directors then in office, although less than a quorum, or by
the sole remaining director. Vacancies occurring in the Board of Directors by
reason of the removal of directors may be filled only by approval of the
shareholders. The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any election by written consent other than
to fill a vacancy created by removal shall require the consent of a majority of
the outstanding shares entitled to vote.
Limitation on Director's Liability
The Internet Capital Group Certificate of Incorporation provides that a
director's liability to the corporation is limited to the fullest extent of
Delaware General Corporation Law. A director shall not be personally liable for
monetary damages for his acts or omissions unless the director breached or
failed to perform his duties and the breach or failure constituted
recklessness, self-dealing or willful misconduct.
The RightWorks Articles of Incorporation provide that, to the fullest
extent permitted by the California General Corporation Law, a director shall
not be personally liable for monetary damages for a breach of fiduciary duty as
a director. California law does not permit the elimination of monetary
liability based on:
. intentional misconduct or knowing and culpable violation of law;
. acts or omissions that a director believes to be contrary to the
best interests of the corporation or its shareholders or that
involve the absence of good faith on the part of the director;
. receipt of an improper personal benefit;
. acts or omissions that show reckless disregard for the director's
duty to the corporation or its shareholders, where the director in
the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its
shareholders;
. acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty
to the corporation and its shareholders;
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. transactions between the corporation and a director who has a
material financial interest in the transaction; and
. liability for improper distributions, loans or guarantees.
Removal of Directors
The Internet Capital Group Certificate of Incorporation and its Bylaws
provide for the removal of directors for cause upon the approval of a majority
of the then outstanding stock entitled to vote generally in the election of
Directors.
Neither the RightWorks Articles of Incorporation nor the RightWorks
Bylaws contain provisions relating to the removal of directors. Under
California law, any director may be removed by declaration of the Board upon
conviction of a felony or declaration of unsound mind by an order of court. Any
or all of the directors of a California corporation may be removed without
cause if such removal is approved by the affirmative vote of a majority of the
outstanding shares; provided, however, that no director of such corporation may
be removed, unless the entire board of directors of such corporation is
removed, when the votes cast against removal, or not consenting in writing to
the removal, would be sufficient to elect the director if voted cumulatively at
an election at which the same total number of votes were cast, or, if the
action is taken by written consent, all shares entitled to vote were voted.
Indemnification
We have included in our Certificate of Incorporation and Bylaws
provisions to eliminate the personal liability of our directors for monetary
damages resulting from breaches of their fiduciary duty to the extent permitted
by the Delaware General Corporation Law, and to indemnify our directors and
officers to the fullest extent permitted by Section 145 of the Delaware General
Corporation Law, including circumstances in which indemnification is otherwise
discretionary. We believe that these provisions are necessary to attract and
retain qualified persons as directors and officers.
The RightWorks Bylaws provide that, to the fullest extent permitted by
the California General Corporation Law, each director or officer who is made a
party or is threatened to be made a party to or is involved in any action by
reason of the fact of his office with RightWorks or another entity on behalf of
RightWorks, shall be indemnified and held harmless by RightWorks to the fullest
extent permitted by the California General Corporation Law against all expense,
liability and loss. Under California law, a director or officer of the
corporation may only be indemnified if the director or officer is successful on
the merits in defense of any proceeding or in defense of any claim, issue or
matter therein. RightWorks believes that this level of indemnification is
necessary to attract and retain qualified persons as directors and officers.
Stockholder Approval of Business Combinations with Interested Stockholders
Under Section 203 of the Delaware General Corporation Law, we are
prohibited from engaging in a business combination, such as a merger or
takeover, with one of our interested stockholders for three years following the
date that the person becomes an interested stockholder. With some exceptions,
an interested stockholder is generally a person or group who or which owns 15%
or more of the corporation's outstanding voting stock, including any rights to
acquire stock pursuant to an option, warrant, agreement, arrangement or
understanding, or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only, or is an affiliate or
associate of the corporation and was the owner of 15% or more of such voting
stock at any time within the previous three years.
Under Section 1203 of the California General Corporation Law, RightWorks
is subject to specified conditions if it were to attempt a business combination
with a majority shareholder, but there is no
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equivalent provision to Section 203 of the Delaware General Corporation Law,
which addresses business combinations with a significant, but not majority
shareholder.
Stockholder Derivative Suits
Under Delaware law, a holder of Internet Capital Group stock may bring a
derivative action on behalf of the corporation only if the stockholder was a
stockholder of the corporation at the time of the transaction in question or
his or her stock thereafter devolved upon him or her by operation of law.
Delaware does not require a plaintiff shareholder to furnish a security bond
upon motion of the defendant in a stockholder derivative suit.
Under California law, a holder of RightWorks stock may bring a derivative
action on behalf of a corporation without having been a shareholder at the time
of the transaction in question, provided that certain requirements are
fulfilled. California law also provides that the corporation or the defendant
in a derivative suit may make a motion to the court for an order requiring the
plaintiff shareholder to furnish a security bond.
Appraisal/Dissenters' Rights
Under Delaware law, our stockholders are not entitled to appraisal or
dissenters' rights in the event of a merger or consolidation as we are listed
on a national securities exchange.
Under California law, RightWorks' shareholders are not entitled to
appraisal or dissenters' rights in the event of a merger or consolidation if
RightWorks is listed on a national securities exchange or on a list of over-
the-counter margin stocks issued by the Board of Governors of the Federal
Reserve System. An exception to this is if the holders of at least five percent
of the class of outstanding shares claim the right of appraisal or dissent.
Inspection of Stockholders/Shareholders List Rights
Under Delaware law, an Internet Capital Group stockholder may inspect our
stock ledger, list of stockholders and other books and records during regular
business hours, upon a written demand under oath stating the purpose of the
inspection. If we refuse the request, or fail to respond within five business
days after the demand has been made, the stockholder may petition the court for
an order to compel the inspection.
California law permits any RightWorks shareholder to inspect and copy a
RightWorks' shareholder list for any purpose reasonably related to the person's
interest as a shareholder. California law also provides for an absolute right
to inspect and copy the shareholder list by persons holding an aggregate of
five percent or more of RightWorks' voting shares, or shareholders holding an
aggregate of one percent or more who have filed a proxy statement with the
Securities and Exchange Commission.
Amendments to Certificate/Articles of Incorporation and Bylaws
The provisions of our Certificate of Incorporation that pertain to
authorized capital, powers of the Board of Directors, the inability of
stockholders to take action without a meeting, rights of classes of stock, and
amendments to the Certificate of Incorporation and Bylaws are subject to
amendment, alteration, repeal, or rescission by the affirmative vote of the
holder of not less than two-thirds (66 2/3%) of the outstanding shares of
voting securities. Internet Capital Group may amend, alter or repeal all other
sections of the Certificate of Incorporation in the manner prescribed by the
Delaware General Corporation Law. Our Certificate of Incorporation provides
that our Bylaws are subject to adoption, amendment, alteration, repeal, or
rescission either by our Board of Directors without the assent or vote of our
shareholders, or by the affirmative vote of the holders of not less than two-
thirds (662/3%) of the outstanding shares of voting securities.
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RightWorks may amend, alter or repeal all sections of its Articles of
Incorporation in the manner prescribed by the California General Corporation
Law. The RightWorks Bylaws provide that the stockholders of RightWorks are
expressly authorized to make, alter or repeal the RightWorks Bylaws, except
that a Bylaw reducing the minimum number of directors to a number less than
five cannot be adopted if the votes cast against its adoption at a meeting or
the shares not consenting in the case of action by written consent are equal to
more than 16 2/3% of the outstanding shares entitled to vote. Subject to the
right of the shareholders to adopt, amend or repeal the Bylaws, the Bylaws may
be adopted amended, or repealed by the affirmative vote of a majority of the
directors.
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THE RIGHTWORKS EXCHANGE OFFER
Terms of the RightWorks Exchange Offer
We are offering to exchange, upon the terms and subject to the conditions
of the Recapitalization and Exchange Offer Agreement and Plan of
Reorganization, any or all of the RightWorks Series B Preferred Shares, after
the completion of the recapitalization of RightWorks under that agreement, for
a number of shares of our Common Stock equal to the RightWorks Exchange Ratio.
The RightWorks Exchange Ratio has not been fixed in the Recapitalization and
Exchange Offer Agreement and Plan of Reorganization, but will be calculated at
the closing of the RightWorks Exchange Offer according to the formula contained
in the Recapitalization and Exchange Offer Agreement and Plan of
Reorganization. The formula provides that the RightWorks Exchange Ratio equals
the quotient of the Per Share Value divided by $111.48. The Per Share Value
equals the quotient of (A) $1.25 billion divided by (B) the number of shares of
RightWorks Common Stock on a fully diluted basis immediately prior to
consummation of the RightWorks Exchange Offer. Assuming no change in the number
of shares of RightWorks common stock on a fully diluted basis after the date of
this Prospectus, the RightWorks Exchange Ratio would be 0.303774.
Only whole shares of Common Stock will be issued under the RightWorks
Exchange Offer. Instead of fractional shares to which a holder of RightWorks
Series B Preferred Shares otherwise would be entitled, we will pay the holder
of RightWorks Series B Preferred Shares cash based on a per share price of
$111.48.
Under the terms of a letter agreement dated March 7, 2000 between Ms.
Kola and us, if RightWorks Series B Preferred Shares constituting less than 50%
of the shares of RightWorks Common Stock (on an as-converted basis) on a fully-
diluted basis are properly tendered and not withdrawn, Ms. Kola will exchange
for shares of our Common Stock a number of shares of RightWorks common stock
sufficient to provide us with 50% of the shares of RightWorks common stock on a
fully diluted basis.
Reasons for the RightWorks Exchange Offer
Internet Capital Group's Reasons for the RightWorks Exchange Offer:
Internet Capital Group's Board of Directors and management believe that
the RightWorks Exchange Offer will benefit Internet Capital Group and its
shareholders for the following reasons:
. it will help Internet Capital Group reach its goal of building
digital marketplaces across the top 50 global markets;
. it will aid Internet Capital Group's strategy to enable online
trading communities;
. it will accelerate Internet Capital Group's strategy of bringing
buyers and sellers together in open, efficient digital
marketplaces; and
. it will enable Internet Capital Group to partner with a company
whose technology provides open architecture, scalability and ease
of deployment.
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RightWorks' Reasons for the RightWorks Exchange Offer
The RightWorks Board of Directors identified several potential benefits
for the RightWorks shareholders, employees and customers that it believes would
result from the RightWorks Exchange Offer. These potential benefits include:
. enabling RightWorks shareholders to receive publicly traded
Internet Capital Group Common Stock in a tax-free exchange for
their non-publicly traded RightWorks preferred stock at a
substantial premium over the prices previously paid for RightWorks
preferred stock;
. enabling RightWorks shareholders who exchange their shares to
retain an indirect participation in the performance of RightWorks'
stock through their ownership of Internet Capital Group Common
Stock;
. providing RightWorks enhanced access to Internet Capital Group's
partner companies, many of which represent attractive potential
customers, distribution partners or product development
collaborators;
. increasing the attractiveness of RightWorks' digital exchange
technology platform to customers by enabling them to leverage
Internet Capital Group's large network of market makers; and
. enabling RightWorks to benefit from Internet Capital Group's
presence in Europe and Asia as RightWorks executes its global
expansion strategy.
In the course of its deliberations regarding the RightWorks Exchange
Offer, the RightWorks Board of Directors reviewed with RightWorks' management
and outside advisors a number of factors relevant to the RightWorks Exchange
Offer, including RightWorks' market position, strategy and prospects. The
RightWorks Board of Directors also considered the following positive factors,
among others, in connection with its consideration of the RightWorks Exchange
Offer:
. historical information concerning Internet Capital Group's and
RightWorks' respective businesses, financial performance and
condition, operations, technology, management and market position;
. prevailing stock market conditions and historical market prices,
volatility and trading information with respect to Internet
Capital Group Common Stock;
. the belief that the terms of the Recapitalization and Exchange
Offer Agreement and Plan of Reorganization, including the parties'
representations, warranties and covenants, and the conditions to
the parties' respective obligations, are reasonable;
. [financial analysis and pro forma and other information with
respect to the companies presented by Broadview Associates LLC in
board presentations]; and
. the impact of the RightWorks Exchange Offer on RightWorks'
customers and employees.
The RightWorks Board of Directors' conclusions with respect to each of
the foregoing factors supported its determination that the Recapitalization and
Exchange Offer Agreement and Plan of Reorganization and the consummation of the
RightWorks Exchange Offer were fair to, and in the best interests of,
RightWorks and its shareholders.
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The RightWorks Board of Directors also considered a number of potentially
negative factors in its deliberations concerning the RightWorks Exchange Offer.
The negative factors considered by the RightWorks Board of Directors included:
. the risk that, because the value per share to be attributed to the
Internet Capital Group Common Stock in the RightWorks Exchange
Offer is fixed at $111.48, a decline in the per-share market value
of Internet Capital Group Common Stock below $111.48 will cause
the market value of the consideration to be received by the
exchanging RightWorks shareholders to be less than the per-share
value implied by the $1.25 billion total equity valuation used the
RightWorks Exchange Offer;
. the risk that Internet Capital Group could use its controlling
interest in RightWorks to cause RightWorks to take actions that
are in the best interests of Internet Capital Group or its other
partner companies but not in the best interests of the other
RightWorks shareholders;
. the challenges relating to RightWorks' establishment of successful
commercial relationships with other Internet Capital Group partner
companies;
. the risk that the RightWorks Exchange Offer might not be completed
in a timely manner or at all;
. the negative impact of any customer or supplier confusion after
announcement of the proposed RightWorks Exchange Offer;
. the possibility of management and employee disruption associated
with the RightWorks Exchange Offer and the risk that key
management, marketing, technical and administrative personnel of
RightWorks might not continue with RightWorks after the RightWorks
Exchange Offer;
. certain terms of the Recapitalization and Exchange Offer Agreement
and Plan of Reorganization and related agreements that prohibit
RightWorks and its representatives from soliciting third party
bids and from accepting, approving or recommending unsolicited
third party bids except in very limited circumstances, which terms
would reduce the likelihood that a third party would make a bid
for RightWorks;
. the risks relating to Internet Capital Group's business and how
they could affect RightWorks' operations; and
. the other risks described above under "Risk Factors."
RightWorks' Board of Directors believed that these risks were outweighed
by the potential benefits of the RightWorks Exchange Offer.
The foregoing discussion of information and factors considered by the
RightWorks Board of Directors is not intended to be exhaustive but is believed
to include all material factors considered by the RightWorks Board of
Directors. In view of the wide variety of factors considered by the RightWorks
Board of Directors, the RightWorks Board of Directors did not find it
practicable to quantify or otherwise assign relative weight to the specific
factors considered. In addition, the RightWorks board did not reach any
specific conclusion on each factor considered, or any RightWorks of any
particular factor, but conducted an overall analysis of these factors.
Individual members of the RightWorks board may have given different weight to
different factors. However, after taking into account all of the factors set
forth above, the RightWorks Board of Directors unanimously agreed that the
Recapitalization and Exchange Offer Agreement and Plan of Reorganization and
the RightWorks Exchange Offer were fair to, and in the best interests of,
RightWorks and its shareholders and that RightWorks should proceed with the
RightWorks Exchange Offer.
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As a result of the closing of the RightWorks Exchange Offer, Internet
Capital Group will acquire an equity ownership in RightWorks, of between 50%
and approximately 58% of the capital stock of RightWorks, on a fully diluted
basis.
Conditions to the RightWorks Exchange Offer
Our obligations to effect the RightWorks Exchange Offer are subject to
the satisfaction or waiver of the following conditions:
. the total number of RightWorks Series B Preferred Shares properly
tendered and not withdrawn must equal at least 50% of the shares
of RightWorks Common Stock (on an as-converted basis) on a fully
diluted basis and must constitute at least 80% of the voting power
of RightWorks;
. RightWorks must have performed in all material respects its
agreements and covenants under the Recapitalization and Exchange
Offer Agreement and Plan of Reorganization required to be
performed by it prior to the Expiration Date;
. the representations and warranties of RightWorks must be true and
correct as of the closing date and as of the date of the
Recapitalization and Exchange Offer Agreement and Plan of
Reorganization except for such inaccuracies that do not constitute
in the aggregate a material adverse effect (as defined in the
Recapitalization and Exchange Offer Agreement and Plan of
Reorganization) on RightWorks;
. RightWorks must amend its certificate of incorporation to provide
for the reclassification of all shares of all series of its
preferred stock into RightWorks Series B Preferred Shares and must
amend its bylaws in accordance with the Recapitalization and
Exchange Offer Agreement and Plan of Reorganization;
. RightWorks and its subsidiaries must obtain all material consents,
waivers, approvals and authorizations;
. the Registration Statement must be declared effective by the staff
of the Securities and Exchange Commission and there must be no
stop order in respect of the Registration Statement;
. the shares of Common Stock issuable pursuant to the RightWorks
Exchange Offer must be approved for listing on the Nasdaq National
Market;
. RightWorks must deliver legal opinions and other documentation
required by the Recapitalization and Exchange Offer Agreement and
Plan of Reorganization;
. three representatives of Internet Capital Group must be elected as
members of RightWorks' Board of Directors;
. Internet Capital Group and RightWorks must receive all applicable
government approvals for the RightWorks Exchange Offer;
. Internet Capital Group and RightWorks must each have received
written opinions from counsel that the RightWorks Exchange Offer
should constitute a [tax-free] reorganization within the meaning
of Section 368(a) of the Internal Revenue Code;
. RightWorks must have obtained and delivered to Internet Capital
Group a confirmation letter from each employee reasonably
requested by Internet Capital Group, acknowledging and agreeing
that the change in control resulting from the RightWorks Exchange
Offer, whether or not followed by a change in or termination of
the employee's employment relationship with RightWorks, will not
cause an acceleration of vesting of any options or restricted
shares subject to repurchase held by such employee; and
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. no actions or proceedings of any governmental agency or court with
jurisdiction over the Exchange Offer can exist that materially
could impair our ability to consummate the RightWorks Exchange
Offer.
The obligation of RightWorks to effect the RightWorks Exchange Offer are
subject to the satisfaction or waiver of the following conditions:
. Internet Capital Group must have performed in all material
respects its agreements and covenants under the Recapitalization
and Exchange Offer Agreement and Plan of Reorganization required
to be performed by them prior to the Expiration Date;
. Internet Capital Group's representations and warranties must be
true and correct as of the closing date and as of the date of the
Recapitalization and Exchange Offer Agreement and Plan of
Reorganization except for such inaccuracies that do not constitute
in the aggregate a material adverse effect (as defined in the
Recapitalization and Exchange Offer Agreement and Plan of
Reorganization) on Internet Capital Group;
. the Registration Statement must be declared effective by the staff
of the Securities and Exchange Commission and there must be no
stop order in respect of the Registration Statement;
. the shares of Common Stock issuable under the RightWorks Exchange
Offer must be approved for listing on the Nasdaq National Market
System;
. Internet Capital Group must deliver legal opinions required by the
Recapitalization and Exchange Offer Agreement and Plan of
Reorganization;
. RightWorks and Internet Capital Group must receive all applicable
governmental approvals;
. Internet Capital Group and RightWorks must each have received
written opinions from counsel that the RightWorks Exchange Offer
should constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code; and
. no actions or proceedings of any governmental agency or court with
jurisdiction over the Exchange Offer can exist which could
materially impair our ability to consummate the Exchange Offer.
The conditions to the RightWorks Exchange Offer are for the benefit of
Internet Capital Group and may be waived by Internet Capital Group, in whole or
in part at any time and from time to time, in its sole discretion.
Representations and Warranties
The Recapitalization and Exchange Offer Agreement and Plan of
Reorganization contains various representations and warranties of RightWorks in
favor of us, relating to, among other things, the following:
. RightWorks' due organization, qualification to do business and
good standing and similar corporate matters;
. RightWorks' authorization, execution and delivery and the
enforceability of the Recapitalization and Exchange Offer
Agreement and Plan of Reorganization and the other documents
contemplated by the Recapitalization and Exchange Offer Agreement
and Plan of Reorganization;
. the absence of conflicts with and the compliance with corporate
governance documents, agreements, laws, statutes and regulations;
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. RightWorks' capitalization;
. RightWorks' financial statements;
. pending or threatened investigations or litigation;
. the payment of fees to brokers or advisors;
. tax matters;
. the absence of undisclosed or contingent liabilities;
. RightWorks' real property;
. RightWorks' intellectual property;
. RightWorks' insurance policies;
. environmental matters;
. RightWorks' permits;
. RightWorks' employee benefit plans and labor relations;
. the absence of material changes or events;
. RightWorks' transactions with interested parties;
. RightWorks' material contracts and commitments;
. the accuracy of RightWorks' books and records;
. the accuracy of disclosures made by RightWorks; and
. approval of the Recapitalization and Exchange Offer Agreement and
Plan of Reorganization and the transactions contemplated by the
Recapitalization and Exchange Offer Agreement and Plan of
Reorganization by RightWorks' Board of Directors.
The Recapitalization and Exchange Offer Agreement and Plan of
Reorganization contains various representations and warranties made by us in
favor of RightWorks, relating to, among other things, the following:
. Internet Capital Group's due organization, qualification to do
business and good standing and similar corporate matters;
. Internet Capital Group's authorization, execution and delivery and
the enforceability of the Recapitalization and Exchange Offer
Agreement and Plan of Reorganization and the other documents
contemplated by the Recapitalization and Exchange Offer Agreement
and Plan of Reorganization;
. the availability to RightWorks and legal compliance of Internet
Capital Group's filings made with the Securities and Exchange
Commission; and
. Internet Capital Group's financial statements.
Subject to limited exceptions for fraud and knowing misrepresentations,
RightWorks' representations and warranties terminate on the one-year
anniversary of the RightWorks Exchange Offer Expiration Date.
Conduct of Business of RightWorks Pending Closing of the RightWorks Exchange
Offer
The Recapitalization and Exchange Offer Agreement and Plan of
Reorganization requires that until the closing contemplated by the
Recapitalization and Exchange Offer Agreement and Plan of Reorganization,
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RightWorks will conduct its business in the ordinary course and consistent with
past practice. RightWorks is required to use reasonable efforts consistent with
past practice and policies to preserve intact its current business
organization, keep available the services of its present officers and employees
and maintain satisfactory relationships with suppliers, contractors,
distributors, customers and others having business relationships with it.
RightWorks has also agreed that, prior to the closing, without Internet Capital
Group's written consent, it would not do the following:
. make any expenditures or enter into any commitment or transaction
exceeding $100,000 individually;
. with certain exceptions, sell, license or transfer to any person
or entity any rights to any RightWorks intellectual property,
enter into any agreement with respect to any intellectual property
of any person or entity, enter into any agreement with respect to
the development of any intellectual property with a third party
unless the agreement provides for exclusive ownership by
RightWorks of any intellectual property developed under the
agreement or change pricing or royalties charged by RightWorks to
its customers or licensees, or the pricing or royalties set or
charged by persons who have licensed intellectual property to
RightWorks;
. enter into or amend any material contract which grants to any
other party marketing, distribution, development or similar rights
of any type or scope with respect to any products or technology of
RightWorks;
. amend or otherwise modify, or violate the terms of, any of
RightWorks' material contracts;
. commence or settle any litigation;
. with certain exceptions, declare, set aside or pay any dividends
on or make any other distributions in respect of any RightWorks
capital stock, or split, combine or reclassify any RightWorks
capital stock, or repurchase, redeem or otherwise acquire any
shares of RightWorks capital stock;
. with certain exceptions, issue, grant, deliver or sell or
authorize or propose the issuance, grant, delivery or sale of, or
purchase or propose the purchase of, any shares of capital stock
of RightWorks, or other agreements or commitments of any character
obligating it to issue or purchase any such shares or share
equivalents;
. cause or permit any amendments to its articles of organization,
bylaws or other organizational documents of RightWorks;
. acquire or agree to acquire any business, or otherwise acquire or
agree to acquire any assets which are material, individually or in
the aggregate, to RightWorks' business;
. with certain exceptions, sell, lease, license or otherwise dispose
of any of its properties or assets;
. incur any indebtedness or guarantee any indebtedness or issue or
sell any debt securities or guarantee any debt securities of
others;
. with certain exceptions, grant any loans to others or purchase
debt securities of others or amend the terms of any outstanding
loan agreement;
. with certain exceptions, grant any severance or termination pay to
any director or officer or to any other employee or contract
worker;
. with certain exceptions, adopt or amend any employee benefit plan,
or enter into any employment contract, pay or agree to pay any
special bonus or special remuneration to any director, employee or
contract worker, or increase the salaries or wage rates of its
employees or contract workers;
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. revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
. with certain exceptions, pay, discharge or satisfy, in an amount
in excess of $100,000 in any one case, any claim, liability or
obligation;
. make or change any material election in respect of taxes, adopt or
change any material accounting method in respect of taxes, enter
into any material closing agreement, settle any material claim or
assessment in respect of taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or
assessment in respect of taxes;
. enter into any strategic alliance or joint marketing arrangement
or agreement;
. with certain exceptions, take any action to accelerate the vesting
schedule of any of the outstanding RightWorks options or stock
subject to rights of repurchase;
. engage in any action that could reasonably be expected to cause
the RightWorks Exchange Offer to fail to qualify as a
"reorganization" under Section 368(a) of the Internal Revenue
Code; or
. agree, whether in writing or otherwise, to take any action
described above.
Notices
RightWorks and Internet Capital Group have agreed to give the other party
prompt notice of the following:
. the occurrence or non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any representation or
warranty made by it in the Recapitalization and Exchange Offer
Agreement and Plan of Reorganization to be materially untrue or
inaccurate at or prior to the closing date; and
. any failure by it to materially comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied
by it hereunder.
Access to Information; Confidentiality
Prior to the closing contemplated by the Recapitalization and Exchange
Offer Agreement and Plan of Reorganization, RightWorks will give Internet
Capital Group and its representatives access to its facilities and to inspect
all of its contracts, agreements, commitments, books and records, as well as
access to RightWorks' personnel and auditors at all reasonable times and upon
reasonable notice by Internet Capital Group. Internet Capital Group has agreed
to keep the information provided to it by RightWorks confidential in accordance
with the terms of the Nondisclosure Agreement, dated as of February 1, 2000,
between RightWorks and Internet Capital Group.
Filings; Other Actions
Before we can complete the RightWorks Exchange Offer, Internet Capital
Group and RightWorks must satisfy all regulatory requirements and obtain the
approval of all regulatory agencies having jurisdiction over the RightWorks
Exchange Offer. To facilitate the regulatory review and approval process,
Internet Capital Group and RightWorks have agreed to promptly make all
necessary filings, seek all required approvals of relevant regulatory agencies
and use reasonable efforts to take all actions necessary to complete the
RightWorks Exchange Offer. Accordingly, we must make filings and other required
submissions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. We will also make any other filings or submissions and seek the
approval of all other applicable regulatory agencies. This includes our prompt
compliance with
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requests by these agencies for additional information or documentation
following our initial filings or submissions.
Amendment to Certificate of Incorporation and Bylaws
RightWorks will, no later than the date of closing of the RightWorks
Exchange Offer, amend its Certificate of Incorporation and Bylaws as specified
in the Recapitalization and Exchange Offer Agreement and Plan of
Reorganization.
No Solicitation
Until the closing contemplated by the Recapitalization and Exchange Offer
Agreement and Plan of Reorganization, RightWorks will not solicit, initiate,
knowingly encourage, agree to, approve or recommend, engage in negotiations or
discussions concerning, provide any non-public information to any person or
entity relating to, any inquiries or proposals that constitute, or could
reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of all or a material portion of the
assets, sale of shares of capital stock or any similar transaction involving
RightWorks or its business, other than the transactions contemplated by the
Recapitalization and Exchange Offer Agreement and Plan of Reorganization.
RightWorks has agreed to notify Internet Capital Group immediately if they, or
their representatives, receive any such proposal.
Additional Covenants
RightWorks also has agreed that:
. its Board of Directors would, in accordance with Rule 14e-2 of the
Securities Exchange Act of 1934, as amended, issue a statement
recommending acceptance of the Exchange Offer.
Indemnification and Escrow
Subject to monetary and other limitations, the holders of RightWorks
Series B Shares that tender shares in the RightWorks Exchange Offer shall
severally indemnify Internet Capital Group and its officers, directors and
affiliates and hold RightWorks harmless for losses caused by:
. RightWorks' misrepresentation or breach of warranty;
. RightWorks' breach of covenant or other agreement contained in the
Recapitalization and Exchange Offer Agreement and Plan of
Reorganization; and
. RightWorks' third party expenses exceeding the estimate provided
by RightWorks to Internet Capital Group.
As partial security for such indemnification, 10% of the RightWorks
Exchange Offer consideration for each tendering RightWorks' holder will be
deposited with Chase Manhattan Trust Company, National Association, as escrow
agent. Any amount in escrow remaining unclaimed and undisputed after the
earlier to occur of (i) one year or (ii) the closing of RightWorks initial
public offering of common stock, will be returned to the tendering holders. The
escrow period shall terminate at the earlier of the closing of the first sale
of shares of RightWorks common stock in its initial public offering or the one
year anniversary of the Expiration Date. The holders of RightWorks Series B
Shares who tender shares in the RightWorks Exchange Offer will not have any
right of contribution from RightWorks with respect to any loss claimed under
this provision.
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Termination
The Recapitalization and Exchange Offer Agreement and Plan of
Reorganization may be terminated at any time prior to the closing of the
RightWorks Exchange Offer:
. by mutual agreement of Internet Capital Group and RightWorks;
. by either Internet Capital Group or RightWorks, if the closing
contemplated by the Recapitalization and Exchange Offer Agreement
and Plan of Reorganization has not occurred by August 31, 2000,
and a breach of the Recapitalization and Exchange Offer Agreement
and Plan of Reorganization by the terminating party is not the
principal cause of the failure to close by such date;
. by either Internet Capital Group or RightWorks, by written notice
to the other party, if any of the representations and warranties
of RightWorks or Internet Capital Group were incorrect when made,
or at any time thereafter, to an extent that would cause the
related condition to closing not to be satisfied or if RightWorks
or Internet Capital Group is in material breach of any of its
covenants or agreements in the Recapitalization and Exchange Offer
Agreement and Plan of Reorganization and the breach continues
uncured for 30 calendar days after written notice of the breach;
. by either Internet Capital Group or RightWorks, by written notice
to the other party, if a court of competent jurisdiction or a
governmental agency issues an order, decree or ruling or takes any
other action which permanently restrains, enjoins or otherwise
prohibits the RightWorks Exchange Offer, and the action shall have
become final and non-appealable;
If any party to the Recapitalization and Exchange Offer Agreement and
Plan of Reorganization terminates the agreement for of any of the reasons
above, all obligations of the parties will terminate and there will be no
liability, except for liability for breaches of the Recapitalization and
Exchange Offer Agreement and Plan of Reorganization, by any party. Some of the
representations and warranties made by the parties will survive any termination
of the Recapitalization and Exchange Offer Agreement and Plan of
Reorganization.
Expiration Date; Extension; Amendments
The RightWorks Exchange Offer expires at 11:59 p.m. New York city time,
on [20th business day following commencement of Offer], 2000, or the Expiration
Date unless we decide to extend the RightWorks Exchange Offer in the event that
our closing conditions have not been satisfied or waived, or if required by the
securities laws.
Under the Recapitalization and Exchange Offer Agreement and Plan of
Reorganization, Internet Capital Group has the right, in its sole discretion,
to modify and make changes to the terms and conditions of the RightWorks
Exchange Offer. Internet Capital Group must, however, obtain the prior consent
of RightWorks, to make modifications or changes which:
. decrease the consideration payable in the RightWorks Exchange
Offer (except as permitted by the Recapitalization and Exchange
Offer Agreement and Plan of Reorganization);
. change the form of consideration payable in the RightWorks
Exchange Offer (other than by adding consideration);
. change the minimum number of RightWorks Series B Preferred Shares
the holders must tender;
. impose additional material conditions to the RightWorks Exchange
Offer; or
. is otherwise inconsistent with the terms of the Recapitalization
and Exchange Offer Agreement and Plan of Reorganization.
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Internet Capital Group may, without the consent of RightWorks:
. extend the RightWorks Exchange Offer at any time or from time to
time as Internet Capital Group may determine in its sole
discretion if at the then scheduled Expiration Date any of the
conditions to Internet Capital Group's obligations to accept have
not been satisfied or waived (Internet Capital Group may set the
time period for each extension, but no extension will exceed 10
business days); and
. extend the RightWorks Exchange Offer for any period of time
required by any rule, regulation, interpretation or position of
the Securities and Exchange Commission or its staff applicable to
the RightWorks Exchange Offer (including any extension necessary
to permit this Registration Statement to become effective).
Any extension, delay, waiver, amendment or termination of the RightWorks
Exchange Offer will be promptly followed by a public announcement. The
announcement of an extension will be issued no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date in accordance with Rule 14e-1(d) under the Securities and Exchange Act of
1934 as amended, or the Exchange Act, which requires that material changes be
promptly communicated to holders of securities. Subject to applicable law and
without limiting Internet Capital Group's obligation under the Rule or the way
in which Internet Capital Group may choose to make any public announcement,
Internet Capital Group will communicate the extension by making a press release
to an appropriate news agency.
If Internet Capital Group extends the RightWorks Exchange Offer, or if
Internet Capital Group (whether before or after its acceptance for exchange of
RightWorks Series B Preferred Shares) is delayed in its exchange or is unable
to exchange Common Stock for RightWorks Series B Preferred Shares for any
reason, then, without prejudice to Internet Capital Group's rights under the
RightWorks Exchange Offer, the exchange agent may retain tendered RightWorks
Series B Preferred Shares on behalf of Internet Capital Group, and holders of
those shares may not withdraw them except in accordance with the procedures in
"The RightWorks Exchange Offer--Withdrawal Rights." The ability of Internet
Capital Group to delay the exchange is limited by Rule 14e-1(c) under the
Exchange Act, which requires that a bidder pay the consideration offered or
return the securities deposited by, or on behalf of, holders of securities
promptly after the termination or withdrawal of the RightWorks Exchange Offer.
If Internet Capital Group makes a material change in the terms of the
RightWorks Exchange Offer or the information concerning the RightWorks Exchange
Offer or waives a material condition of the RightWorks Exchange Offer, Internet
Capital Group will disseminate additional tender RightWorks Exchange Offer
materials and extend the RightWorks Exchange Offer to the extent required by
Rule 14e-1 under the Exchange Act. The minimum period during which the
RightWorks Exchange Offer must remain open following material changes in the
terms of the RightWorks Exchange Offer or information concerning the RightWorks
Exchange Offer, other than a change in price or a change in percentage of
securities sought, will depend upon the facts and circumstances then existing,
including the relative materiality of the changed terms or information. In a
public release, the Commission has stated its view that an exchange offer must
remain open for a minimum period of time following a material change in the
terms of the exchange offer and that waiver of a material condition, such as
the minimum number of RightWorks Series B Preferred Shares the holders must
tender, is a material change in the terms of such exchange offer. The release
states that an exchange offer should remain open for a minimum of five business
days from the date a material change is first published, or sent or given to
securityholders and that, if material changes are made with respect to
information not materially less significant than the exchange offer price and
the number of shares being sought, a minimum of ten business days may be
required to allow adequate dissemination and investor response. The requirement
to extend the exchange offer does not apply if the number of business days
remaining between the occurrence of the change and the then scheduled
expiration date equals or exceeds the minimum extension period that would be
required because of the change. If, prior to the Expiration Date, Internet
Capital Group increases the consideration offered to
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holders of RightWorks Series B Preferred Shares under the RightWorks Exchange
Offer, the increased consideration will be paid to all holders whose RightWorks
Series B Preferred Shares are accepted in the RightWorks Exchange Offer whether
or not they were tendered prior to the announced increase.
RightWorks has provided Internet Capital Group with RightWorks'
securityholder lists and security position listings for the purpose of
disseminating the RightWorks Exchange Offer to securityholders. This RightWorks
Exchange Offer, the related Letter of Transmittal and other relevant documents
will be mailed to record holders of RightWorks whose names appear on
RightWorks' securityholder lists.
Period for Tendering RightWorks Series B Preferred Shares
Upon the terms and subject to the conditions in this Prospectus and in
the accompanying Letter of Transmittal (which together constitute the
RightWorks Exchange Offer), we will accept for exchange RightWorks Series B
Preferred Shares which are properly tendered and not withdrawn as permitted
below on or prior to the Expiration Date.
This Prospectus, together with the Letter of Transmittal, is first being
sent on or about , 2000 to all holders of RightWorks Series B Preferred
Shares known to us. Our obligation to accept RightWorks Series B Preferred
Shares for exchange under the RightWorks Exchange Offer is subject to
conditions as set forth under "Conditions to RightWorks Exchange Offer" above.
If there is an extension of the RightWorks Exchange Offer, during such
extension all RightWorks Series B Preferred Shares previously tendered will
remain subject to the RightWorks Exchange Offer and may be accepted for
exchange by us. Any RightWorks Series B Preferred Shares not accepted for
exchange for any reason will be returned without expense to the tendering
holder as promptly as practicable after the expiration or termination of the
RightWorks Exchange Offer.
Holders of RightWorks Series B Preferred Shares do not have any appraisal
or dissenter's rights under the California Corporations Code in connection with
the RightWorks Exchange Offer.
Procedures for Tendering RightWorks Series B Preferred Shares
The tender to us of RightWorks Series B Preferred Shares by a holder of
RightWorks Series B Preferred Shares as set forth below and the acceptance of
the tender by us will constitute a binding agreement between the tendering
holder and us upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal. Except as set forth
below, a holder who wishes to tender RightWorks Series B Preferred Shares for
exchange under the RightWorks Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents required
by the Letter of Transmittal, to the exchange agent on or prior to the
Expiration Date. In addition, the exchange agent must receive certificates for
the RightWorks Series B Preferred Shares, or other RightWorks Preferred Shares
which will be converted into RightWorks Series B Preferred Shares under the
terms of the Recapitalization and Exchange Offer Agreement and Plan of
Reorganization, along with the Letter of Transmittal.
The method of delivery of the RightWorks Series B Preferred Shares, the
Letter of Transmittal and all other required documents is at your election and
risk. If the delivery is by mail, we recommend that you use registered mail,
properly insured, with return receipt requested. In all cases, you should allow
sufficient time to assure timely delivery. You should not send Letters of
Transmittal or RightWorks Series B Preferred Shares to us.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the RightWorks Series B Preferred Shares
surrendered for exchange are tendered:
. by a registered holder of the RightWorks Series B Preferred Shares
who has not completed the box entitled "Special Issuance
Instruction" or "Special Delivery Instruction" on the Letter of
Transmittal; or
. for the account of a firm which is a member of a registered
national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or
trust company having an office or correspondent in the United
States.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, the guarantees
must be by a firm which is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
by a commercial bank or trust company having an office or correspondent in the
United States. If the RightWorks Series B Preferred Shares are registered in
the name of a person other than a signer of the Letter of Transmittal, the
RightWorks Series B Preferred Shares surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by us in our sole discretion, duly
executed by the registered holder with the signature on the RightWorks Series B
Preferred Shares guaranteed by a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc. or a commercial bank or trust company having an office
or correspondent in the United States unless the holder is a firm which is a
member of a registered national securities exchange or a member of the National
association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States. We shall be deemed to
have accepted properly tendered RightWorks Series B Preferred Shares for
exchange when, as and if we have given oral and written notice to the exchange
agent.
In all cases, issuance of shares of Common Stock for RightWorks Series B
Preferred Shares that are accepted for exchange under the RightWorks Exchange
Offer will be made only after timely receipt by the exchange agent of:
. certificates for the RightWorks Series B Preferred Shares;
. a properly completed and duly executed Letter of Transmittal; and
. all other required documents.
If any tendered RightWorks Series B Preferred Shares are not accepted for
any reason set forth in the terms and conditions of the RightWorks Exchange
Offer or if RightWorks Series B Preferred Shares are submitted for a greater
amount than the holder desires to exchange, the unaccepted or non-exchanged
RightWorks Series B Preferred Shares will be returned without expense to the
tendering holder of the RightWorks Series B Preferred Shares as promptly as
practicable after the Expiration Date.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of the RightWorks Series B Preferred Shares tendered
for exchange will be determined by us in our sole discretion. This
determination shall be final and binding. We reserve the absolute right to
reject any and all tenders of any particular RightWorks Series B Preferred
Shares not properly tendered or to not accept any particular RightWorks Series
B Preferred Shares which acceptance might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the absolute right to waive any defects
or irregularities or conditions of the RightWorks Exchange Offer as to any
particular RightWorks Series B Preferred Shares either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender RightWorks Series B Preferred Shares in the RightWorks
Exchange Offer). The interpretation of the terms and conditions of the
RightWorks Exchange Offer as to any particular RightWorks Series B Preferred
Shares either before or
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after the Expiration Date (including the Letter of Transmittal and the
instructions to the letter of Transmittal) by us shall be final and binding on
all parties. Unless waived, any defects or irregularities in connection with
tenders of RightWorks Series B Preferred Shares for exchange must be cured
within a reasonable period of time as we shall determine. Neither we, the
exchange agent nor any other person shall be under any duty to give
notification of any defect or irregularity regarding any tendered RightWorks
Series B Preferred Shares for exchange, nor shall any of them incur any
liability for failure to give notification.
If the Letter of Transmittal or any RightWorks Series B Preferred Shares
or powers of attorney are signed by trustees, executors, administrators,
guardians, attorney-in-fact, officers of corporations or others acting in
fiduciary or representative capacity, these persons should so indicate when
signing, and, unless waived by us, proper evidence satisfactory to us of their
authority to so act must be submitted.
By tendering, each holder of RightWorks Series B Preferred Shares will
represent to us in writing that, among other things:
. the Common Stock acquired under the RightWorks Exchange Offer is
being obtained in the ordinary course of business of the holder
and any beneficial holder;
. neither the holder nor any beneficial holder has an arrangement or
understanding with any person to participate in the distribution
of the Common Stock; and
. neither the holder, nor any beneficial holder is an "affiliate,"
as defined under Rule 405 of the Securities Act, of our company.
If the holder is not a broker-dealer, the holder must represent
that it is not engaged in nor does it intend to engage in
distribution of the Common Stock.
If any holder or any beneficial holder is an "affiliate," as defined
under Rule 405 of the Securities Act, of ours, or is engaged in, or intends to
engage in, or has an arrangement or understanding with any person to
participate in, a distribution of the shares of Common Stock to be acquired
under the RightWorks Exchange Offer, the holder or any other person (1) may not
rely on the applicable interpretation of the staff of the Securities and
Exchange Commission and (2) must comply with the registration and Prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
Procedures for Distributing Internet Capital Group Common Stock
The exchange agent will send certificates representing the shares of
Common Stock via a reputable overnight courier within five to seven business
days of the closing contemplated by the Exchange Offer Agreement.
Return of RightWorks Series B Preferred Shares
If any tendered RightWorks Series B Preferred Shares are not accepted for
any reason set forth in the terms and conditions of the RightWorks Exchange
Offer, the tendered RightWorks Series B Preferred Shares will be returned
without expense to the tendering holder of the shares.
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Withdrawal Rights
Tenders of RightWorks Series B Preferred Shares may be withdrawn at any
time prior to the closing of the RightWorks Exchange Offer unless you are a
holder of RightWorks Series B Preferred Shares that has already agreed with us
in writing not to withdraw your RightWorks Series B Preferred Shares. For a
withdrawal to be effective, a written notice of withdrawal must be received by
the exchange agent at one of the addresses set forth below under "Exchange
Agent." Any such notice of withdrawal must:
. specify the name of the person having tendered the RightWorks
Series B Preferred Shares to be withdrawn;
. identify the RightWorks Series B Preferred Shares to be withdrawn
(including the certificate number of RightWorks Series B Preferred
Shares); and
. where certificates for RightWorks Series B Preferred Shares have
been transmitted specify the name in which the RightWorks Series B
Preferred Shares are registered, if different from that of the
withdrawing holder.
If certificates for RightWorks Series B Preferred Shares have been delivered or
otherwise identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office or
correspondent in the United States unless the holder is a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States.
Acceptance of Company Shares and Delivery of Common Stock
Upon satisfaction or waiver of all of the conditions to the RightWorks
Exchange Offer, we will accept, promptly after the Expiration Date, all
RightWorks Series B Preferred Shares properly tendered and not withdrawn, and
will issue the Common Stock promptly after acceptance of the RightWorks Series
B Preferred Shares. See "Conditions to RightWorks Exchange Offer" above. For
purposes of the RightWorks Exchange Offer, we shall be deemed to have accepted
properly tendered RightWorks Series B Preferred Shares for exchange when, as
and if we have given oral and written notice to the exchange agent.
Exchange Agent
ChaseMellon Shareholder Services has been appointed as exchange agent for
the RightWorks Exchange Offer. Questions and requests for assistance and
requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the exchange agent addressed as follows:
Attn: Reorganization Department
P.O. Box 3301
South Hackensack, NJ 07606
Call Toll Free:
(800) 777-3674
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Fees and Expenses
Each party to the Recapitalization and Exchange Offer Agreement and Plan
of Reorganization will bear its own expenses incurred in connection with the
RightWorks Exchange Offer. Internet Capital Group and RightWorks, however, will
share equally any filing fees under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
The exchange agent will receive reasonable and customary compensation for
its services and will be indemnified against certain liabilities and expenses
in connection with the performance of its services, including certain
liabilities under the federal securities laws. We will not pay any fees or
commissions to any broker or dealer or other persons for soliciting tenders of
RightWorks Series B Preferred Shares pursuant to the RightWorks Exchange Offer.
We will reimburse brokers, dealers, commercial banks and trust companies for
reasonable expenses incurred by them in forwarding material to their customers.
We will pay the cash expenses to be incurred in connection with the
Registration Statement and both Exchange Offers being done as part of the
Registration Statement, which are estimated in the aggregate to be
approximately 1,250,000. These expenses include registration fees, fees and
expenses of the exchange agent, accounting and legal fees and printing costs,
among others.
Participation in the RightWorks Exchange Offer is voluntary. Holders of
the RightWorks Series B Preferred Shares are urged to consult their financial
and tax advisors in making their own decisions on what action to take.
Accounting Treatment
We will account for the RightWorks Series B Preferred Shares that we
acquire pursuant to our RightWorks Exchange Offer under the purchase method of
accounting.
Consequences Of Failure To Exchange; Resales Of Common Stock
Holders of RightWorks Series B Preferred Shares who do not exchange their
RightWorks Series B Preferred Shares for Common Stock in the RightWorks
Exchange Offer will continue to be subject to the restrictions on transfer as a
consequence of the issuance of the RightWorks Series B Preferred Shares in
accordance with exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Holders of RightWorks Series B Preferred Shares do not have any appraisal
or dissenters' rights under the California Corporations Code in connection with
the RightWorks Exchange Offer. In general, the RightWorks Series B Preferred
Shares may not be offered or sold unless registered under the Securities Act,
except in accordance with an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws.
Shareholder Agreements
As an inducement for Internet Capital Group to enter into the
Recapitalization and Exchange Offer Agreement and Plan of Reorganization,
certain holders of RightWorks Preferred Stock entered into shareholder
agreements. By entering into the shareholder agreements, each of these
RightWorks shareholders has agreed and irrevocably appointed representatives of
Internet Capital Group as his lawful attorneys-in-fact and proxies with the
limited right to vote the shares of RightWorks Preferred Stock beneficially
owned by such shareholder, including any additional shares of RightWorks
capital stock acquired after the date of the shareholder agreements, in favor
of the approval of the Recapitalization, in favor of any matter that could
reasonably be expected to facilitate the Recapitalization and against any
matter that could reasonably be expected to delay or hinder the RightWorks
Exchange Offer.
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By entering into the shareholder agreements, each of these RightWorks
shareholders also agreed to tender any post-Recapitalization RightWorks Series
B Preferred Shares owned by such shareholder. Entities associated with Sequoia
Capital and certain strategic investors of RightWorks agreed with respect to
some or all of their shares to instead convert their RightWorks Series B
Preferred Shares into RightWorks Series A Preferred Shares. All the RightWorks
shareholders party to the shareholder agreement who intend to retain shares of
RightWorks capital stock after the RightWorks Exchange Offer agreed to provide
to Internet Capital Group a right of first refusal with respect to such shares,
such right to expire upon completion of RightWorks' initial public offering.
Finally, the RightWorks shareholders party to the shareholder agreements also
agreed to a 90 day lock-up restriction with respect to all of the Internet
Capital Group common stock received by such holders in the RightWorks Exchange
Offer and a 180 day lock-up with respect to 50% of such shares.
As of the record date, these shareholders collectively beneficially owned
shares of RightWorks preferred stock. None of the RightWorks shareholders
that are parties to the shareholder agreements were paid additional
consideration in connection with the shareholder agreements.
Under the shareholder agreements, each of these RightWorks shareholders
agrees not to sell the RightWorks capital stock and options owned, controlled
or acquired, either directly or indirectly, by that person until the earlier of
the termination of the Recapitalization and Exchange Offer Agreement and Plan
of Reorganization or the completion of the RightWorks Exchange Offer, unless
the transfer is in accordance with the shareholder agreement and each person to
whom any shares or any interest in any shares is transferred agrees to be bound
by the terms and provisions of the shareholder agreement. The shareholder
agreements will terminate upon the earlier to occur of the termination of the
Recapitalization and Exchange Offer Agreement and Plan of Reorganization and
the completion of the RightWorks Exchange Offer.
Concurrent Financing
Pursuant to a Stock Purchase Agreement between RightWorks and Rain
Acquisition Corp., Rain Acquisition Corp. agreed to purchase for $22 million in
cash that number of RightWorks Series B Preferred Shares equal to the quotient
of $22 million and the per share value attributed to RightWorks Series B
Preferred Shares in the Recapitalization and Exchange Offer Agreement and Plan
of Reorganization. The obligation to issue and purchase the shares of
RightWorks Series B Preferred Shares pursuant to the Stock Purchase Agreement
is conditioned upon the consummation of the RightWorks Exchange Offer.
Kola Stock Exchange Agreement
Pursuant to a Stock Exchange Agreement between Ms. Kola and Rain
Acquisition Corp., Rain Acquisition Corp. has the right, but not the
obligation, to acquire that number of shares of RightWorks common stock
necessary for the minimum condition to the RightWorks Exchange Offer to be
satisfied at a price equal to 80% of the price paid for RightWorks Series B
Preferred Shares in the concurrent financing. The consideration to be received
by to Ms. Kola pursuant to this agreement consists of shares of Internet
Capital Group Common Stock valued at $111.48 per share.
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UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Material U.S. Federal Income Tax Consequences of the RightWorks Exchange Offer
The following discussion summarizes the material federal income tax
consequences of the RightWorks Exchange Offer that are generally applicable to
holders of RightWorks Series B Preferred Shares exchanging their RightWorks
Series B Preferred Shares for Internet Capital Group Common Stock. Shareholders
of RightWorks should be aware that the following discussion does not deal with
all federal income tax considerations that may be relevant to RightWorks
shareholders in light of their particular circumstances, such as shareholders
who are dealers in securities, foreign persons, tax-exempt entities, banks or
other financial institutions, shareholders who do not hold their RightWorks
Series B Preferred Shares as capital assets within the meaning of Section 1221
of the Code, shareholders who are subject to the alternative minimum tax
provisions of the Code, shareholders who hold their RightWorks Series B
Preferred Shares as "qualified small business stock" within the meaning of
Sections 1202 and 1045 of the Code, shareholders who acquired their RightWorks
Series B Preferred Shares as part of an integrated investment such as a hedge,
straddle, conversion or other risk reduction transaction, or shareholders who
acquired their RightWorks capital stock through stock option or stock purchase
programs or in other compensatory transactions. In addition, the following
discussion does not address the tax consequences of the RightWorks Exchange
Offer under foreign, state or local tax laws. Finally, the following discussion
does not address the tax consequences of transactions occurring prior to or
after the RightWorks Exchange Offer (whether or not such transactions are in
connection with the RightWorks Exchange Offer) including, without limitation,
the Recapitalization, the exercise of options or rights to purchase RightWorks
Series B Preferred Shares in anticipation of the RightWorks Exchange Offer.
Accordingly, RightWorks shareholders are urged to consult their own tax
advisors as to the specific tax consequences to them of the RightWorks Exchange
Offer, including the applicable federal, state, local and foreign tax
consequences to them of the RightWorks Exchange Offer.
The following discussion is based on the Code applicable Treasury
Regulations, judicial authority and administrative rulings and practice, all as
of the date hereof. However, the IRS could adopt a contrary position. Neither
Internet Capital Group nor RightWorks has requested or will request a ruling
from the IRS in connection with the RightWorks Exchange Offer. In addition,
future legislative, judicial or administrative changes or interpretations could
adversely affect the accuracy of the statements and conclusions set forth
herein. Any such changes or interpretations could be applied retroactively and
could affect the tax consequences of the RightWorks Exchange Offer to
RightWorks' shareholders.
The Recapitalization and Exchange Offer Agreement and Agreement and Plan
of Reorganization contemplates that a Recapitalization will occur immediately
prior to the Exchange Offer, and that the RightWorks Series B Preferred Shares
issued in the Recapitalization will possess at least 80% of the total voting
power of all RightWorks stock issued and outstanding as of the Closing Date.
The parties intend that the Recapitalization enable Rain Acquisition Corp. to
acquire "control" of RightWorks, as such term is defined by Section 368(c) of
the Code, without the necessity of acquiring at least 80% of each class of
RightWorks voting stock. The analysis contained in IRS Revenue Ruling 76-223,
1976-1 C.B. 104, and IRS Private Letter Rulings 9547049 and 9802048 support
this position. However, there is no statutory authority directly on point.
Nonetheless, it is the belief of Cooley Godward LLP and Wilson Sonsini Goodrich
& Rosati P.C., tax counsel to RightWorks and Internet Capital Group,
respectively, and, it is a condition to the consummation of the RightWorks
Exchange Offer that such counsel render tax opinions to their respective
clients stating that the RightWorks Exchange Offer should constitute a
reorganization under Section 368(a) of the Code. The Tax Opinions will be
subject to certain assumptions, limitations and qualifications and will be
based on the truth and accuracy of certain representations of Internet Capital
Group, Rain Acquisition Corp. and RightWorks.
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The tax discussion in this section assumes and is conditioned upon the
following:
. that the RightWorks Exchange Offer will be consummated in the
manner contemplated herein and in accordance with the provisions
of the Recapitalization and Exchange Offer Agreement and Agreement
and Plan of Reorganization and, if applicable, the Stock Exchange
Agreement between Rain Acquisition Corp. and Vani Kola dated March
7, 2000;
. that all representations, warranties and statements made or agreed
to by Internet Capital Group, Rain Acquisition Corp. and
RightWorks, their respective management, employees, officers,
directors and shareholders in connection with the RightWorks
Exchange Offer, including, but not limited to, those set forth in
the Recapitalization and Exchange Offer Agreement and Plan of
Reorganization (including the exhibits thereto) and the tax
representation letters delivered to such counsel by Internet
Capital Group, Rain Acquisition Corp. and RightWorks are true and
accurate at all relevant times;
. that original documents submitted to such counsel (including
signatures thereto) are authentic, documents submitted to such
counsel as copies conform to the original documents, and that all
of these documents have been (or will be by the effective time of
the RightWorks Exchange Offer) duly and validly executed and
delivered where due execution and delivery are a prerequisite to
the effectiveness of these documents;
. that all covenants contained in the Recapitalization and Exchange
Offer Agreement and Plan of Reorganization (including exhibits
thereto) and the tax representation letters, described above, are
performed without waiver or breach of any material provision of
these covenants;
. that the RightWorks Exchange Offer will be reported by Internet
Capital Group and RightWorks on their respective U.S. federal
income tax returns in a manner consistent with the opinions
rendered by such counsel; and
. that any representation or statement made "to the best of
knowledge" or similarly qualified is correct without that
qualification.
Assuming the RightWorks Exchange Offer does qualify as a reorganization,
then, subject to the assumptions, limitations and qualifications referred to
herein and in the Tax Opinions, the RightWorks Exchange Offer should result in
the following federal income tax consequences:
. The holders of RightWorks Series B Preferred Shares will recognize
no gain or loss upon the receipt of Internet Capital Group Common
Stock solely in exchange for their RightWorks Series B Preferred
Shares in the RightWorks Exchange Offer, except with respect to
cash received in lieu of fractional shares of Internet Capital
Group Common Stock.
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. The aggregate tax basis of the Internet Capital Group Common Stock
received by the RightWorks shareholders in the RightWorks Exchange
Offer will be the same as the aggregate tax basis of the
RightWorks Series B Preferred Shares surrendered in exchange
therefor (reduced by any basis allocable to fractional shares for
which cash is received).
. The holding period of the Internet Capital Group Common Stock
received by each RightWorks shareholder in the RightWorks Exchange
Offer will include the holding period of the RightWorks Series B
Preferred Shares surrendered in exchange therefor, provided that
the RightWorks Series B Preferred Shares surrendered are held as
capital assets at the time of the RightWorks Exchange Offer.
. A holder of RightWorks Series B Preferred Shares receiving cash in
the RightWorks Exchange Offer in lieu of a fractional interest in
Internet Capital Group Common Stock will be treated as if such
holder actually received such fractional share interest which was
subsequently redeemed by Internet Capital Group. A RightWorks
shareholder should recognize gain or loss with respect to a cash
payment in lieu of a fractional share measured by the difference,
if any, between the amount of cash received and the basis in such
fractional share.
. Neither Internet Capital Group nor RightWorks will recognize gain
or loss solely as a result of the RightWorks Exchange Offer.
For federal income tax purposes, holders of RightWorks Series B Preferred
Shares will be treated as having received the escrow shares upon the
consummation of the RightWorks Exchange Offer. Accordingly, until the escrow
shares are released, the interim basis of the Internet Capital Group Common
Stock received by holders of RightWorks Series B Preferred Shares will be
determined as though the maximum number of shares of Internet Capital Group
Common Stock were received by RightWorks shareholders. RightWorks shareholders
should not recognize gain or loss upon the release of escrow shares to satisfy
indemnity claims. The basis of such released shares, if any, will be added to
the adjusted basis of the remaining shares of Internet Capital Group Common
Stock received in the Exchange Offer by the RightWorks shareholders. No gain or
loss will be recognized and no amount will be included in the income of the
RightWorks shareholders by reason of the release of escrow shares to the
RightWorks shareholders.
A successful IRS challenge to the reorganization status of the RightWorks
Exchange Offer would result in RightWorks shareholders recognizing gain or
loss. The amount of gain or loss for each share of RightWorks Series B
Preferred Shares surrendered would equal the difference between the
shareholder's basis in each share and the fair market value, as of the time of
the RightWorks Exchange Offer, of the Internet Capital Group Common Stock and
any other consideration received in exchange. RightWorks shareholders'
aggregate basis in the Internet Capital Group Common Stock so received would
equal its fair market value, and the shareholders' holding period for such
stock would begin the day after the RightWorks Exchange Offer. However, even in
that event, neither Internet Capital Group, Rain Acquisition Corp. nor
RightWorks would recognize gain or loss solely as a result of the RightWorks
Exchange Offer.
Even if the RightWorks Exchange Offer qualifies as a reorganization,
RightWorks shareholders receiving shares of Internet Capital Group Common Stock
will recognize gain to the extent that such shares were received in exchange
for services or property (other than solely RightWorks Series B Preferred
Shares). All or a portion of such gain may be taxable as ordinary income. Gain
would also have to be recognized to the extent that an RightWorks shareholder
was treated as receiving consideration other than Internet Capital Group Common
Stock in exchange for RightWorks Series B Preferred Shares.
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LEGAL MATTERS
The validity of the Common Stock offered by us hereby will be passed upon
for us by Dechert Price & Rhoads, Philadelphia, Pennsylvania. Dechert Price &
Rhoads beneficially owns 41,666 shares of our common stock and warrants
exercisable at $6.00 per share to purchase 8,333 shares of our common stock.
Members of and attorneys associated with Dechert Price & Rhoads beneficially
own an aggregate of 12,554 shares of our common stock and warrants exercisable
at $6.00 per share to purchase 1,111 shares of our common stock.
Cooley Godward LLP, RightWorks' counsel, will issue an opinion regarding
the tax-free status of the Exchange Offer. An investment partnership affiliated
with Cooley Godward LLP owns 32,435 shares of RightWorks Series B Preferred
Stock.
EXPERTS
The consolidated financial statements of Internet Capital Group, Inc. as
of December 31, 1998 and 1999 and for each of the years in the three-year
period ended December 31, 1999 have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of eCredit.com, Inc. as of December
31, 1998 and 1999 and for the two years ended December 31, 1999 appearing in
this Prospectus and registration statement have been audited by Ernst & Young
LLP, independent auditors, as set forth on their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of said firm as experts in auditing and accounting.
The consolidated statements of operations, of redeemable convertible
preferred stock and stockholders' deficit and of cash flows of eCredit.com,
Inc. for the year ended December 31, 1997 included in this Prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of RightWorks Corporation as of December 31,
1998 and 1999 and for the three years then ended included in this Prospectus
and elsewhere in this registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included in this Prospectus in reliance upon the
authority of said firm as experts in given said reports.
The consolidated financial statements of eMerge Interactive, Inc. as of
December 31, 1997 and 1998 and September 30, 1999 and for each of the years in
the three-year period ended December 31, 1998 and the nine months ended
September 30, 1999 have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
The financial statements of JusticeLink, Inc. (formerly LAWPlus, Inc.) as
of December 31, 1998 and 1999, and for the two years ended December 31, 1999
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of MetalSite General Partner, LLC
as of December 31, 1998 and for the period from Inception (November 15, 1998)
through December 31, 1998 included in this registration
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 8. Interests of Named Experts and Counsel.
Dechert Price & Rhoads, Internet Capital Group's counsel, beneficially
owns 41,666 shares of our common stock and warrants exercisable at $6.00 per
share to purchase 8,333 shares of our common stock. Members of and attorneys
associated with Dechert Price & Rhoads beneficially own an aggregate of 12,554
shares of our common stock and warrants exercisable at $6.00 per share to
purchase 1,111 shares of our common stock.
Cooley Godward LLP, RightWorks' counsel, will issue an opinion regarding
the tax-free status of the RightWorks Exchange Offer. An investment partnership
affiliated with Cooley Godward LLP owns 32,435 shares of RightWorks Series B
Preferred Stock.
Item 13. Other Expenses of Issuance and Distribution
The expenses to be paid by Internet Capital Group in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
Amount (1)
----------
<S> <C>
Securities and Exchange Commission Registration Fee........... $ 320,724
Nasdaq National Market Listing Fee............................ $ 17,500
Accounting Fees and Expenses.................................. $ 250,000
Blue Sky Fees and Expenses.................................... $ 1,000
Legal Fees and Expenses....................................... $ 250,000
Transfer Agent and Registrar Fees and Expenses................ $ 25,000
Printing and Engraving Expenses............................... $ 385,500
Miscellaneous Fees and Expenses............................... $ 276
----------
Total....................................................... $1,250,000
==========
</TABLE>
- --------
(1) All amounts are estimates except the SEC filing fee and the Nasdaq National
Market listing fee.
Item 15. Recent Sales of Unregistered Securities
Since its inception in March 1996, Internet Capital Group (or its
predecessor, Internet Capital Group, L.L.C.) has issued and sold unregistered
securities in the transactions described below.
Shares of Common Stock
(1) In April 1996, Internet Capital Group, L.L.C. issued 525,000 units of
Membership Interests to employees, directors, and consultants in a subscription
offering for an aggregate purchase price of $525,000.
(2) On May 9, 1996, Internet Capital Group, L.L.C. issued 6,139,074 units
of Membership Interests to Safeguard Scientifics (Delaware), Inc. for an
aggregate purchase price of $6,139,074 consisting of the assignment of 182,500
shares of Common Stock, 127,000 shares of Series C Preferred Stock, 855,400
shares of Series D Preferred Stock and 134,375 shares of Series F Preferred
Stock of Sky Alland Marketing, Inc. and related rights and obligations in
respect thereof.
(3) In May 1996, Internet Capital Group, L.L.C. issued 2,925,000 units of
Membership Interests to employees, consultants, and other purchasers in a
subscription offering for an aggregate purchase price of $2,925,000.
II-1
<PAGE>
(4) In June 1996, Internet Capital Group, L.L.C. issued 2,000,000 units
of Membership Interests to employees, consultants, and other purchasers in a
subscription offering for an aggregate purchase price of $2,000,000
(5) In July 1996, Internet Capital Group, L.L.C. issued an aggregate of
800,000 units of Membership Interests to BancBoston Investments, Inc., The HRG
Corporation, and Mr. Robert S. Adelson in a subscription offering for an
aggregate purchase price of $800,000.
(6) In August 1996, Internet Capital Group, L.L.C. issued 168,750 units
of Membership Interests to S.M.M. Internet, M. Reid & Company and Mr. Robert E.
Keith, a director of Internet Capital Group, and Mrs. Margot W. Keith in a
subscription offering for an aggregate purchase price of $168,750.
(7) In September 1996, Internet Capital Group, L.L.C. issued 175,000
units of Membership Interests to Mr. Herbert and Mrs. Karen Lotman, F.B.A.
Trust F/B/O Shelly Lotman Fisher, and F.E.A. Trust F/B/O Jeffrey Lotman in a
subscription offering for an aggregate purchase price of $175,000.
(8) On September 30 1996, Internet Capital Group, L.L.C. issued an
aggregate of 4,968,935 units of Membership Profit Interests to employees,
directors and consultants pursuant to the Membership Profit Interest Plan in
consideration for services rendered to Internet Capital Group, L.L.C.
(9) In October 1996, Internet Capital Group, L.L.C. issued 25,000 units
of Membership Interests to Mrs. Jean C. Tempel in a subscription offering for a
purchase price of $25,000.
(10) In November 1996, Internet Capital Group, L.L.C. issued 6,754,676
units of Membership Interests to employees, consultants, directors, and other
purchasers in a subscription offering for an aggregate purchase price of
$6,754,676.
(11) In December 1996, Internet Capital Group, L.L.C. issued 300,000
units of Membership Interests to Mr. Walter W. Buckley, III, Chief Executive
Officer and a director of Internet Capital Group, and to Mr. Douglas A.
Alexander, a Managing Director of Internet Capital Group in a subscription
offering for an aggregate purchase price of $300,000.
(12) In December 1996, Internet Capital Group, L.L.C. issued an aggregate
of 20,000 units of Membership Profit Interests to employees and consultants
pursuant to the Membership Profit Interest Plan in consideration for services
rendered to Internet Capital Group, L.L.C.
(13) In February 1997, Internet Capital Group, L.L.C. issued an aggregate
of 210,070 units of Membership Profit Interests to employees and consultants
pursuant to the Membership Profit Interest Plan in consideration for services
rendered to Internet Capital Group, L.L.C.
(14) On March 31, 1997, Internet Capital Group, L.L.C. issued 87,500
units of Membership Interests to Mr. Douglas A. Alexander, a Managing Director
of Internet Capital Group, Mrs. Jean C. Tempel, and to Mr. Robert E. Keith, a
director of Internet Capital Group and Mrs. Margot W. Keith in a subscription
offering for an aggregate purchase price of $87,500.
(15) On April 11, 1997, Internet Capital Group, L.L.C. issued 46,783
units of Membership Interests to Mr. Lou Ryan pursuant to the Membership Profit
Interest Plan in consideration for services rendered to Internet Capital Group,
L.L.C.
(16) In April 1997, Internet Capital Group, L.L.C. issued 9,318,750 units
of Membership Interests to employees, consultants, directors, and other
purchasers in a subscription offering for an aggregate purchase price of
$9,318,750.
II-2
<PAGE>
(17) In June 1997, Internet Capital Group, L.L.C. issued 550,000 units of
Membership Interests to Mr. Walter W. Buckley, III, Chief Executive Officer and
a director of Internet Capital Group, Mr. Kenneth A. Fox, a Managing Director
and a director of Internet Capital Group, and Mr. John C. Maxwell, III in a
subscription offering for an aggregate purchase price of $550,000.
(18) In August 1997, Internet Capital Group, L.L.C. issued 50,000 units
of Membership Interests to the Tom Kippola Pension Plan a subscription offering
for a purchase price of $50,000.
(19) In September 1997, Internet Capital Group, L.L.C. issued an
aggregate of 1,209,519 units of Membership Profit Interests to employees and
consultants to the Membership Profit Interest Plan in consideration for
services rendered to Internet Capital Group, L.L.C.
(20) In November 1997, Internet Capital Group, L.L.C. issued 9,456,250
units of Membership Interests to employees, consultants, directors, and other
purchasers in a subscription offering for an aggregate purchase price of
$9,456,250.
(21) In November 1997, Internet Capital Group, L.L.C. issued an aggregate
of 115,175 units of Membership Profit Interests to employees and consultants
pursuant to the Membership Profit Interest Plan in consideration for services
rendered to Internet Capital Group, L.L.C.
(22) In December 1997, Internet Capital Group, L.L.C. issued 725,000
units of Membership Interests to employees, consultants, directors, and other
purchasers in a subscription offering for an aggregate purchase price of
$725,000.
(23) In December 1997, Internet Capital Group, L.L.C. issued 185,000
units of Membership Profit Interests to employees and consultants pursuant to
the Membership Profit Interest Plan in consideration for services rendered to
Internet Capital Group, L.L.C.
(24) In March 1998, Internet Capital Group, L.L.C. issued 250,000 units
of Membership Interests to Mr. Austin Hearst in a subscription offering for an
aggregate purchase price of $500,000.
(25) In April 1998, Internet Capital Group, L.L.C. issued an aggregate of
125,000 units of Membership Interests to Mr. Britton Murdock, Mr. Robert E.
Keith and Mrs. Margot W. Keith in a subscription offering for an aggregate
purchase price of $250,000.
(26) In May 1998, Internet Capital Group, L.L.C. issued an aggregate of
1,912,500 units of Membership Interests to employees, consultants and other
purchasers in a subscription offering for an aggregate purchase price of
$3,825,000.
(27) In June 1998, Internet Capital Group, L.L.C. issued an aggregate of
11,143,750 units of Membership Interests to employees, consultants and other
purchasers in a subscription offering for an aggregate purchase price of
$22,287,500.
(28) In July 1998, Internet Capital Group, L.L.C. issued an aggregate of
551,250 units of Membership Interests to employees, consultants and other
purchasers in a subscription offering for an aggregate purchase price of
$1,102,500.
(29) In August 1998, Internet Capital Group, L.L.C. issued an aggregate
of 225,000 units of Membership Interests to employees, consultants and other
purchasers in a subscription offering for an aggregate purchase price of
$450,000.
(30) In September 1998, Internet Capital Group, L.L.C. issued an
aggregate of 1,092,500 units of Membership Interests to employees, consultants
and other purchasers in a subscription offering for an aggregate purchase price
of $2,185,000.
II-3
<PAGE>
(31) In October 1998, Internet Capital Group, L.L.C. issued an aggregate
of 3,883,750 units of Membership Interests to employees, consultants and other
purchasers in a subscription offering for an aggregate purchase price of
$7,767,500.
(32) In November 1998, Internet Capital Group, L.L.C. issued an aggregate
of 76,250 units of Membership Interests to Mr. Roger S. Penske, Jr., Mr. Ron
Trichon and Mr. T. Richard Butera in a subscription offering for an aggregate
purchase price of $152,500.
(33) In January 1999, Internet Capital Group, L.L.C. issued an aggregate
of 158,750 units of Membership Interests to Mr. Samuel A. Plum, Mrs. Susan R.
Buckley and Dr. Thomas P. Gerrity, a director of Internet Capital Group, in a
subscription offering for an aggregate purchase price of $317,500.
(34) On February 2, 1999, each unit of the foregoing Membership Interests
and Membership Profit Interests was converted into one share of Common Stock of
Internet Capital Group as a result of the merger of Internet Capital Group,
L.L.C. into Internet Capital Group.
(35) In February 1999, Internet Capital Group issued an aggregate of
14,706,250 shares of Common Stock to employees, directors, consultants and
other purchasers in a subscription offering for an aggregate purchase price of
$29,412,500.
(36) In March 1999, Internet Capital Group issued an aggregate of
1,125,000 shares of Common Stock to consultants and other purchasers in a
subscription offering for an aggregate purchase price of $2,250,000.
(37) On August 4, 1999, Internet Capital Group issued 254,635 shares of
Common Stock to PaperExchange.com LLC in a private placement, in conjunction
with Internet Capital Group's previous agreement to acquire PaperExchange.com
LLC, for a purchase price of $2,750,058.
(38) On August 5, 1999, Internet Capital Group issued 3,750,000 shares of
Common Stock to International Business Machines Corporation in a private
placement concurrent with Internet Capital Group's initial public offering for
a purchase price of $45,000,000.
(39) On November 22, 1999, Internet Capital Group issued 262,319 shares
of Common Stock to PaperExchange.com LLC in a private placement, in conjunction
with Internet Capital Group's previous agreement to acquire PaperExchange.com
LLC, for a purchase price of $2,833,045.
(40) 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.
(41) On December 13, 1999, Internet Capital Group issued 609,533 shares
of Common Stock to AT&T Corp. in a private placement for a purchase price of
$50,000,000.
(42) On December 15, 1999, we issued 462,962 shares of Common Stock to
Ford Motor Company in a private placement occurring at the same time as our
follow-on public offering of Common Stock for a purchase price of $50,000,000.
(43) 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.
(44) On December 29, 1999, Internet Capital Group issued 852,631 shares
of Common Stock in a private placement to Weirton Steel Corporation in exchange
for Class A limited partnership interests in
II-4
<PAGE>
MetalSite, L.P. representing 35.3% of MetalSite, L.P. on a fully-diluted basis,
an interest in MetalSite General Partner, LLC, representing 39.7% of the
general partner on a fully-diluted basis, and options to purchase additional
interests in MetalSite, L.P. and MetalSite General Partner, LLC.
(45) On January 4, 2000, Internet Capital Group issued 140,000 shares of
Common Stock in a private placement to Alfred Sherk in exchange for shares of
common stock of e-Chemicals, Inc.
(46) On January 4, 2000, Internet Capital Group issued 10,000 shares of
Common Stock in a private placement to Community Foundation for Southeastern
Michigan in exchange for shares of common stock of e-Chemicals, Inc.
(47) On March 31, 2000, Internet Capital Group issued 323,509 shares of
Common Stock in a private placement to Frank Selldorff in exchange for 800,000
shares of Common Stock of BreakAway Solutions, Inc.
Warrants to Purchase Common Stock
On May 10, 1999, in conjunction with Internet Capital Group's issuance of
convertible subordinated notes, Internet Capital Group granted warrants to the
holders of the convertible notes, exercisable at the initial public offering
price of $6 per share, to purchase approximately 3,000,000 shares of common
stock of Internet Capital Group.
On April 30, 1999, in conjunction with the Secured Revolving Credit
Facility dated April 30, 1999, between Internet Capital Group, Inc. and certain
lenders and guarantors, Internet Capital Group granted to the lenders warrants
exercisable at $5 per share to purchase an aggregate of 400,000 shares of
common stock of Internet Capital Group.
Notes Convertible to Common Stock
On May 10, 1999, Internet Capital Group issued convertible subordinated
notes in an aggregate principal amount of $90 million. Upon consummation of its
initial public offering on August 5, 1999, the convertible notes automatically
converted into approximately 15,000,000 shares of common stock of Internet
Capital Group at the initial public offering price of $6 per share.
Options to Purchase Common Stock
Internet Capital Group from time to time has granted stock options to
employees, directors, advisory board members and certain employees of our
partner companies. The following table sets forth certain information regarding
such grants:
<TABLE>
<CAPTION>
No. of Weighted Average
Shares Exercise Prices
---------- ----------------
<S> <C> <C>
1996......................................... -- N/A
1997......................................... 188,000 $ 0.50
1998......................................... 12,144,000 $ 1.00
1999......................................... 28,995,500 $ 6.82
Through April 10, 2000....................... 8,762,000 $97.28
</TABLE>
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
Registrant or in reliance on rule 701 promulgated under the Securities Act.
II-5
<PAGE>
Appropriate restrictive legends were affixed to the stock certificates
issued in the above transactions. Similar legends were imposed in connection
with any subsequent sales of any such securities. No underwriters were employed
in any of the above transactions.
Item 20. Indemnification of Directors and Officers
Under Section 145 of the General Corporate Law of the State of Delaware,
Internet Capital Group has broad powers to indemnify its directors and officers
against liabilities they may incur in such capacities, including liabilities
under the Securities Act of 1933, as amended (the "Securities Act"). Internet
Capital Group's bylaws (Exhibit 3.2 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.
Internet Capital Group's certificate of incorporation (Exhibit 3.1
hereto) provides that the liability of its directors for monetary damages shall
be eliminated to the fullest extent permissible under Delaware law. Pursuant to
Delaware law, this includes elimination of liability for monetary damages for
breach of the directors' fiduciary duty of care to Internet Capital Group and
its shareholders. These provisions do not eliminate the directors' duty of care
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to Internet Capital Group, for acts or omissions
not in good faith or involving intentional misconduct, for knowing violations
of law, for any transaction from which the director derived an improper
personal benefit, and for payment of dividends or approval of stock repurchases
or redemption's that are unlawful under Delaware law. The provision also does
not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
Internet Capital Group intends to obtain in conjunction with the
effectiveness of the Registration Statement a policy of directors' and
officers' liability insurance that insures the Company's directors and officers
against the cost of defense, settlement or payment of a judgment under certain
circumstances.
The Purchase Agreements filed as Exhibit [1.1, 1.2 and 1.3] to this
Registration Statement provide for indemnification by the underwriters of
Internet Capital Group and its officers and directors for certain liabilities
arising under the Securities Act or otherwise.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Incorporated by reference to the Exhibit Index following page II-9
hereto.
(b) Financial Statement Schedules
None.
Schedules have been omitted since they are not required or are not
applicable or the required information is shown in the financial statements or
related notes.
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
II-6
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE>
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Town of Wayne,
County of Chester, Commonwealth of Pennsylvania on the 12 day of April, 2000.
Internet Capital Group, Inc.
Walter W. Buckley, III
By: _________________________________
Walter W. Buckley, III
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Walter W. Buckley, III, his attorney-in-
fact, with full power of substitution and resubstitution, for him in any and
all capacities, to sign any or all amendments or post-effective amendments to
this Registration Statement or any Registration Statement for the same offering
that is effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933, as amended, and to file the same with exhibits thereto and other
documents in connection therewith or in connection with the registration of
common stock under the Securities Exchange Act of 1934, as amended, with the
Securities and Exchange Commission, granting unto the attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary in connection with such matters and hereby ratifying
and confirming all that each the attorney-in-fact, or his agent or substitutes,
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Walter W. Buckley, III President, Chief Executive April 12, 2000
______________________________________ Officer and Director
Walter W. Buckley, III (principal executive
officer)
David D. Gathman Chief Financial Officer April 12, 2000
______________________________________ and Treasurer (principal
David D. Gathman financial and accounting
officer)
Julian A. Brodsky Director April 12, 2000
______________________________________
Julian A. Brodsky
Warren V. Musser Director April 12, 2000
______________________________________
Warren V. Musser
Kenneth A. Fox Director April 12, 2000
______________________________________
</TABLE> Kenneth A. Fox
II-9
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Dr. Thomas P. Gerrity Director April 12, 2000
______________________________________
Dr. Thomas P. Gerrity
Robert E. Keith, Jr. Director April 12, 2000
______________________________________
Robert E. Keith, Jr.
Peter A. Solvik Director April 12, 2000
______________________________________
</TABLE> Peter A. Solvik
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
2.1 Agreement of Merger, dated February 2, 1999, between Internet Capital
Group, L.L.C., and InternetCapital Group, Inc. (incorporated by
reference to Exhibit 2.1 to the Registration Statement on Form S-1
filed by the Registrant on May 11, 1999 (Registration No. 333-78193)
("IPO Registration Statement"))
2.2 Exchange Offer Agreement dated as of February 24, 2000 by and among
eCredit.com, Inc., Internet Capital Group, Inc. and ICG Holdings, Inc.
2.3 Recapitalization and Exchange Offer Agreement and Plan of
Reorganization by and among Internet Capital Group, Inc., Rain
Acquisition Corp., RightWorks Corporation, and with respect to
Article VII, VIII and IX only Suhas Patil, as Shareholder
Representative, and Chase Manhattan Trust Company, National
Association, as Escrow Agent, dated as of March 7, 2000.
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 Registrant on August 2, 1999
(Registration No. 333-78193) ("IPO Amendment No. 3"))
4.2 Form of Indenture between Internet Capital Group, Inc. and Chase
Manhattan Trust Company, National Association, as Trustee, for the
Convertible Subordinated Notes (incorporated by reference to Exhibit
4.2 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1999 (Registration No. 000-26929) ("10-K"))
4.3 Form of Internet Capital Group's Convertible Subordinated Note due
December, 2004 (incorporated by reference to Exhibit 4.2 to 10-K)
5.1 Opinion of Dechert Price & Rhoads
8.1 Opinion of Cooley Godward LLP
8.2 Opinion of Wilson Sonsini Goodrich & Rosati
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 Registrant on July 16, 1999 (Registration No.
333-79193) ("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)
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
(incorporated by reference to Exhibit 10.4 to the 10-K)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
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 securities 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 Registrant'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 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 Registrant on
June 22, 1999 (Registration No. 333-78193) ("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 on Form S-1 filed by the Registrant on December 15, 1999
(Registration No. 333-91447) ("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 on Form S-1 filed by the Registrant on
November 22, 1999 (Registration No. 333-91447) ("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 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)
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)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
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 Form of Amended and Restated Amendment No. 2 to the Credit Agreement
dated December 10, 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 10.15.2 to the
10-K)
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 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 IPO
Amendment No. 3)
10.17 Syncra Software, Inc. Option Agreement dated August 1, 1998 by and
between Michael H. Forster 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 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 IPO Amendment No. 1)
10.20 Form of Promissory Note issued in connection with exercise of
Internet Capital Group's stock options in May, June and July of 1999
(incorporated by reference to Exhibit 10.33 to IPO Amendment No. 1)
10.21 Form of Restrictive Covenant Agreement issued in connection with
exercise of Internet Capital Group's stock options in May, June and
July of 1999 (incorporated by reference to Exhibit 10.34 to 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 Internet Capital Group'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 Securities, 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 Statement filed by the Registrant
on December 6, 1999 (Registration No. 333-91447) ("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 14, 1999 between Internet Capital
Group, Inc. and Ford Motor Company (incorporated by reference to
Exhibit 10.27 to the Follow-on Amendment No. 3)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
10.28 Securities Purchase Agreement dated December 28, 1999 between Internet
Capital Group, Inc. and Weirton Steel Corporation (incorporated by
reference to the Registrant'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 Registrant'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 (incorporated by reference to Exhibit 10.30 to the 10-K)
10.31 Amended and Restated Credit Agreement by and among Internet Capital
Group, Inc., ICG Holdings, Inc., The Banks Party Thereto, PNC Bank,
National Association, as Administrative Agent, Bank of America, N.A.,
and Deutsche Bank AG New York Branch/Cayman Island Branch, as Co-
Syndication Agents and PNC Capital Markets, Inc., as Lead Arranger
10.32 Press Release (incorporated by reference to Registrant's filing on
Form 425 filed April 3, 2000 (File No. 132-01830))
10.33 Press Release regarding Acquisition of RightWorks (incorporated by
reference to Registrant's filing on Form 425 filed March 31, 2000
(File No. 132-01830))
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)
23.1 Consent of KPMG LLP regarding Internet Capital Group, Inc.
23.2 Consent of Ernst & Young LLP regarding eCredit.com, Inc.
23.3 Consent of PricewaterhouseCoopers LLP regarding eCredit.com, Inc.
23.4 Consent of KPMG LLP regarding eMerge Interactive, Inc.
23.5 Consent of Ernst & Young LLP regarding JusticeLink, Inc.
23.6 Consent of Arthur Andersen LLP regarding MetalSite as Component of
Weirton Steel Corporation
23.7 Consent of Arthur Andersen LLP regarding MetalSite General Partner,
LLC
23.8 Consent of Arthur Andersen LLP, independent public accountants,
regarding RightWorks Corporation
23.9 Consent of PricewaterhouseCoopers LLP regarding Syncra Software, Inc.
23.10 Consent of Arthur Andersen LLP regarding USgift.com
23.11 Consent of KPMG LLP regarding VerticalNet, Inc.
23.12 Consent of Dechert Price & Rhoads (included in the opinion filed as
Exhibit 5.1)
23.13 Consent of Cooley Godward LLP (included in the opinion filed as
Exhibit 8.1)
23.14 Consent of Wilson Sonsini Goodrich & Rosati (included in the opinion
filed as Exhibit 8.2)
24.1 Power of Attorney, included on the signature page hereof
99.1 Form of Letter of Transmittal for eCredit.com
99.2 Form of Letter of Transmittal for RightWorks
</TABLE>
4
<PAGE>
Exhibit 2.2
[Execution Copy]
Exchange Offer Agreement
among
eCredit.com, Inc.
Internet Capital Group, Inc.
and
ICG Holdings, Inc.
February 24, 2000
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<C> <S> <C>
ARTICLE I The Offer 2
1.1. The Offer....................................................... 2
1.2. Company Actions................................................. 7
1.3. Stockholder Lists............................................... 7
1.4. Closing......................................................... 8
1.5. Lost, Stolen or Destroyed Certificates.......................... 9
1.6. Issuance of Shares by the Company............................... 9
ARTICLE II Representations and Warranties of the Company 10
2.1. Organization.................................................... 10
2.2. Authorization and Enforceability................................ 10
2.3. Conflicts, Consents and Approvals............................... 11
2.4. Subsidiaries.................................................... 11
2.5. Capitalization.................................................. 12
2.6. Financial Statements............................................ 13
2.7. Litigation...................................................... 13
2.8. No Brokers or Finders........................................... 14
2.9. Taxes........................................................... 14
2.9. Tax Returns that such party is or may be subject to taxation by
that jurisdiction............................................... 14
2.10. Absence of Undisclosed or Contingent Liabilities................ 15
2.11. Property........................................................ 15
2.12. Insurance....................................................... 16
2.13. Environmental Matters........................................... 16
2.14. Permits......................................................... 17
2.15. Compliance with Laws............................................ 17
2.16. Labor Matters................................................... 17
2.17. Absence of Changes.............................................. 17
2.18. Transactions with Affiliates.................................... 19
2.19. Contracts and Commitments....................................... 19
2.20. Benefit Plans................................................... 20
2.21. Books and Records............................................... 21
2.22. Disclosure...................................................... 21
2.23. Registration Statement.......................................... 21
2.24. Anti-Takeover Laws.............................................. 22
ARTICLE III Representations and Warranties of the Stockholders 22
3.1. Authority Relative to this Agreement............................ 22
</TABLE>
<PAGE>
3.2. Ownership of Shares............................................. 22
3.3. Consents and Approvals; No Violation............................ 23
3.4. Brokers or Finders.............................................. 23
3.5. Registration Statement.......................................... 24
ARTICLE IV Representations and Warranties of ICG............................ 24
4.1. Organization.................................................... 24
4.2. Authorization and Enforceability................................ 25
4.3. Conflicts, Consents and Approvals............................... 25
4.4. Brokers or Finders.............................................. 25
4.5. Capitalization.................................................. 26
4.6. SEC Documents................................................... 26
4.7. Absence of Certain Changes...................................... 26
4.8. Litigation...................................................... 26
4.9. Compliance with Laws............................................ 27
4.10. Registration Statement; Securities Matters...................... 27
4.11. Anti-Takeover Laws.............................................. 27
ARTICLE V Certain Covenants of the Parties 28
5.1. Conduct Pending Closing......................................... 28
5.2. Issuance of Securities.......................................... 28
5.3. Notices to ICG and the Company.................................. 28
5.4. Access and Information.......................................... 29
5.5. Approvals....................................................... 29
5.6. Amendment to Certificate of Incorporation....................... 30
5.7. Tender Agreement................................................ 30
5.8. Stock Option Plans.............................................. 31
5.9. Public Announcements............................................ 33
5.10. Reasonable Efforts; Further Assurances.......................... 34
5.11. Consents........................................................ 34
5.12. No Solicitation................................................. 34
5.13. Warrant, Right of First Refusal Agreement and Registration
Rights Agreement................................................ 35
ARTICLE VI Conditions to Closing............................................ 35
6.1. Conditions of ICG's and Holdings' Obligations................... 35
6.2. Conditions of the Stockholders' Obligations..................... 38
6.3. Termination..................................................... 40
6.4. Procedures and Effect of Termination............................ 41
ARTICLE VII Certain Additional Covenants 41
7.1. Reports......................................................... 41
7.2. Proprietary Information Agreements.............................. 42
7.3. Books and Records............................................... 43
7.4. Investor Rights................................................. 43
<PAGE>
7.5. Expenses of Directors........................................... 43
7.6. Additional Shares in Connection with Initial Public Offering.... 43
7.7. Termination of Certain Covenants................................ 44
ARTICLE VIII Indemnification 44
8.1. Indemnification By the Company and the Stockholders............. 44
8.2. Indemnification by ICG.......................................... 45
8.3. Limitations on Indemnification.................................. 45
8.4. Insurance Effect................................................ 47
8.5. Survival of Representations and Warranties...................... 47
8.6. Notice and Opportunity to Defend................................ 47
8.7. Procedure for Claims by Parties................................. 48
ARTICLE IX Miscellaneous.................................................... 49
9.1. Interpretation.................................................. 49
9.2. Expenses........................................................ 49
9.3. Amendment of Agreement.......................................... 50
9.4. Waiver of Compliance; Consents.................................. 50
9.5. Notices......................................................... 50
9.6. Specific Performance............................................ 51
9.7. Successors and Assigns; Third Party Beneficiaries............... 51
9.8. Governing Law................................................... 51
9.9. Counterparts.................................................... 52
9.10. Severability.................................................... 52
9.11. Entire Agreement................................................ 52
<PAGE>
EXHIBITS
Exhibit A - Forms of Amendment to Certificate of Incorporation
and Amended and Restated Bylaws
Exhibit B - Form of Common Stock Purchase Warrant
Exhibit C - Form of Amended and Restated Stockholders Agreement
Exhibit D - Form of Post IPO Agreement
Exhibit E - Form of Amended and Restated Registration Rights
Agreement
Exhibit F - Form of Opinion of Counsel to the Company
Exhibit G - Form of Opinion of Counsel to ICG
<PAGE>
SCHEDULES
Schedule 2.1 - Charter and Bylaws
Schedule 2.3 - Conflicts, Consents and Approvals
Schedule 2.4 - List of Subsidiaries
Schedule 2.5(d) - List of Stockholders
Schedule 2.5(e) - Stock Purchase and Other Related Rights
Schedule 2.5(f) - Capitalization of the Company Immediately After the Closing
Schedule 2.6 - Financial Statements
Schedule 2.7 - Litigation
Schedule 2.8 - Brokers or Finders
Schedule 2.9 - Taxes
Schedule 2.10 - Undisclosed or Contingent Liabilities
Schedule 2.11 - Intellectual Property
Schedule 2.12 - Insurance
Schedule 2.17 - Recent Events
Schedule 2.18 - Transactions with Affiliates
Schedule 2.19 - Contracts and Commitments
Schedule 2.20 - Benefit Plans
Schedule 3.3 - Conflicts, Consents and Approvals
Schedule 4.1 - Organization
Schedule 4.3 - Conflicts, Consents and Approvals
Schedule 4.4 - Brokers or Finders
Schedule 4.5 - Options, Warrants, Calls, Subscriptions, Convertible Securities
Schedule 4.7 - Material Adverse Changes
Schedule 4.8 - Litigation
Schedule 6.1(c) - Material Adverse Effects
Schedule 6.2(f) - Material Adverse Effects
<PAGE>
DEFINED TERMS
Actual Average ICG Closing Price......................................... 3
affiliate................................................................ 19
Aggregate Available Share Number......................................... 5
Aggregate Base Share Number.............................................. 5
Aggregate Number of ICG Shares........................................... 3
Agreement................................................................ 1
Amended and Restated Stockholders Agreement.............................. 35
Antitrust Laws........................................................... 30
Applicable Number........................................................ 31
Asserted Liability....................................................... 48
associate................................................................ 19
Audited Financial Statements............................................. 13
Authority................................................................ 14
Average ICG Closing Price................................................ 3
Average Index Price...................................................... 41
Benefit Plans............................................................ 21
calculated on a fully-diluted basis...................................... 2
Charter Amendment........................................................ 30
CICG Common Stock........................................................ 2
Claim Response........................................................... 49
Claims Notice............................................................ 48
Closing.................................................................. 8
Closing Date............................................................. 8
Code..................................................................... 15
Common Stock............................................................. 2
Company.................................................................. 1
Company Preferred Stock.................................................. 12
Contracts................................................................ 19
DGCL..................................................................... 22
eCredit.com.............................................................. 1
eCredit.com Breach....................................................... 41
eCredit.com Indemnified Party............................................ 45
employee benefit plan.................................................... 21
Employee Share Number.................................................... 5
Environmental Laws....................................................... 16
ERISA Affiliate.......................................................... 21
Exchange Act............................................................. 7
Exchange Ratio........................................................... 3
Financial Assistance Arrangement......................................... 33
Financial Statements..................................................... 13
GAAP..................................................................... 14
<PAGE>
Holdings................................................................. 1
HSR Act.................................................................. 30
ICG...................................................................... 1
ICG Breach............................................................... 41
ICG Indemnified Party.................................................... 45
ICG Material Adverse Effect.............................................. 24
ICG Preferred Stock...................................................... 26
ICG Reports.............................................................. 26
Incentive Plans.......................................................... 12
Indemnification Threshold Amount......................................... 46
Indemnified Party........................................................ 48
Indemnifying Party....................................................... 48
Index Group.............................................................. 41
Index Price.............................................................. 41
Initial Non-Employee Share Number........................................ 5
Initial Public Offering.................................................. 33
Interim Financial Statements............................................. 13
Liens.................................................................... 13
Litigation Conditions.................................................... 48
Losses................................................................... 45
Material Adverse Effect.................................................. 10
Maximum Share Number..................................................... 4
Minimum Condition........................................................ 2
Offer.................................................................... 2
Offer Documents.......................................................... 6
Options.................................................................. 32
Over-Tendering Stockholder............................................... 5
Permits.................................................................. 17
person................................................................... 12
Position Statement....................................................... 7
Post IPO Agreement....................................................... 35
Registration Rights Agreement............................................ 36
Response Period.......................................................... 49
Restricted Shares........................................................ 32
SEC...................................................................... 2
Securities Act........................................................... 13
Securities Laws.......................................................... 26
Special Procedures Notice................................................ 8
Stockholder.............................................................. 1
Stockholder Representative............................................... 8
Stockholder Representative Agreement..................................... 9
Stockholders............................................................. 1
Subsidiaries............................................................. 12
Takeover Proposal........................................................ 35
<PAGE>
Tax Returns.............................................................. 15
Taxes.................................................................... 15
Threshold Number......................................................... 5
Transfer................................................................. 31
Warrant.................................................................. 35
<PAGE>
EXCHANGE OFFER AGREEMENT
This is an Exchange Offer Agreement (the "Agreement"), dated as of
February 24, 2000, by and among eCredit.com, Inc., a Delaware corporation
("eCredit.com" or the "Company"), Internet Capital Group, Inc., a Delaware
corporation ("ICG"), ICG Holdings, Inc., a Delaware corporation ("Holdings"),
and the other persons named on the signature pages hereto (each individually
referred to herein as a "Stockholder" and collectively as the "Stockholders").
Background
A. eCredit.com is a provider of credit management and financing
solutions for business-to-business and business-to-consumer commerce.
B. The Stockholders own a majority of the outstanding Common Stock of
eCredit.com.
C. ICG is an Internet holding company actively engaged in business-
to-business e-commerce through a network of partner companies. Holdings is a
wholly owned subsidiary of ICG.
D. The Board of Directors of Holdings deems it advisable and in the
best interests of Holdings and its stockholder, and the Board of Directors of
eCredit.com deems it advisable and in the best interests of eCredit.com and its
stockholders, for Holdings to make the Offer (as defined herein).
E. eCredit.com, the Stockholders, ICG and Holdings desire to make
certain representations and warranties and other agreements in connection with
the Offer.
Terms
In consideration of the mutual representations, warranties and
covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
<PAGE>
ARTICLE I
The Offer
1.1. The Offer.
(a) Upon the terms and subject to the conditions contained in this
Agreement, as soon as practicable after the date the Registration Statement
referred to in paragraph (e) below is declared effective by the Securities and
Exchange Commission (the "SEC"), Holdings shall, and ICG shall cause Holdings
to, commence an offer (as amended or supplemented in accordance with this
Agreement, the "Offer") to exchange a number of shares of Common Stock, par
value $.001 per share (the "ICG Common Stock"), of ICG for a number of shares of
common stock, par value $.001 per share (the "Common Stock"), of the Company;
provided, however, that Holdings shall be under no obligation (and ICG shall be
under no obligation to cause Holdings to) commence the Offer in any jurisdiction
where the making of such Offer would violate applicable law. The initial
expiration date of the Offer shall be the 20th business day following the
commencement of the Offer. The obligation of Holdings to consummate the Offer,
to accept for exchange and to exchange any shares of Common Stock tendered
pursuant to the Offer shall be subject to the Minimum Condition (as defined
below) and the other conditions set forth in this Agreement.
As used herein, the "Minimum Condition" means the condition that
either (i) not less than 9,244,959 shares of Common Stock shall have been
validly tendered and not withdrawn prior to the expiration of the Offer (such
number to be appropriately adjusted for any stock split, reverse stock split,
stock dividend or other like change affecting Common Stock), or (ii) if a lesser
number of shares of Common Stock shall have been validly tendered and not
withdrawn prior to the expiration of the Offer, the number of such shares so
tendered and not withdrawn, when added to the number of shares of Common Stock
issued by the Company and sold to Holdings pursuant to Section 1.6 hereof equals
not less than 30% of the shares of Common Stock that are issued and outstanding
on the date of expiration of the Offer, calculated on a fully-diluted basis.
The number of shares of Common Stock that are issued and outstanding
on any date "calculated on a fully-diluted basis" means (i) the number of shares
of Common Stock that are issued and outstanding on such date (including
Restricted Shares (as defined in Section 5.8(a)), whether vested or unvested,
plus (ii) the number of shares of Common Stock issuable pursuant to any
outstanding securities that are convertible into or exchangeable for shares of
Common Stock or any options, warrants or rights to purchase shares of Common
Stock or such securities (including Options (as defined in Section 5.8(a)),
whether vested or unvested), that are issued and outstanding on such date, plus
(iii) the aggregate number of additional shares of Common Stock that are
authorized or reserved for issuance for grants of options or restricted shares
pursuant to any benefit or incentive plans sponsored by the Company (other than
any such shares that have been reserved for issuance for Options that have been
<PAGE>
granted on such date or are Restricted Shares that are outstanding on such date
and in either case are included in clause (ii)). By way of example, based upon
the information set forth in Section 2.5, as well as Schedule 2.5(d) and
Schedule 2.5(e), the number of shares of Common Stock that are issued and
outstanding, calculated on a fully-diluted basis, on the date of this Agreement
is 30,816,530. In the event any shares of Common Stock are issued to Holdings
pursuant to Section 1.6 of this Agreement, the number of shares so issued shall
be included in the shares that are issued and outstanding on the date of
expiration of the Offer, calculated on a fully-diluted basis (including for
purposes of the calculation of the Exchange Ratio pursuant to paragraph (b)
below).
(b) The terms of the Offer will provide that all shares of outstanding
Common Stock may be tendered by the holder thereof, and subject to the terms and
conditions of the Offer, will entitle the tendering stockholder to receive for
each share of Common Stock validly tendered and not withdrawn a number of shares
of ICG Common Stock equal to the Exchange Ratio. The "Exchange Ratio" will equal
the quotient obtained by dividing the Aggregate Number of ICG Shares by the
product of (i) 30% times (ii) the number of shares of Common Stock that are
issued and outstanding on the date of expiration of the Offer, calculated on a
fully-diluted basis. As used herein, the "Aggregate Number of ICG Shares" means
a number of shares of ICG Common Stock equal to the quotient obtained by
dividing (i) $450,000,000 by (ii) the Average ICG Closing Price. The "Average
ICG Closing Price" means the average of the closing prices per share of ICG
Common Stock as reported by the NASDAQ National Market for the most recent three
days on which trading of ICG Common Stock has occurred prior to the second
trading day immediately prior to the date of expiration of the Offer (or, if the
Special Procedures Notice referred to in Section 1.4(b) is duly delivered to
ICG, for the three consecutive days on which such trading has occurred ending on
the date of expiration of the Offer) (in either case, the "Actual Average ICG
Closing Price"); provided, however, that if the Actual Average ICG Closing Price
is equal to or less than $95.20, the Average ICG Closing Price will be $95.20
and, if the Actual Average ICG Closing Price is equal to or greater than
$142.80, the Average ICG Closing Price will be $142.80.
(c) Holdings expressly reserves the right, in its sole discretion, to
modify and make changes to the terms and conditions of the Offer, provided that
without the prior consent of the Company, no modification or change may be made
which (i) decreases the consideration payable in the Offer (except as permitted
by this Agreement), (ii) changes the form of consideration payable in the Offer
(other than by adding consideration), (iii) changes the Minimum Condition, (iv)
modifies the Maximum Share Number, (v) changes the material conditions to the
Offer in a manner adverse to the Stockholders, (vi) imposes additional material
conditions to the Offer (other than in respect of any consideration which is
payable in addition to the Aggregate Number of ICG Shares) or (vii) is otherwise
inconsistent with the terms of this Agreement. Notwithstanding the foregoing,
Holdings may (but shall not be required under this Agreement or otherwise to),
without the consent of the Company, (i) extend the Offer on one or more
occasions for such period as may be determined by Holdings in its sole
discretion (each such extension period not to exceed 10 business days at a
time), if at the then scheduled expiration date of the Offer any of the
conditions to Holdings' obligations to accept for exchange and exchange shares
of Common Stock shall not be satisfied or waived, and (ii)
<PAGE>
extend the Offer for any period required by any rule, regulation, interpretation
or position of the SEC or the staff thereof applicable to the Offer (including
any extension necessary to permit the Registration Statement to become
effective). It is agreed that the conditions to the Offer are for the benefit of
Holdings and may be asserted by Holdings regardless of the circumstances giving
rise to any such condition (including any action or inaction by Holdings) or may
be waived by Holdings, in whole or in part at any time and from time to time, in
its sole discretion. On the terms and subject to the conditions of the Offer and
this Agreement, promptly after expiration of the Offer, Holdings shall accept
for exchange and exchange, and ICG shall cause Holdings to accept for exchange
and exchange, all shares of Common Stock that have been validly tendered and not
withdrawn pursuant to the Offer that Holdings becomes obligated to exchange
pursuant to the Offer. Neither Holdings nor ICG will have any obligation to pay
interest on the purchase price for any shares of Common Stock that are tendered
pursuant to the Offer. The terms of the Offer will permit the Company to issue
and tender pursuant the Offer a number of shares of Common Stock that does not
exceed the number of shares of Common Stock purchased by the Company after the
date of this Agreement (but prior to the expiration of the Offer) from employees
of the Company or its Subsidiaries (as defined in Section 2.4) who are residents
of jurisdictions other than the United States or any state thereof.
(d) Notwithstanding the foregoing and anything to the contrary herein,
the aggregate number of shares of Common Stock that may be accepted for exchange
pursuant to the Offer will not exceed the number that is equal to 30% of the
total number shares of Common Stock that are issued and outstanding on the date
of expiration of the Offer, calculated on a fully-diluted basis (but,
notwithstanding the last sentence of paragraph (a) above, prior to any issuance
of shares pursuant to Section 1.6) (the "Maximum Share Number"). In the event
that the number of shares of Common Stock that are validly tendered and not
withdrawn pursuant to the Offer exceeds the Maximum Share Number, the shares of
Common Stock validly tendered and not withdrawn pursuant to the Offer that are
accepted for exchange by Holdings shall be determined as follows:
(i) As to each stockholder of the Company who has validly
tendered and not withdrawn shares of Common Stock in the Offer who is an
employee of the Company or its Subsidiaries, the number of shares of Common
Stock that are accepted for exchange and exchanged will equal (A) if such
stockholder has validly tendered and not withdrawn at least 30% of the shares of
Common Stock owned by such stockholder on the date of expiration of the Offer,
calculated on a fully-diluted basis, the product of (I) 30% times (II) the
number of shares of Common Stock owned by such stockholder on the date of
expiration of the Offer, calculated on a fully-diluted basis, or (B) if such
stockholder has validly tendered and not withdrawn a lesser number of shares,
the number of shares so tendered and not withdrawn by such stockholder. The
aggregate number of shares accepted for exchange and exchanged pursuant to the
foregoing sentence is hereinafter referred to as the "Employee Share Number."
(ii) As to each stockholder of the Company who is not an employee
of the Company or its Subsidiaries who has validly tendered and not withdrawn
pursuant to the Offer a number of shares of Common Stock that is less than or
equal to 30% of the shares of Common Stock owned by such stockholder on
<PAGE>
the date of expiration of the Offer, calculated on a fully-diluted basis, the
number of shares of Common Stock that are accepted for exchange and exchanged
pursuant to the Offer shall equal the number of shares so tendered and not
withdrawn by such stockholder. The aggregate number of shares accepted for
exchange and exchanged pursuant to the foregoing sentence is hereinafter
referred to as the "Initial Non-Employee Share Number."
(iii) As to each stockholder of the Company who is not an employee
of the Company or its Subsidiaries who has validly tendered and not withdrawn
pursuant to the Offer a number of shares of Common Stock that is greater than
30% of the shares of Common Stock owned by such stockholder on the date of
expiration of the Offer, calculated on fully-diluted basis, the number of shares
of Common Stock that are accepted for exchange and exchanged pursuant to the
Offer shall equal the sum of (A) the number of shares that is equal to 30% of
the shares of Common Stock owned by such stockholder on the date of expiration
of the Offer, calculated on a fully-diluted basis (the "Threshold Number"), plus
(B) the number obtained by multiplying (I) the quotient obtained by dividing (x)
the Aggregate Available Share Number by (y) the Aggregate Excess Share Number,
by (II) the number of shares of Common Stock so tendered and not withdrawn in
the Offer by such stockholder in excess of such stockholder's Threshold Number.
As used above, the "Aggregate Available Share Number" means the difference
obtained by subtracting the Aggregate Base Share Number from the Maximum Share
Number, and the "Aggregate Base Share Number" means the sum of (A) the Employee
Share Number plus (B) the Initial Non-Employee Share Number plus (C) the
aggregate total number of shares of Common Stock accepted for exchange and
exchanged pursuant to clause (A) of the previous sentence. The "Aggregate Excess
Share Number" means the aggregate number of shares of Common Stock that are
validly tendered and not withdrawn in the Offer by Over-Tendering Stockholders
in excess of 30% of the shares of Common Stock owned by such stockholders on the
date of expiration of the Offer, calculated on a fully-diluted basis. An "Over-
Tendering Stockholder" means any stockholder of the Company who is not an
employee of the Company or its Subsidiaries who validly tenders and does not
withdraw in the Offer a number of shares of Common Stock in excess of such
stockholder's Threshold Number. Calculations of the percentage of shares owned
by a stockholder on any date "on a fully-diluted basis" for purposes of the
foregoing subparagraphs shall, consistent with paragraph (a) above, include in
the numerator of such calculation any shares issuable pursuant to any
outstanding securities that are convertible into or exchangeable for shares of
Common Stock or any options, warrants or rights to purchase shares of Common
Stock or such securities (including Options), whether vested or unvested, that
are owned by such stockholder, with the denominator of such calculation equaling
the aggregate number of shares of Common Stock outstanding on such date,
calculated on a fully-diluted basis.
(iv) Any shares of Common Stock which are not accepted for
exchange will be promptly returned to the stockholder after expiration of the
Offer. In the event that a proration as contemplated by this paragraph (d)
occurs, any Stockholder shall be entitled to deliver a written notice to
Holdings identifying and prioritizing (by certificate number or other reasonable
means) among the aggregate shares tendered and not withdrawn by such Stockholder
<PAGE>
which shares so tendered are to be accepted for exchange by Holdings pursuant to
the Offer and which are not to be so accepted (so long as the aggregate number
of shares to be so accepted equals the appropriate number determined pursuant to
the immediately preceding subparagraphs (i)-(iii)).
(e) As promptly as practicable following the filing of ICG's Annual
Report on Form 10-K for the year ended December 31, 1999 with the SEC, but
subject to the terms and conditions hereof, ICG shall file with the SEC with
respect to the Offer a Registration Statement on Form S-4 (or, if ICG so elects,
a post-effective amendment to a previously filed Registration Statement on Form
S-4) (together with all amendments and supplements thereto and including the
exhibits thereto, the "Registration Statement" (it being understood that if ICG
elects to file a post-effective amendment to an existing Registration Statement
with respect to the Offer, the term "Registration Statement" as used herein
shall include only such post-effective amendment and any amendments or
supplements and exhibits thereto)) with respect to the Offer, which shall
include a Prospectus (or Prospectus Supplement)/Offer to Exchange (together with
the related letters of transmittal and exhibits thereto, the "Offer Documents").
The Registration Statement, in addition to registering the issuance of ICG
Common Stock pursuant to the Offer, will register the resale by affiliates of
the Company of the shares of ICG Common Stock received pursuant to the Offer for
a period of 20 days following the Closing Date (as hereinafter defined). ICG
will provide the Company and the Company's counsel with a copy of the
Registration Statement for comment by the Company and its counsel not less than
five days prior to the initial filing thereof with the SEC and will provide the
Company and the Company's counsel with a copy of any amendment thereto a
reasonable time prior to the filing thereof with the SEC (taking into account
the specific circumstances of the filing of any such amendment and the need to
complete such filing on an expedited basis). ICG will use all reasonable efforts
to cause the Registration Statement to become effective as soon as practicable
following the filing thereof with the SEC. ICG shall promptly provide the
Company with a true and complete copy of the Registration Statement filed with
the SEC and all supplements and amendments thereto. Subject to compliance by the
Company and any Stockholders with their obligations under this Agreement, ICG
will cause the Registration Statement to comply in all material respects with
all requirements of law and the rules and regulations of the SEC. Each of the
Company and each Stockholder agrees to provide ICG promptly upon request by ICG
with any information relating to the Company or such Stockholder that is
necessary or appropriate for inclusion in the Registration Statement under
applicable law or the rules and regulations of the SEC. The Company will cause
its independent auditors to provide ICG with (i) a manually signed consent to
inclusion of the audit report of such auditors in the Registration Statement and
(ii) a letter, addressed to ICG and its directors, dated as of the effective
date of the Registration Statement and the Closing Date, in form and substance
reasonably satisfactory to ICG and customary in scope and substance for
"comfort" letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement, and will cause
its independent auditors otherwise to reasonably cooperate in providing
information for inclusion in the Registration Statement. ICG agrees to provide
the Company and its counsel in writing any comments that ICG or its counsel may
receive from the SEC or its staff with respect to the Registration Statement
promptly after the receipt thereof. Each of the Company, ICG and each
<PAGE>
Stockholder shall promptly correct any information provided by it (or its legal
counsel or other authorized representatives) for use in the Registration
Statement that shall have become false or misleading in any material respect,
and ICG further agrees to take all steps necessary to cause such Registration
Statement as so corrected to be filed with the SEC as and to the extent required
by applicable federal securities laws.
1.2. Company Actions.
(a) The Company hereby consents to the Offer and represents and
warrants that its Board of Directors, at a meeting duly called and held on
February 17, 2000 has duly adopted resolutions approving the Offer, this
Agreement and the other transactions contemplated hereby, determining that the
terms of the Offer are fair to, and in the best interests of, the Company's
stockholders and recommending acceptance of the Offer by the stockholders of the
Company (as well as, to the extent legally permissible, the Position Statement
referred to in paragraph (b) below). The Company hereby consents to the
inclusion in the Registration Statement and the Offer Documents of the
recommendations of the Company's Board of Directors described in this Section
1.2. The Company has been advised that all of its directors and executive
officers who are not Stockholders intend to tender at least 30% of their fully-
diluted shares of Common Stock pursuant to the Offer.
(b) No later than the date the Offer is commenced, the Company shall
publish, send or give, within the meaning of Rule 14e-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a statement which shall
comply in all material respects with the provisions of applicable federal
securities laws and will contain the above recommendations of the Board in favor
of the Offer, together with the reasons therefor (the "Position Statement"). The
Company will use its reasonable efforts to provide ICG with a copy of the
Position Statement prior to the filing of the Registration Statement with the
SEC so that ICG can include the Position Statement as part of the Offer
Documents. The Company shall deliver the proposed form of the Position Statement
to ICG within a reasonable time prior to the filing of the Registration
Statement for review and comment by ICG and its counsel. ICG and its counsel
shall be given a reasonable opportunity to review any amendments and supplements
to the Position Statement prior to dissemination to stockholders of the Company.
The Company agrees to provide ICG and its counsel in writing any comments that
the Company or its counsel may receive from the SEC or its staff with respect to
the Position Statement promptly after receipt thereof. Each of the Company, ICG
and each Stockholder shall promptly correct any information provided by it for
use in the Position Statement that shall have become false or misleading in any
material respect and the Company further agrees to take all steps necessary to
cause such Position Statement as so corrected to be disseminated to the
stockholders of the Company, as and to the extent required by applicable federal
securities laws.
1.3. Stockholder Lists. In connection with the Offer, the Company
shall promptly furnish to, or cause to be furnished to, ICG and Holdings any
available listing or computer file containing the names and addresses of the
record holders of shares of Common Stock (and any other capital stock of the
Company, including the preferred stock referred to in Section 2.5, and any
securities
<PAGE>
convertible into or exchangeable for capital stock of the Company and any
options, warrants or rights to purchase such stock or securities) as of a recent
date and of those persons becoming record holders subsequent to such date (to
the extent available), together with all other information in the Company's
possession or control regarding the number of shares owned by the stockholders
of the Company and shall furnish ICG and Holdings with such information and
assistance as ICG, Holdings or their respective agents may reasonably request in
communicating the Offer to the record and beneficial holders of shares of Common
Stock. Subject to the requirements of law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Offer, ICG and Holdings shall, and shall cause each of their
affiliates to, hold the information contained in any of such labels and lists in
confidence, use such information only in connection with the Offer, and, if this
Agreement is terminated, deliver to the Company all copies of such information
or extracts therefrom then in their possession or under their control.
1.4. Closing.
(a) Unless this Agreement has been terminated pursuant to Section 6.3
hereof; the closing for the transactions contemplated hereby (the "Closing")
shall take place on not less than two business days prior written notice to the
Company on the day after the date that the Offer expires and the shares of
Common Stock validly tendered and not withdrawn pursuant to the Offer are
accepted for exchange by Holdings at the offices of Dechert Price & Rhoads, 4000
Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA 19103, or on such other
date or at such other time or location as the Company and ICG shall mutually
agree. References to the "Closing Date" in this Agreement mean the date on which
the Closing occurs.
(b) In the event the Company delivers a written notice (the "Special
Procedures Notice"), on or prior to March 15, 2000, to ICG and Holdings to the
effect that the Stockholders (or any portion of them, or any portion of such
Stockholders together with any other stockholders of the Company) have appointed
a single Stockholder as their representative and attorney in fact for purposes
of receiving the shares of ICG Common Stock to be delivered to such stockholders
pursuant to the Offer (the "Stockholder Representative"), the procedures set
forth in this paragraph (b) will apply in respective of the delivery of shares
of ICG Common Stock in connection with the Closing. The Company will deliver to
ICG and Holdings a true and complete copy of the agreement evidencing the
appointment of the Stockholder Representative (the "Stockholder Representative
Agreement") at the time the Special Procedures Notice is given. If such Special
Procedures Notice is so delivered on or prior to March 15, 2000, Holdings will,
and ICG will cause Holdings to, deliver (or cause to be delivered) on the
Closing Date the shares of ICG Common Stock due pursuant to the Offer to the
stockholders who are parties to the Stockholder Representative Agreement to a
brokerage account designated in writing by the Stockholder Representative not
less than three business days prior to the Closing Date (it being understood
such account shall be maintained at Goldman, Sachs & Co. or another nationally
recognized broker-dealer reasonably acceptable to ICG). Such shares shall be
delivered to such brokerage account in uncertificated form. If the Special
Procedures Notice is given, any shares of ICG Common Stock due to stockholders
of the Company pursuant to the Offer that are not delivered to such brokerage
<PAGE>
account shall be sent be reputable overnight courier as soon as is practicable
(but no later than five business days) after the Closing Date in certificated
form to the address of the appropriate stockholder as listed on the stockholder
records of the Company delivered to ICG and Holdings pursuant to Section 1.3
above.
(c) If no Special Procedures Notice is given, Holdings will, and ICG
will cause Holdings to, deliver (or cause to be delivered) certificates
representing shares of ICG Common Stock due to any Stockholder pursuant to the
Offer to such Stockholder (or his, her or its legal counsel or other
representative designated in writing) who is present at the Closing (so long as
Holdings and ICG have been advised of such presence not less than three business
days prior to the Closing Date). Any shares of ICG Common Stock due to
stockholders of the Company that are not delivered at the Closing shall be sent
be reputable overnight courier on the Closing Date (for delivery the business
day after the Closing Date) in certificated form to the address of the
appropriate stockholder as listed on the stockholder records of the Company
delivered to ICG and Holdings pursuant to Section 1.3 above.
(d) If requested by the Company or ICG, the parties will discuss
alternative procedures for delivery of shares of ICG Common Stock at the
Closing, and each party will agree to reasonable procedural changes requested by
the other, provided that no such change (other than the one contemplated by
paragraph (b) above) shall be made that is materially adverse to any party with
the prior written consent of such party. A change in the time of delivery of
shares or the time available to ICG to cause such shares to be delivered shall
be deemed to be materially adverse to the other party.
1.5. Lost, Stolen or Destroyed Certificates. The Offer Documents will
provide that holders of shares of Common Stock that are represented by
certificates that have been lost, stolen or destroyed will be permitted to
tender their shares pursuant to the Offer upon the making of an affidavit of
that fact by the holder thereof and the delivery of a customary indemnification
agreement executed by such holder indemnifying Holdings, ICG and the Company
against any claim that may be made against any of such parties with respect to
the certificates alleged to have been lost, stolen or destroyed.
1.6. Issuance of Shares by the Company. In the event that the number of
shares of Common Stock validly tendered and not withdrawn prior to expiration of
the Offer is less than the Maximum Share Number, upon expiration of the Offer,
the Company will issue and sell to Holdings, and Holdings will purchase from the
Company, a number of shares of Common Stock that is equal to the difference
between the number of shares validly tendered and not withdrawn prior to the
expiration of the Offer and the Maximum Share Number for a per share purchase
price consisting of a number of shares of ICG Common Stock equal to the Exchange
Ratio.
<PAGE>
ARTICLE II
Representations and Warranties of the Company
The Company hereby represents and warrants to ICG and Holdings, as of
the date hereof, as follows:
2.1. Organization.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct the business in which it is engaged as presently conducted. Each of the
Company and its Subsidiaries (as defined in Section 2.4) is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where the character of the property owned, leased or operated by it, or the
conduct of its business, makes such qualification necessary, except where the
failure to be so duly qualified and in good standing could not reasonably be
expected to have a Material Adverse Effect. As used herein, the term "Material
Adverse Effect" means any material adverse effect (i) on the assets,
liabilities, business, or financial condition of the Company and its
Subsidiaries, taken as a whole, or (ii) on the ability of each of the Company
and the Stockholders to consummate the transactions contemplated hereby or (iii)
on the ability of the Company and its Subsidiaries to continue to operate their
business immediately after the Closing in substantially the same manner as such
business is conducted prior to the Closing, other than (A) any effect arising
out of or resulting from general industry, economic or stock market conditions
that affect the Company or its Subsidiaries (or the markets in which the Company
or its Subsidiaries compete) or (B) any effect proximately caused by the public
announcement of this Agreement.
(b) Schedule 2.1 contains true, complete and correct copies of the
Certificate of Incorporation and Bylaws of the Company and each Subsidiary, in
each case as in effect on the date of this Agreement (it being understood that
such instruments are to be amended and/or amended and restated prior to the
Closing as contemplated by Section 5.6).
2.2. Authorization and Enforceability. The Company has full corporate
power and authority to execute and deliver this Agreement and each other
document or instrument contemplated hereby, to perform its obligations hereunder
and thereunder, and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by the Company of this Agreement and each
other document or instrument executed or to be executed by it in connection
herewith, and the consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate action
(except for the stockholder approval contemplated by Section 5.6). Each of this
Agreement and each other document or instrument executed or to be executed by
the Company in connection herewith has been or will be duly executed and
delivered by the Company, and, when duly executed and delivered by the other
parties hereto or thereto, constitutes, or will constitute, a legal, valid and
binding obligation of the Company, enforceable against it in accordance with its
terms.
<PAGE>
2.3. Conflicts, Consents and Approvals. Except as set forth in Schedule
2.3, the execution and delivery by the Company of this Agreement and the
execution and delivery by the Company of any other documents or instruments
contemplated hereby to be executed by the Company, the performance by the
Company of its obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, do not and will not:
(a) violate or conflict with or result in a breach of any provision of
the Certificate of Incorporation or Bylaws of the Company, as such instruments
are currently in effect;
(b) require any consent, approval or notice under, or registration
under or payment on account of; or conflict with, or result in a violation or
breach of, or constitute (with or without the giving of notice or the lapse of
time or both) a default (or give rise to any right of termination, modification
(including, in the case of leases, any change in the amount or nature of the
rent), cancellation or acceleration or result in the creation or imposition of
any Lien upon the property of the Company or any Subsidiary) under, any of the
terms, conditions or provisions of any (i) note, bond, mortgage, indenture,
license, lease, agreement or other instrument or obligation to which the Company
or any Subsidiary is a party or by which any portion of its or its Subsidiaries'
properties or assets may be bound, or (ii) any permit, license, approval,
franchise or other governmental or regulatory authorization held or used by or
binding on the Company or any Subsidiary;
(c) violate or contravene any law, statute, rule or regulation, or any
order, writ, judgment, injunction, decree, determination or award of any
Authority (as defined in Section 2.7) currently in effect; or
(d) require any action, consent, approval or authorization of, or
review by, or declaration, registration or filing with, or notice to, any
Authority, or any stock exchange or similar self-regulatory organization.
The Stock Purchase Agreement, dated September 16, 1993, among the
Company, V. Srinivasan, S. Sen and the Purchasers named therein has been
terminated, except for the provisions of such agreement which grant the Company
and such Purchasers the right to repurchase the shares of capital stock of the
Company owned by S. Sen.
2.4. Subsidiaries.
(a) Schedule 2.4 contains a list of the subsidiaries of the Company
(the "Subsidiaries"). Except for the Subsidiaries, the Company does not own, and
has not owned, directly or indirectly, beneficially or of record, or have or had
any operational control over, or have any obligation to acquire, any capital
stock or other equity securities of any corporation, nor does the Company have
any direct or indirect equity or ownership investment, or any obligation to
incur such investment, in any other person. As used herein, the term "person"
means any individual, corporation, partnership, limited liability company, joint
venture, association, trust or other entity or organization.
<PAGE>
(b) Neither the Company nor any Subsidiary is, nor has any of them
been, a participant in any joint venture or partnership.
2.5. Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
the Company consists of 33,962,013 shares of Common Stock and 11,037,987 shares
of preferred stock, par value $.001 per share.
(b) As of the date of this Agreement, (i) 6,079,398 shares of Common
Stock were issued and outstanding, all of which are duly authorized, validly
issued, fully paid and nonassessable, (ii) 450,000 shares of Common Stock were
held in the treasury of the Company and (iii) options to acquire 6,158,006
shares of Common Stock have been granted and are outstanding under the Company's
1993 Stock Option Plan and the Company's 1998 Stock Option and Purchase Plan
(together, the "Incentive Plans"), and an additional 132,846 shares of Common
Stock have been reserved for issuance for additional grants of options or shares
of restricted stock under the Incentive Plans.
(c) As of the date of this Agreement, (i) 946,808 shares of Series A
Preferred Stock, par value $.001 per share, of the Company are authorized, all
of which are issued and outstanding; (ii) 184,432 shares of Series B Preferred
Stock, par value $.001 per share, of the Company are authorized, all of which
are issued and outstanding; (iii) 1,297,076 shares of Series C Preferred Stock,
par value $.001 per share, of the Company are authorized, of which 757,156
shares of Series C Preferred Stock, par value $.001 per share, of the Company
are issued and outstanding; (iv) 6,695,618 shares of Series D Preferred Stock,
par value $.001 per share, of the Company are authorized, all of which are
issued and outstanding; and (v) 1,914,053 shares of Series E Preferred Stock,
par value $.001 per share, of the Company are authorized, of which 1,435,535
shares of Series E Preferred Stock are issued and outstanding. The foregoing
series of preferred stock of the Company are collectively referred to herein as
the "Company Preferred Stock." No shares of Company Preferred Stock are held in
the treasury of the Company. No options to acquire Company Preferred Stock have
been, or are authorized to be, issued under the Incentive Plans or any other
equity or benefit plan of the Company.
(d) The outstanding shares of capital stock of the Company are owned
of record as set forth in Schedule 2.5(d). All of the outstanding shares of
capital stock of the Company (i) are duly authorized, validly issued, fully paid
and non-assessable, (ii) have not been issued in violation of any preemptive
rights, rights of first refusal or offer or similar rights of any person, and
(iii) have been offered and sold in compliance with the Securities Act of 1933,
as amended (the "Securities Act"), and all other applicable securities laws and
the rules and regulations thereunder. Except as set forth in Schedule 2.5(d),
the Company owns beneficially and of record all of the outstanding shares of
capital stock of each Subsidiary, free and clear of any liens, encumbrances,
claims, security interests, mortgages, pledges, charges, conditional sales or
other title retention agreements, preemptive rights, easements, covenants,
licenses, options, rights of first refusal or offer, title defects or claims of
any kind whatsoever ("Liens").
<PAGE>
(e) Except as set forth on Schedule 2.5(e), there are no outstanding
(i) securities of the Company or any Subsidiary convertible into or exchangeable
for any shares of capital stock of the Company or any Subsidiary or (ii)
options, warrants, calls or other rights to acquire from the Company or any
Subsidiary, or other obligations or understandings or arrangements of the
Company or any Subsidiary to issue, any shares of capital stock of the Company
or any Subsidiary or securities convertible into or exchangeable for shares of
capital stock of the Company or any Subsidiary. Except as set forth in Schedule
2.5(e) hereto, there are no outstanding obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any shares of capital
stock of the Company or any Subsidiary (or any of the other securities set forth
in the previous sentence). Except pursuant to this Agreement or as set forth on
Schedule 2.5(e) hereto, neither the Company nor any Subsidiary is a party to, or
bound by, any arrangement, agreement, instrument or order (i) relating to the
transfer of any shares of capital stock of the Company or any Subsidiary, (ii)
relating to the dividend or voting rights of any shares of capital stock of the
Company or any Subsidiary, (iii) granting, or obligating the Company or any
Subsidiary to grant, to any person any preemptive right or (iv) relating to
rights to registration under the Securities Act or any other securities laws of
any shares of capital stock of the Company or any Subsidiary.
(f) Immediately after the Closing (giving effect to the exchange
contemplated hereby and assuming the number of shares of Common Stock accepted
for exchange and exchanged pursuant to the Offer (plus any shares of Common
Stock issued to Holdings pursuant to Section 1.6) equals the Maximum Share
Number), the equity capitalization of the Company will be as set forth in
Schedule 2.5(f).
2.6. Financial Statements. Schedule 2.6 contains copies of (a) the
audited consolidated financial statements of the Company for the years ended,
and as of, December 31, 1996, December 31, 1997 and December 31, 1998 (the
"Audited Financial Statements") and (b) the unaudited consolidated financial
statements of the Company for the eleventh month period ended, and as of,
November 30, 1999 (the "Interim Financial Statements" and, together with the
Audited Financial Statements, the "Financial Statements"). The Financial
Statements are in accordance with the books and records of the Company and the
Subsidiaries and fairly present, in all material respects, in accordance with
United States generally accepted accounting principles ("GAAP") consistently
applied (except as may be indicated in the notes thereto) the consolidated
financial position of the Company and its Subsidiaries as at the dates thereof,
and the consolidated results of their operations for the periods covered
thereby, except that the Interim Financial Statements do not include notes and
are subject to customary year-end adjustments that in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
2.7. Litigation. Except as set forth in Schedule 2.7, there is no
pending or, to the knowledge of the Company, threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or involving
the Company or any Subsidiary, or any of the property or rights of the Company
or any Subsidiary. Neither the Company nor any Subsidiary is subject to or
bound by any order, judgment, writ, injunction or decree of any federal, state,
local or
<PAGE>
foreign governmental or regulatory entity (or any department, agency,
authority or political subdivision thereof) or court or arbitrator (any of the
foregoing, an "Authority"). The foregoing includes any action, suit,
proceeding, or investigation pending or currently threatened involving the prior
employment of any of the Company's or any Subsidiary's employees, their use in
connection with the Company's or any Subsidiary's business of any information or
techniques allegedly proprietary to any of their former employers, their
obligations under any agreements with prior employers, or negotiations by the
Company or any Subsidiary with potential backers of, or investors in, the
Company or its current or proposed business. Except as set forth in Schedule
2.7, there is no action, suit, proceeding or investigation by the Company or any
Subsidiary pending or that the Company or any Subsidiary intends to initiate.
2.8. No Brokers or Finders. Except as set forth on Schedule 2.8, neither
the Company, any Subsidiary nor any of their affiliates, officers, directors or
employees, (a) has employed (or will employ) any investment banker, broker or
finder, or (b) has incurred (or will incur) any liability for any brokerage
fees, commissions or finders fees or expenses or indemnification or similar
obligations in connection with the transactions contemplated by this Agreement.
2.9. Taxes. The Company and each of its Subsidiaries has prepared and
timely filed all federal, state, foreign and other Tax Returns required under
the laws of any applicable jurisdiction to be filed by it, has paid or made
provision for the payment of all Taxes due and all additional assessments
(whether or not shown on such returns), and adequate provisions have been made
and are reflected in the Company's financial statements for all current Taxes
and other charges to which the Company and each of its Subsidiaries is subject
and which are not currently due and payable. None of the Tax Returns of the
Company has been audited by the applicable Authority or is currently the subject
of an audit. Except as set forth on Schedule 2.9, there are no assessments or
adjustments pending or, to the knowledge of the Company, proposed or threatened
against the Company or its Subsidiaries for any period, nor, to the knowledge of
the Company, is there any basis for any such assessment or adjustment. True
copies of federal and state income tax returns of the Company for the fiscal
years ended December 31, 1996, December 31, 1997 and December 31, 1998 have been
delivered to ICG. No claim has been made by a taxing Authority in a
jurisdiction where the Company or any Subsidiary does not file Tax Returns that
such party is or may be subject to taxation by that jurisdiction. Except as set
forth in Schedule 2.9, each of the Company and each Subsidiary has properly
withheld and deposited taxes required to be withheld and deposited and has
properly complied with all information reporting requirements. Neither the
Company nor any Subsidiary has ever been a member of a consolidated group of
corporations for federal income tax purposes, except for a group of which the
Company is the common parent. For purposes of this Agreement, "Code" means the
Internal Revenue Code of 1986, as amended, and any applicable predecessor or
successor statute; "Taxes" means all federal, state, local and foreign income,
payroll, withholding, excise, sales, use, real and personal property, use and
occupancy, business and occupation, mercantile, real estate, capital, franchise
and other taxes of any kind whatsoever, including interest and penalties thereon
and all estimated taxes; and "Tax Returns" means all returns or reports,
including accompanying schedules, with respect to Taxes.
<PAGE>
2.10. Absence of Undisclosed or Contingent Liabilities. Except as set
forth on Schedule 2.10 hereto and except as (and to the extent) accrued on the
balance sheet included in the Interim Financial Statements, as of the date of
the Interim Financial Statements, to the Company's knowledge, neither the
Company nor any Subsidiary had any material liability or obligation (whether
absolute or contingent, liquidated or unliquidated), other than executory
obligations under contracts disclosed in Schedule 2.19 not required to be
accrued on such balance sheet under GAAP and incurred in the ordinary course of
business consistent with past practice. Since the date of the Interim Financial
Statements, to the Company's knowledge, neither the Company nor any Subsidiary
has become subject to any such liability or obligation, other than (a)
liabilities and obligations incurred in the ordinary course of business
consistent with past practice of a type reflected in the Interim Financial
Statements, which are not inconsistent with the representations and warranties
of the Company in this Agreement and which could not reasonably be expected to
have a Material Adverse Effect in the aggregate; (b) executory obligations under
contracts which are disclosed in Schedule 2.19, which are not required to be
accrued on the Interim Financial Statements under GAAP and which have been
incurred in the ordinary course of business consistent with past practice; and
(c) liabilities and obligations set forth on Schedule 2.10 hereto.
2.11. Property. Except as set forth on Schedule 2.11, each of the Company
and its Subsidiaries has good and marketable title in fee to such of its fixed
assets, if any, as are real property, and good and merchantable title to all of
its other assets and properties, free of any Liens, where the failure to do so
could reasonably be expected to have a Material Adverse Effect. Each of the
Company and its Subsidiaries enjoys peaceful and undisturbed possession under
all leases under which it is operating, and all said leases are valid and
subsisting and in full force and effect. The Company knows of no adverse claim
that would interfere with its or its Subsidiaries' right to use the patents,
patent rights, permits, licenses, trade secrets, trademarks, service marks,
trade names or trade name rights or franchises, copyrights, inventions, or other
intellectual property rights being used to conduct its business and, to the
Company's knowledge, the conduct of its and its Subsidiaries' business does not
now conflict, and will not in the future conflict, with valid patents, patent
rights, permits, licenses, trade secrets, trademarks, service marks, trade names
or trade name rights or franchises, copyrights, inventions, or other
intellectual property rights of any other person, except as noted in Schedule
2.11. A complete list of the patents, patent applications, trademark and
service mark registrations and applications, copyright registrations and
applications and domain name registrations and applications owned by the Company
or its Subsidiaries is attached hereto as Schedule 2.11. Schedule 2.11 also
sets forth a complete list of all licenses, sublicenses, consents, settlement
agreements and other agreements (i) by which the Company or any Subsidiary is
licensed or otherwise authorized to use the intellectual property rights of any
person (other than standard-form licenses for widely available commercial
software), (ii) by which the Company or any Subsidiary licenses or otherwise
authorizes a third-party to use any intellectual property rights of the Company
or any Subsidiary, or (ii) that restrict or in any other way limit the use of
any intellectual property rights of the Company or any Subsidiary. To the
Company's knowledge, no product or process presently used or proposed to be
manufactured, marketed, offered, sold or used by the Company or any Subsidiary
will violate any license or infringe on or otherwise violate any intellectual
property rights
<PAGE>
of any other person; and neither the Company's nor any Subsidiary's intellectual
property rights nor the operation or proposed operation of the Company's or any
Subsidiary's business is known to conflict with the rights of others, nor does
there exist any known basis for any such conflict, except as noted in Schedule
2.11. No claim is pending or known to be threatened to the effect that any such
intellectual property owned or licensed by the Company or any Subsidiary, or
which the Company or any Subsidiary otherwise has the right to use, is invalid
or unenforceable by the Company or any Subsidiary, and the Company has no reason
to believe that any patents or other intellectual property rights owned or used
by the Company or any Subsidiary may be invalid. Except as set forth in Schedule
2.11, the Company is not aware of any person that is infringing on or otherwise
violating the intellectual property rights of the Company or any Subsidiary.
Except as set forth on Schedule 2.11 (and except for standard-form licenses for
widely available commercial software), the Company has no known obligation to
compensate any person for the use of any such patents or rights, and neither the
Company nor any Subsidiary has granted any Person any license or other rights to
use in any manner any of the patents or rights of the Company or any Subsidiary,
whether requiring the payment of royalties or not.
2.12. Insurance. Attached hereto as Schedule 2.12 is a true, correct and
complete list of all policies of insurance to which the Company or any
Subsidiary is a party, a named insured, or otherwise the beneficiary of
coverage.
2.13. Environmental Matters. To the Company's knowledge, the business,
assets and properties of the Company and each Subsidiary are and have been
operated and maintained in compliance, in all material respects, with all
applicable federal, state, city, county and local environmental protection laws
and regulations (collectively, the "Environmental Laws"). To the Company's
knowledge, no event has occurred which, with or without the passage of time or
the giving of notice, or both, would constitute a noncompliance by either the
Company or any Subsidiary with, or a violation by either the Company or any
Subsidiary of, the Environmental Laws. Neither the Company or any Subsidiary
nor any of their respective predecessor companies has caused or permitted to
exist, as a result of an intentional or unintentional act or omission, a
disposal, discharge or release (as defined in the Comprehensive Environmental
Response, Compensation and Liability Act, as amended) of wastes, pollutants,
contaminants or hazardous or toxic substances, on or from any site which
currently is or formerly was owned, leased, occupied or used by either the
Company or any Subsidiary or any predecessor company, except where such
disposal, discharge or release was in compliance with the Environmental Laws.
There is no site (a) which is listed, or proposed for listing on a registry or
inventory of inactive hazardous waste sites or sites potentially requiring
investigation or response maintained by any Authority and which currently is or
formerly was owned, leased, occupied or used by either the Company, any
Subsidiary or any predecessor company or (b) with respect to which either the
Company, any Subsidiary or any predecessor company has received notice that such
Company is considered to be a potentially responsible person for cleanup or
other liability in respect of Environmental Laws or about which information has
been requested from the Company or any Subsidiary or any of their predecessors.
<PAGE>
2.14. Permits. Except as set forth on Schedule 2.14, each of the Company
and its Subsidiaries possesses all certificates, permits, franchises, licenses
and authorizations ("Permits") required by any Authority having or claiming
jurisdiction over the Company or any such Subsidiary, their properties or
business, where the failure to have such Permits could reasonably be expected to
have a Material Adverse Effect. All such Permits are in full force and effect
and good standing. Neither the Company nor any Subsidiary is in default (or non-
compliance) under any Permit. No modification, suspension or cancellation of a
Permit, or any proceeding relating thereto, is pending or, to the knowledge of
the Company, threatened with respect to a Permit. No other proceeding is pending
or, to the knowledge of the Company, threatened with respect to any such Permit.
No notice has been received by the Company or any Subsidiary with respect to any
failure by the Company or any Subsidiary to have any Permit.
2.15. Compliance with Laws. The operations of the Company and its
Subsidiaries have been conducted in compliance in all material respects with
applicable laws, regulations and other requirements of all Authorities having or
claiming jurisdiction over the Company and its Subsidiaries or any of their
business or operations, including laws, regulations and requirements relating to
employment and employment practices, terms and conditions of employment and
wages and hours, antitrust, consumer protection, immigration, health,
occupational safety and health, and securities. The Company has not received
any notification of any asserted present or past failure by the Company or any
Subsidiary to comply with any laws, rules or regulations nor, to the knowledge
of the Company, is there any basis for such a claim.
2.16. Labor Matters. Neither the Company nor any Subsidiary is a party to
or bound by any agreement with any labor organization, including any collective
bargaining or similar agreement. There is no labor strike, dispute, slowdown or
stoppage pending or, to the knowledge of the Company, threatened against or
affecting the Company or any Subsidiary. Neither the Company nor any Subsidiary
has experienced any work stoppage, strike, slowdown, picketing, leafleting, or
union organizational efforts.
2.17. Absence of Changes. Except as and to the extent set forth on
Schedule 2.17, since the date of the Interim Financial Statements, there has not
been any Material Adverse Effect or any change or occurrence which could
reasonably be expected to have a Material Adverse Effect. Without limiting the
foregoing, except as set forth in Schedule 2.17, from and after such date,
neither the Company nor any Subsidiary has:
(a) Changed its accounting practices, methods or assumptions
(including changes in estimates or valuation methods);
(b) Written down the value of any assets (including write-downs by
reason of shrinkage or mark-down);
(c) Cancelled any debts or waived any claims or rights;
(d) Sold, transferred, or otherwise disposed of any properties or
assets, except for dispositions of obsolete furniture, fixtures and equipment
<PAGE>
which are not material in the aggregate and for licenses of its intellectual
property entered into in the ordinary course of business;
(e) Permitted to lapse any rights to the use of any of its
intellectual property or disclosed (except as necessary in the conduct of its
business) to any person, other than representatives of ICG, any trade secret,
formula, process or know-how not thereto for a matter of public knowledge;
(f) Granted any increase in the compensation of officers or employees
or any increases in the compensation payable or to become payable to any officer
or employee, except for normal increases granted in the ordinary course of
business consistent with past practices, or entered into or amended any
employment, consulting or similar agreement or made any agreement or commitment
to pay any severance or similar compensation;
(g) Made any single capital expenditure or commitment in excess of
$50,000 for additions to property, plant, equipment or intangible capital assets
or made aggregate capital expenditures and commitments in excess of $50,000 or
additions to property, plant, equipment or intangible capital assets;
(h) Declared, paid or set aside for payment any dividend or other
distribution in respect of its equity securities or redeemed, purchased or
otherwise acquired, or offered, sold or issued, directly or indirectly, any
equity or other securities of the Company (including options, warrants or rights
to acquire securities), or merged or consolidated with any person, or adopted
any plan of liquidation or dissolution or other reorganization, or acquired the
stock, assets or business of any other person;
(i) Paid, distributed, loaned or advanced any amount to, or sold,
transferred or leased any properties or assets (real, personal or mixed,
tangible or intangible) to, or entered into any agreement or arrangement with,
any of its stockholders, or any officers or directors of the Company or any of
its stockholders, or any other "affiliate" of the Company or any of its
stockholders or any of their respective officers or directors, or any
"associate" (as such terms are defined in Rule 405 under the Securities Act) of
any of the foregoing persons;
(j) Made any election for Tax purposes (or had any election made on
its behalf);
(k) Incurred any liabilities or obligations (absolute, accrued,
contingent or otherwise, including by way of surety or guaranty) for the
borrowing of money or the payment of money other than payment liabilities for
supplies incurred in the ordinary course of business consistent with past
practice;
(l) Paid, discharged or satisfied any claim, liabilities or
obligations (absolute, accrued, contingent or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business consistent with
past practice of liabilities and obligations reflected on or reserved against on
<PAGE>
the Interim Financial Statements or incurred in the ordinary course of business
consistent with past practice since the date of the Interim Financial
Statements; or
(m) Agreed, whether in writing or otherwise, to take any action
described in this Section.
2.18. Transactions with Affiliates. Except as set forth on Schedule
2.18 hereto, none of the persons referred to in Section 2.17(i) has any
interest, directly or indirectly, in any lease, Lien, contract, license,
encumbrance, loan or other agreement or commitment to which the Company or any
Subsidiary is a party, or any property or asset used or owned by, or any
interest in any supplier of, the Company or any Subsidiary. Except as set forth
on Schedule 2.18 hereto, neither the Company nor any Subsidiary is indebted,
directly or indirectly, to (a) any stockholder of the Company or any affiliate
of any stockholder of the Company or any of their associates (other than in
respect of items (and amounts) fully disclosed in the Financial Statements) or
(b) any officer, director or employee of the Company or any Subsidiary (or any
of their associates) for any liability or obligation, whether arising by reason
of stock ownership, oral or written agreement or understanding or otherwise.
Schedule 2.18 is a complete and accurate list of all employees of the Company or
any Subsidiary owing more than $5,000 (except in respect of advances for
business expenses, none of which exceeds $5,000 individually or $20,000 in the
aggregate) in principal to the Company or any Subsidiary, setting forth the
amounts owned, the applicable interest rates, a description of the security and
the maturity dates of all such debts.
2.19. Contracts and Commitments. Schedule 2.19 hereto contains, as of the
date hereof, a complete, current and correct list of all material contracts,
commitments, obligations or agreements of the Company or any Subsidiary, and all
amendments thereto, whether written or oral (the "Contracts"). For purposes of
this Section 2.19, a "material contract" means any single contract, whether
written or oral:
(a) for the purchase or sale of raw materials, commodities, supplies,
inventory, products or other tangible personal property, or for the furnishing
or receipt of services, the performance of which (i) will extend over a period
of more than one year, (ii) has resulted in a loss to the Company or any
Subsidiary in excess of $25,000, or (iii) involves consideration having a value
in excess of $25,000;
(b) which constitutes a consulting or similar agreement having a term
greater than three months or which constitutes an employment agreement or any
other agreement of the Company or any Subsidiary to pay an employee or former
employee compensation (including any bonus but excluding any benefits made
available to employees generally), or an agreement which calls for severance
payments;
(c) which constitutes an agreement which restricts the Company or any
Subsidiary from carrying out its business anywhere in the world or from
competing with any other person;
<PAGE>
(d) which constitutes an agreement by the Company or any Subsidiary
with any affiliate or any of the other persons referred to in Section 2.17(i);
(e) which constitutes a franchising, partnership, joint venture or
similar agreement;
(f) which is a lease or other agreement relating to real property,
including the Leases;
(g) which relates to indebtedness for borrowed money or any guarantee
of the Company or any Subsidiary (including any letter of credit) or which
grants any Lien (other than a Permitted Lien) on any assets, rights or
properties of the Company or any Subsidiary, or which is a tax sharing or
similar agreement;
(h) which deals with any environmental investigations or
remediations;
(i) which is a license or similar agreement for intellectual property
of the Company or its Subsidiaries, whether as licensee or licensor, the
performance of which (i) will extend over a period of more than one year, (ii)
has resulted in a loss to the Company or any Subsidiary in excess of $50,000, or
(iii) involves consideration having a value in excess of $50,000; or
(j) where the consequences of a breach or default thereunder, or the
termination, expiration or cancellation thereof, could reasonably be
expected to have a Material Adverse Effect.
True, correct and complete copies of all written Contracts described in Schedule
2.19 have been delivered to ICG, together with a complete written description of
any oral Contract. Each of the Contracts is legal and in full force and effect
and is valid, binding and enforceable by the Company or a Subsidiary, as
applicable, in accordance with its terms. Neither the Company nor any
Subsidiary is in default under or has breached any of the Contracts, and no act
or omission has occurred which, with notice or lapse of time or both, would
constitute a breach or default under any term or provision of any such Contract.
To the knowledge of the Company, no other party is in breach or default under
any of such Contracts, and no act or omission has occurred by any other party
thereto which, with notice or lapse of time or both, would constitute such a
breach or default under any term or provision thereof.
2.20. Benefit Plans.
(a) Set forth on Schedule 2.20 is a true and complete list of each
(i) "employee benefit plan", as defined in Section 3(3) of ERISA (including any
"multiemployer plan," as defined in Section 3(37) of ERISA), (ii) other pension,
retirement, supplemental retirement, deferred compensation, excess benefit,
profit sharing, bonus, incentive, stock purchase, stock ownership, stock option,
stock appreciation right, employment, severance, salary continuation,
termination, change-of-control, health, life, disability, group insurance,
<PAGE>
vacation, holiday and fringe benefit plan, program, contract, or arrangement
(other than de minimis fringe benefits not material in the aggregate to the
Company) maintained, contributed to, or required to be contributed to, by the
Company or any ERISA Affiliate of the Company for the benefit of any employee,
former employee, director, officer or independent contractor of the Company or
any Subsidiary or under which the Company or any such ERISA Affiliate has any
liability with respect to any employee, former employee, director, officer or
independent contractor of the Company or any Subsidiary (the "Benefit Plans").
(b) Neither the Company nor any such ERISA Affiliate has ever
contributed to or been required to contribute to any "multiemployer plan"
(within the meaning of Section 3(37) of ERISA), and neither the Company nor any
such ERISA Affiliate has any liability (contingent or otherwise) relating to the
withdrawal or partial withdrawal from a multiemployer plan. All of the
individuals whose primary responsibility relate to the business of the Company
are employed by the Company, and no such individual is employed by any other
ERISA Affiliate.
(c) As used herein, the capitalized terms below have the following
meanings:
(i) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(ii) "ERISA Affiliate" means (A) any corporation included with
the Company in a controlled group of corporations within the meaning of Section
414(b) of the Code; (B) any trade or business (whether or not incorporated)
which is under common control with the Company within the meaning of Section
414(c) of the Code; (C) any member of an affiliated service group of which the
Company is a member within the meaning of Section 4 14(m) of the Code; or (D)
any other person treated as an affiliate of the Company under Section 414(o) of
the Code.
2.21. Books and Records. The Company and each Subsidiary have
maintained complete, current and correct copies of: (a) its Certificate of
Incorporation, Bylaws, and other organizational documents; (b) its stockholder
records; and (c) the minutes, written consents, resolutions and other records of
the meetings and other proceedings of the stockholders and directors of the
Company and each Subsidiary.
2.22. Disclosure. To the Company's knowledge, no representation or
warranty or other statement made by the Company in this Agreement or any
disclosure schedule, certificate or other document delivered hereunder contains
any untrue statement of a material fact or omits any material fact necessary to
make the statements contained herein or therein not misleading.
2.23. Registration Statement. The information to be supplied by or on
behalf of the Company for inclusion in the Registration Statement will not, at
the time the Registration Statement is declared effective, or at the Closing
Date, and at all times when the Registration Statement continues to be
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
<PAGE>
statements therein, in the light of the circumstances under which they were
made, not misleading. The information to be supplied by or on behalf of the
Company for inclusion in the Position Statement will not, at the time the
Position Statement is filed with the SEC as part of the Offer Documents,
disseminated to the Company's stockholders, or at the Closing Date, and at all
times during the pendency of the Offer, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
2.24. Anti-Takeover Laws. The provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL") do not apply to the acquisition of Common
Stock by Holdings or ICG contemplated by this Agreement. No "fair price,"
"moratorium," "control share acquisition" or other form of antitakeover statute
or regulation applies to the acquisition of Common Stock by Holdings or ICG
contemplated by this Agreement.
ARTICLE III
Representations and Warranties of the Stockholders
Each Stockholder severally represents and warrants to ICG and Holdings
with respect to such Stockholder as follows:
3.1. Authority Relative to this Agreement. If such Stockholder is not
an individual, such Stockholder is a corporation, limited liability company,
partnership, limited partnership, or trust duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
formation and has the requisite corporate or other power and authority to carry
on its business as it is now being conducted. Such Stockholder has all
requisite corporate or other power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby (including the
tender of the shares of Common Stock owned by such Stockholder pursuant to
Section 5.7 hereof). The execution and delivery by such Stockholder of this
Agreement and the consummation by such Stockholder of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate or other action on the part of such Stockholder and no other corporate
or other proceedings on the part of such Stockholder are necessary to authorize
this Agreement or to consummate the transactions so contemplated by this
Agreement. This Agreement has been, and each other document or instrument to be
executed by such Stockholder in connection herewith will be, duly executed and
delivered by such Stockholder, and, when duly executed and delivered by the
other parties hereto or thereto, constitutes, or will constitute, a legal, valid
and binding obligation of such Stockholder, enforceable against it in accordance
with its terms.
3.2. Ownership of Shares. Such Stockholder is the sole record owner of
(and has the requisite power and authority to vote and dispose of) the number
and type of shares of capital stock of the Company set forth beside such
Stockholder's name on Schedule 2.5(d) and the number and type of other equity
securities of the Company set forth beside such Stockholder's name on Schedule
2.5(e), in each case free and clear of any Liens. Such shares or other equity
securities constitute all the shares of capital stock (or securities convertible
<PAGE>
into or exchangeable for such capital stock, or options, warrants or rights to
purchase such capital stock or securities) owned of record or beneficially by
such Stockholder. Except as set forth on Schedule 3.2, such Stockholder is not
a party to, or bound by, any arrangement, agreement, instrument or order (i)
relating to the transfer of any shares of capital stock of the Company, (ii)
relating to the dividend or voting rights of any shares of capital stock of the
Company, (iii) granting, or obligating the Company to grant, to any person any
preemptive right or (iv) relating to rights to registration under the Securities
Act or any other securities laws of any shares of capital stock of the Company.
3.3. Consents and Approvals; No Violation. Except as set forth in
Schedule 3.3, the execution and delivery by such Stockholder of this Agreement
and the execution and delivery by such Stockholder of any other documents or
instruments contemplated hereby to be executed by such Stockholder, the
performance by such Stockholder of each of its obligations hereunder and
thereunder, and the consummation of the transactions contemplated hereby and
thereby, do not and will not:
(a) violate or conflict with or result in a breach of any provision
of the charter, bylaws or other organizational documents, if any, of such
Stockholder, as such instruments are currently in effect;
(b) require any consent, approval or notice under, or registration
under or payment on account of, or conflict with, or result in a violation or
breach of; or constitute (with or without the giving of notice or the lapse of
time or both) a default (or give rise to any right of termination, modification
(including, in the case of leases, any change in the amount or nature of the
rent), cancellation or acceleration or result in the creation or imposition of
any Lien upon the property of such Stockholder) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license, lease,
agreement or other instrument or obligation to which such Stockholder is a party
or by which any portion of its or their properties or assets may be bound;
(c) violate or contravene any law, statute, rule or regulation, or
any order, writ, judgment, injunction, decree, determination or award of any
Authority currently in effect; or
(d) require any action, consent, approval or authorization of; or
review by, or declaration, registration or filing with, or notice to, any
Authority, or any stock exchange or similar self-regulatory organization.
3.4. Brokers or Finders. Except as set forth on Schedule 2.8, neither
such Stockholder, its affiliates, nor any of their respective officers,
directors or employees, (a) has employed (or will employ) any broker or finder,
or (b) has incurred (or will incur) any liability for any brokerage fees,
commissions or finders' fees or expenses or indemnification or similar
obligations in connection with the transactions contemplated by this Agreement.
<PAGE>
3.5. Registration Statement. The information to be supplied by or on
behalf of each of such Stockholder by its legal counsel or other authorized
representative for inclusion in the Registration Statement will not, at the time
the Registration Statement is declared effective, or at the Closing Date, and at
all times when the Registration Statement continues to be effective, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
ARTICLE IV
Representations and Warranties of ICG
ICG represents and warrants to the Company and each Stockholder, as of
the date of this Agreement, as follows:
4.1. Organization.
(a) ICG is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct the business in which it is engaged as presently conducted. ICG is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned, leased or operated
by it, or the conduct of its business, makes such qualification necessary,
except where the failure to be so duly qualified and in good standing could not
reasonably be expected to have an ICG Material Adverse Effect. As used herein,
an "ICG Material Adverse Effect" means a material adverse effect on the assets,
liabilities, business or financial condition of ICG and its subsidiaries, taken
as a whole, other than (i) any effect arising out of or resulting from general
industry, economic or stock market conditions that affect ICG or its
subsidiaries (or the markets in which ICG or its subsidiaries compete) or (ii)
any effect proximately caused by the public announcement of this Agreement. As
used herein, except with respect to the definition of "ICG Material Adverse
Effect" in the preceding sentence, references to "subsidiaries" of ICG mean any
corporation or other entity with respect to which ICG owns a majority of the
securities that are entitled generally to vote in the election of directors (or
analogous governing body) of such entity, but such term shall in no event
include any partner company in which ICG (or its subsidiaries) is an investor,
whether or not majority owned by ICG (or such subsidiary).
(b) Holdings is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct the business in which it is engaged as presently conducted.
(c) Attached as Schedule 4.1 hereto are true, complete and correct
copies of the Certificate of Incorporation and Bylaws of ICG and Holdings, in
each case as in effect on the date of this Agreement.
<PAGE>
4.2. Authorization and Enforceability. Each of ICG and Holdings has
full corporate power and authority to execute and deliver this Agreement and
each other document or instrument contemplated hereby, to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by ICG and Holdings
of this Agreement and each other document or instrument executed or to be
executed by them in connection herewith, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action. This Agreement has been, and each
other document or instrument to be executed by ICG or Holdings in connection
herewith will be, duly executed and delivered by ICG or Holdings, as applicable,
and, when duly executed and delivered by the other parties hereto or thereto,
constitutes, or will constitute, a legal, valid and binding obligation of ICG or
Holdings, as applicable, enforceable against it in accordance with its terms.
4.3. Conflicts, Consents and Approvals. Except as set forth in Schedule
4.3, the execution and delivery by ICG and Holdings of this Agreement and any
other documents or instruments contemplated hereby, the performance by ICG and
Holdings of each of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not:
(a) violate or conflict with or result in a breach of any provision
of the Certificate of Incorporation or Bylaws of ICG or Holdings,
as such instruments are currently in effect;
(b) require any consent, approval or notice under, or registration
under or payment on account of, or conflict with, or result in a
violation or breach of; or constitute (with or without the giving
of notice or the lapse of time or both) a default (or give rise
to any right of termination, modification (including, in the case
of leases, any change in the amount or nature of the rent),
cancellation or acceleration or result in the creation or
imposition of any Lien upon the property of ICG or Holdings)
under, any of the terms, conditions or provisions of any (i)
note, bond, mortgage, indenture, license, lease, agreement or
other instrument or obligation to which ICG or Holdings is a
party or by which any portion of its properties or assets may be
bound, or (ii) any permit, license, approval, franchise or other
governmental or regulatory authorization held or used by or
binding on ICG or Holdings;
(c) violate or contravene any law, statute, rule or regulation, or
any order, writ, judgment, injunction, decree, determination or
award currently in effect; or
(d) require any action, consent, approval or authorization of, or
review by, or declaration, registration or filing with, or notice
to, any Authority, or any stock exchange or similar self-
regulatory organization.
4.4. Brokers or Finders. Except as set forth in Schedule 4.4, neither
ICG nor Holdings, nor any of their affiliates, nor any of their or their
affiliates' respective officers, directors or employees, (a) has employed (or
will employ) any broker or finder, or (b) has incurred (or will incur) any
liability for any brokerage fees, commissions or finders' fees or expenses or
indemnification or
<PAGE>
similar obligations in connection with the transactions contemplated by this
Agreement.
4.5. Capitalization. The authorized capital stock of ICG consists of
300,000,000 shares of ICG Common Stock and 10,000,000 shares of preferred stock,
par value $.00l per share ("ICG Preferred Stock"). As of the date hereof, there
are 264,275,352 shares of ICG Common Stock and no shares of ICG Preferred Stock
issued and outstanding. Except as set forth on Schedule 4.5, ICG has no
outstanding bonds, debentures, notes or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of ICG on any matter.
All such issued and outstanding shares of ICG Common Stock are duly authorized,
validly issued, fully paid and non-assessable. Except as set forth on Schedule
4.5, as of the date hereof, there are no other existing options, warrants,
calls, subscriptions, convertible securities, or other rights, agreements or
commitments which obligate ICG to issue, transfer or sell any shares of stock or
other equity interest of ICG.
4.6. SEC Documents.
(a) ICG has delivered or made available to the Company each
registration statement, report, proxy statement or information statement and all
exhibits thereto prepared by it or relating to its properties since January 1,
1999, each in the form (including exhibits and any amendments thereto) filed
with the SEC (collectively, the "ICG Reports"). The ICG Reports were filed with
the SEC in a timely manner and constitute all forms, reports and documents
required to be filed by ICG under the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder (the "Securities Laws"). As of
their respective dates, the ICG Reports (i) complied as to form in all material
respects with the applicable requirements of the Securities Laws and (ii) did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements of ICG
contained in the ICG Reports (i) complies as to form in all material respects
with the applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, (ii) is in accordance with the
books and records of ICG and its subsidiaries and (iii) fairly presents, in all
material respects, in accordance with GAAP consistently applied (except as may
be indicated in the notes thereto) the consolidated financial position of ICG
and its subsidiaries as at the dates thereof, and the consolidated results of
their operations for the periods covered thereby, except that the unaudited
interim financial statements are subject to customary year-end adjustments that
in the aggregate could not reasonably be expected to have an ICG Material
Adverse Effect.
4.7. Absence of Certain Changes. Except as set forth in Schedule 4.7,
since December 15, 1999, there has not been any ICG Material Adverse Effect or
any change or occurrence which could reasonably be expected to have an ICG
Material Adverse Effect.
4.8. Litigation. Except as set forth in Schedule 4.8, there is no
pending or, to the knowledge of ICG, threatened claim, arbitration proceeding,
action, suit, investigation or other proceeding against or involving ICG or any
of its subsidiaries, or any of the property or rights of ICG or any of its
<PAGE>
subsidiaries. Neither ICG nor any subsidiary of ICG is subject to or bound by
any order, judgment, writ, injunction or decree of any Authority. The foregoing
includes any action, suit, proceeding, or investigation pending or currently
threatened involving the prior employment of any of ICG's or any subsidiary of
ICG's employees, their use in connection with ICG's or any subsidiary of ICG's
business of any information or techniques allegedly proprietary to any of their
former employers, their obligations under any agreements with prior employers,
or negotiations by ICG or any subsidiary of ICG with potential backers of, or
investors in, ICG or its current or proposed business. Except as set forth in
Schedule 4.8, there is no action, suit, proceeding or investigation by ICG or
any subsidiary of ICG pending or that ICG or any subsidiary of ICG intends to
initiate.
4.9. Compliance with Laws. The operations of ICG and its subsidiaries
have been conducted in compliance in all material respects with applicable laws,
regulations and other requirements of all Authorities having or claiming
jurisdiction over ICG and its subsidiaries or any of their business or
operations, where the failure to be in compliance could reasonably be expected
to have an ICG Material Adverse Effect. ICG has not received any notification
of any asserted present or past failure by ICG or any of its subsidiaries to
comply with any laws, rules or regulations nor, to the knowledge of ICG, is
there any basis for such a claim.
4.10. Registration Statement; Securities Matters.
(a) The information in the Registration Statement (other than
information provided by the Company or any Stockholder (or their legal counsel
or other authorized representatives) specifically for inclusion in the
Registration Statement (or any information in respect of the Company or any
Stockholder omitted from the Registration Statement)) shall not at the time it
is declared effective, or at the Closing Date, and at all times when the
Registration Statement continues to be effective, contain any untrue statement
of a material effect or omit to state any material fact required to be stated
therein or necessary in order to make a statements therein, in light of the
circumstances under which they were made, not misleading.
(b) Venkat Srinivasan is not, as of the date of this Agreement,
an "executive officer" of ICG within the meaning of Section 16(b) of the
Exchange Act. From the date hereof until the Closing Date (or earlier
termination of this Agreement), ICG will not take any action to make Mr.
Srinivasan such an executive officer without his prior written consent.
4.11. Anti-Takeover Laws. The provisions of Section 203 of the DGCL do
not apply to the acquisition of ICG Common Stock by the Stockholders
contemplated by this Agreement. No "fair price," "moratorium," "control share
acquisition" or other form of antitakeover statute or regulation applies to the
acquisition of ICG Common Stock by the Stockholders contemplated by this
Agreement.
<PAGE>
ARTICLE V
Certain Covenants of the Parties
5.1. Conduct Pending Closing.
(a) Prior to the Closing Date, the Company shall conduct the
business of the Company and its Subsidiaries in the ordinary course consistent
with past practice and shall use commercially reasonable efforts to preserve
intact its and its Subsidiaries' business organization, keep available the
services of its and its Subsidiaries' officers and employees, and maintain
satisfactory relationships with suppliers, contractors, distributors, customers
and others having business relationships with the Company or its Subsidiaries.
(b) Without limiting the foregoing, during the period from the date of
this Agreement to the Closing Date, the Company shall not, and the Stockholders
shall cause the Company not to, take any of the actions specified in Section
2.17 without the prior written consent of ICG.
5.2. Issuance of Securities. Prior to the Closing Date, the Company
shall not issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into or exchangeable for shares of its capital
stock, or options, warrants, calls or other rights to acquire from the Company,
or other obligations or understandings or arrangements of the Company to issue,
any shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, other than the issuance
of shares of its Common Stock pursuant to the exercise of stock options,
warrants or other rights therefor outstanding as of the date of this Agreement
and set forth in Schedule 2.5(e) in accordance with their terms and the issuance
---------------
of shares of Common Stock upon conversion of Company Preferred Stock and except
that, notwithstanding anything to the contrary in this Agreement (including
Section 2.17(h)), the Company shall be permitted to issue additional options to
purchase Common Stock to employees or directors of the Company or any Subsidiary
who are hired after the date hereof and prior to the Closing Date, so long as in
the aggregate the number of shares issuable pursuant to such newly granted
options does not exceed 132,846.
5.3. Notices to ICG and the Company.
(a) Prior to the Closing, the Company shall give prompt notice
to ICG of:
(i) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any Authority
in connection with the transactions contemplated by this Agreement; and
<PAGE>
(iii) any claim, action, or proceeding which could reasonably be expected
to materially adversely affect the ability of the Company or the Stockholders to
consummate the transactions contemplated hereby.
(b) Prior to the Closing, ICG and Holdings shall give prompt notice to
the Company of:
(i) any notice or other communication from any third party alleging that
the consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement;
(ii) any notice or other communication from any Authority in connection
with the transactions contemplated by this Agreement; and
(iii) any claim, action, or proceeding which could reasonably be expected
to materially adversely affect the ability of ICG or Holdings to consummate the
transactions contemplated hereby.
5.4. Access and Information.
(a) Prior to the Closing Date, Company will, and the Stockholders
will cause the Company to, give ICG and its authorized representatives
(including accountants, legal counsel and environmental consultants) access at
all reasonable times, upon reasonable notice, to all of the offices and
facilities of the Company and its Subsidiaries, to all contracts, agreements,
commitments, books and records of the Company and its Subsidiaries and to the
personnel (including auditors) of the Company and its Subsidiaries.
(b) Any information and access provided pursuant to paragraph (a)
above shall be subject in all respects to the Nondisclosure Agreement, dated as
of December 1, 1999, between the Company and ICG.
5.5. Approvals.
(a) Promptly (but no later than two business days) after the
execution of this Agreement, each of the parties hereto shall prepare and make
or cause to be made any required filings, submissions and notifications under
the laws of any domestic or foreign jurisdiction, including under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Each of the parties hereto will furnish to the other parties such
necessary information and reasonable assistance as such other parties may
reasonably request in connection with the foregoing.
(b) Each of ICG and the Company shall promptly inform the other of any
material communication from the Federal Trade Commission, the Antitrust Division
of the United States Department of Justice or any other governmental body
regarding any of the transactions contemplated hereby. If ICG or the Company or
any affiliate thereof receives a request for additional information
<PAGE>
or documentary material from any such governmental body with respect to the
transactions contemplated hereby, then such party shall endeavor in good faith
to make, or cause to be made, as soon as reasonably practicable and after
consultation with the other party, an appropriate response in compliance with
such request.
(c) Each of ICG and the Company shall use all reasonable efforts to
resolve such objections, if any, as may be asserted by any Authority with
respect to the transactions contemplated by this Agreement under the HSR Act,
the Sherman Act, the Clayton Act, the Federal Trade Commission Act, and any
other Federal, state or foreign statutes, rules, regulations, orders or decrees
that are designed to prohibit, restrict or regulate actions having the purpose
or effect of monopolization or restraint of trade (collectively, "Antitrust
Laws"). Notwithstanding the foregoing, it is expressly understood and agreed
that neither ICG nor the Company shall have any obligation to litigate or
contest any administrative or judicial action or proceeding beyond the earlier
of(i) July 15, 2000 or (ii) the date of a ruling preliminarily enjoining the
Offer issued by a court of competent jurisdiction. Each of ICG and the Company
shall use all reasonable efforts to take such action as may be required to cause
the expiration of the notice periods under the HSR Act or other Antitrust Laws
with respect to such transactions as promptly as possible after the execution of
this Agreement (including by requesting early termination of the waiting period
under the HSR Act).
5.6. Amendment to Certificate of Incorporation.
(a) The Company shall, as promptly as practicable after the date
hereof, take all action to obtain from the stockholders of the Company the
necessary written consents to approve and adopt an amendment of the Certificate
of Incorporation of the Company in the form of Exhibit A hereto (the "Charter
Amendment"), all in accordance with the applicable provisions of the DGCL. The
Company confirms that its Board of Directors has, in accordance with the
applicable provisions of the DGCL, approved and adopted the Charter Amendment,
and the Company will, through its Board of Directors, recommend to its
stockholders approval of the Charter Amendment. In the event the Company obtains
the requisite stockholder consents to approve the Charter Amendment in
accordance with the applicable provisions of the DGCL, the Company will file the
Charter Amendment with the Secretary of State of the State of Delaware in
accordance with the DGCL no later than the Closing Date. No later than the
Closing Date, the Company will cause its Bylaws to be amended and restated in
the form attached hereto as Exhibit A.
(b) Each Stockholder will take all required or appropriate actions to
vote for, consent to and approve and adopt the Charter Amendment (and, if a
stockholder vote is required, the amendment to the Company's Bylaws contemplated
by paragraph (a) above) and the other transactions contemplated by this
Agreement. Without limiting the foregoing, each Stockholder agrees to duly
execute and deliver any written consents or other instruments necessary to
fulfill the closing condition set forth in Section 6.1(g).
5.7. Tender Agreement. Each Stockholder hereby agrees to validly
tender and not withdraw pursuant to the Offer, no later than expiration date of
<PAGE>
the Offer, not less than the Applicable Number of shares of Common Stock owned
by such Stockholder. As used herein, the "Applicable Number" of shares of
Common Stock owned by any Stockholder shall mean the number that is equal to 30%
of the total number of shares of Common Stock owned of record by such
Stockholder on the date of this Agreement, calculated on a fully-diluted basis,
plus a number equal to 30% of the total number of shares of Common Stock
acquired by such Stockholder at any time hereafter and prior to the Closing or
earlier termination of this Agreement (including any additional shares of Common
Stock such Stockholder acquires pursuant to the Charter Amendment or upon
exercise of Options). From and after the date hereof until the Closing (or
earlier termination of this Agreement), each Stockholder hereby agrees that he
or it will not Transfer any shares of Common Stock (or any securities
convertible into or exchangeable for shares of Common Stock, or any options,
warrants or rights to purchase Common Stock or such securities), except in
respect of the tender of shares pursuant to the Offer contemplated by the
foregoing sentence. As used herein, the term "Transfer" means the making of any
sale, exchange, assignment, hypothecation, gift, security interest, pledge or
other encumbrance, or any contract therefor, any voting trust or other agreement
or arrangement with respect to the transfer of voting rights or any other
beneficial interest of such securities, the creation of any claim thereto or any
other transfer or disposition whatsoever, whether voluntary or involuntary,
affecting the right, title, interest or possession in or to such securities.
The Company will take all actions reasonably under its control, including by
notifying the transfer agent for Common Stock of a stop transfer order, to
prevent the Transfer of shares of Common Stock (or such other securities) by any
Stockholder in violation of the foregoing sentence.
5.8. Stock Option Plans.
(a) General. Except as expressly provided in this Section 5.8,
the Company shall not at any time accelerate, amend or change the period of
exercisability or vesting of stock options, restricted shares or other rights
granted under its Incentive Plans, or authorize cash payments in exchange for
any options, restricted shares or other rights granted under such plans, or
amend or modify in any manner the Incentive Plans. For ease of reference,
options to purchase Common Stock granted under the Incentive Plans are herein
referred to as "Options," and shares of restricted stock granted under the
Incentive Plans are herein referred to as "Restricted Shares".
(b) Option Schedules. On the Closing Date, the Company shall
deliver to ICG an updated Schedule 2.5(e) current as of such date.
(c) Vesting of Options and Restricted Shares Prior to Closing.
(i) The Company will cause the vesting of the Options and
Restricted Shares held by all employees and directors of the Company and its
Subsidiaries to be accelerated (i.e., by accelerating exercisability, in the
case of Options, or by releasing any calls, limitations or other restrictions
arising under the Incentive Plans, in the case of Restricted Shares) prior to
the expiration of the Offer to the extent required, if any, so that (A) the
number of shares of Company Common Stock owned by each such employee or
<PAGE>
director that are free of any restrictions arising under the Incentive Plans
will be equal to 30% of the number of shares of Common Stock owned by such
employee or director (whether or not Restricted Shares) and (B) the number of
Options held by such employee or director that are immediately exercisable will
be equal to 30% of the Options held by such employee or director; provided,
however, that the vesting of any Options granted after the date hereof shall not
be so accelerated. In all cases, the acceleration of vesting contemplated by
this subparagraph (i) shall be accomplished by accelerating vesting of a ratable
portion of shares from each remaining vesting period applying to any Option or
grant of Restricted Shares. Except as otherwise provided in paragraph (e) below,
all remaining unvested Options and Restricted Shares will remain subject to
existing restrictions and continue to vest on their current vesting schedule.
(d) Exercise of Options and Tender of Shares.
(i) Prior to the date of expiration of the Offer, the Company will
recommend to each employee of the Company or its Subsidiaries to, and Messrs.
Srinivasan, McKay, Verma, Paglia and Kothiwale each agree to, (A) exercise a
number of Options equal to the lesser of (I) the vested Options held by such
employee and (II) 30% of the total Options held by such employee (excluding any
Options granted after the date hereof), and (B) validly tender pursuant to the
Offer 30% of the shares of Common Stock owned by such employee, calculated on a
fully-diluted basis.
(ii) All shares of Common Stock that are surrendered by an employee
pursuant to subparagraph (i) above shall be considered other than Restricted
Shares, and, to the extent that the employee held Restricted Shares (after
application of paragraph (c) above) prior to the Closing, an equivalent number
of shares of Common Stock held by such employee following the Closing shall be
subject to the same restrictions.
(iii) With respect to those Options exercised pursuant to subparagraph
(i) above, the Company shall be permitted to enter into arrangements with each
employee of the Company or its Subsidiaries pursuant to which the Company may
assist each such employee in financing the cost of exercising such employee's
Options, including the cost of tax withholding payments (the "Financial
Assistance Arrangement"), which Financial Assistance Arrangement may include one
or more one or more of the following: a loan directly from the Company to such
employees, the arrangement of bank financing, a Company guarantee of the
employee's obligations, arrangements with a stock brokerage firm; provided,
however, the type of Financial Assistance Arrangement shall require ICG's prior
consent, which shall not be unreasonably withheld (it being understood that such
consent may reasonably be withheld if such arrangements result in a negative tax
or accounting consequence to the Company); provided further, however, that once
ICG has consented to a Financial Assistance Arrangement, it may be offered to
all such employees and no consent will be needed as to the Company's extension
of such assistance to any particular employee.
(e) Additional Acceleration of Options after the Closing. Following the
Closing, the Company will take all actions necessary or appropriate to ensure
that
<PAGE>
(i) immediately following the Closing, vesting of the Options held by all
employees of the Company and its Subsidiaries (other than Messrs. Srinivasan,
McKay, Verma, Paglia and Kothiwale) will be accelerated so that each such
employee is eligible to purchase pursuant to such employee's Options the same
number of shares of Common Stock that such employee is eligible to purchase on
the date hereof; and
(ii) immediately prior to the closing of the Initial Public Offering of the
Company, the exercisability of the Options and the vesting of Restricted Shares
of Messrs. Srinivasan, McKay, Verma, Paglia and Kothiwale will be accelerated to
the extent required so that each such individual (A) will be eligible to
purchase the number of shares of Common Stock pursuant to Options that equals
the sum of (I) the number of shares that such individual is eligible to purchase
pursuant to Options on the date hereof plus (II) the number of shares that such
individual becomes eligible to purchase pursuant to Options after the date
hereof and prior to the closing of the Initial Public Offering, and (B) will be
vested in a number of Restricted Shares that equals the sum of (I) the number of
Restricted Shares that such individual is vested in on the date hereof and (II)
the number of Restricted Shares that such individual becomes vested in after the
date hereof and prior to the closing of the Initial Public Offering. The
"Initial Public Offering" of the Company means a successfully completed firm
commitment underwritten public offering by the Company pursuant to an effective
registration statement under the Securities Act in respect of the offer and sale
of shares of Common Stock for the account of the Company resulting in aggregate
net proceeds to the Company of not less than $30,000,000; provided, however,
that such term shall not include any offer or sale of securities pursuant to a
registration statement on Form S-8 or S-4 or any similar or successor form or
any registration statement relating to an exchange offer or an offering of
securities solely to the Company's employees and directors or security holders
of a corporation or other person being acquired by, or merged with, the Company,
or any public offering of a combination of debt and equity securities of the
Company in which (A) not more than 10% of the gross proceeds received from the
sale of such securities is attributed to such equity securities and (B) after
giving effect to such offering, the Company does not have a class of equity
securities required to be registered under the Exchange Act.
5.9. Public Announcements.
(a) Prior to the Closing Date or the earlier termination of this
Agreement, as the case may be, ICG and Holdings, on the one hand, and each of
the Company and the Stockholders, on the other hand, shall not, and shall cause
their affiliates not to, issue or cause the publication of any press release or
any other public announcements (with respect to this Agreement or the
transactions contemplated hereby) without the prior written consent of the other
party, except for the dissemination of the Offer Documents by ICG and Holdings
and except as required by applicable law (or, in the case of ICG and Holdings,
the applicable regulations promulgated under the Securities Act or the Exchange
Act or any stock exchange or other self-regulatory organization). The parties
agree to provide reasonable notice of and consult with one another regarding any
press release or other public announcement made on or in connection with the
Closing. The Company shall not identify ICG in any of its advertising,
<PAGE>
promotional or similar material without the prior written consent of ICG,
whether prior to, on or after the Closing Date.
(b) On or prior to the Closing Date, the Company will deliver to
ICG the historical financial statements of the Company that ICG is required to
file with the SEC on Form 8-K in connection with the transactions contemplated
by this Agreement, together with a manually signed audit report of the Company's
auditors. Such historical financial statements will (i) comply as to form in all
material respects with the applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (ii) be in accordance
with the books and records of the Company and its Subsidiaries and (iii) will
fairly present, in all material respects, in accordance with GAAP consistently
applied (except as may be indicated in the notes thereto) the consolidated
financial position of the Company and its Subsidiaries as at the dates thereof,
and the consolidated results of their operations for the periods covered
thereby. In addition, prior to and for the 60 day period after the Closing Date,
the Company will provide (and will cause its independent auditors to provide)
ICG with financial information regarding the Company reasonably requested by ICG
in connection with ICG's preparation of pro forma financial statements for
filing with the SEC as required by Form 8-K in connection with the transactions
contemplated hereby (and the Company will cause its auditors to cooperate with
ICG in the preparation of such financial statements).
5.10. Reasonable Efforts; Further Assurances. Each of the parties
hereto will use its reasonable efforts to cause the conditions to closing set
forth herein to be satisfied as soon as reasonably practicable. Each of the
Company and the Stockholders, on the one hand, and ICG, on the other hand, agree
that subsequent to the Closing Date, at the request of the other party, it will
execute and deliver, or cause to be executed and delivered, to the other parties
such further instruments and take such other action as may be necessary to carry
out the transactions contemplated by this Agreement.
5.11. Consents. Following the execution and delivery of this Agreement,
each of the Company and the Stockholders shall use its reasonable efforts to
obtain the consents required from the relevant parties pursuant to the contracts
and governmental authorizations set forth on Schedule 2.3.
5.12. No Solicitation.
(a) From and after the date of this Agreement until the Closing
Date, none of the Stockholders or the Company shall, directly or indirectly,
through any officer, director employee, representative or agent, (i) solicit,
initiate, or knowingly encourage any inquiries or proposals that constitute, or
could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of all or a material portion of the
assets, sale of shares of capital stock or similar transaction involving the
Company or its business, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as a "Takeover Proposal"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Takeover Proposal, or (iii) agree to, approve or recommend any
Takeover Proposal.
<PAGE>
(b) Each Stockholder and the Company shall notify ICG
immediately (and no later than 24 hours) after receipt by the Company (or its
advisors or agents) of any Takeover Proposal or any request for information in
connection with a Takeover Proposal or for access to the properties, books or
records of the Company by any person that informs the Company that it is
considering making, or has made, a Takeover Proposal. Such notice shall identify
the offeror and the material terms and conditions of such proposal, inquiry or
contact.
5.13. Warrant, Right of First Refusal Agreement and Registration Rights
Agreement.
(a) At the Closing, the Company will execute and deliver to ICG a
Common Stock Purchase Warrant (the "Warrant") in the form attached hereto
as Exhibit B.
(b) Prior to the Closing, the Company will use its reasonable
best efforts to cause each stockholder of the Company (or holder of Options),
other than holders of 1% or less of the outstanding Common Stock, to execute and
deliver to ICG an amended and restated Stockholders Agreement in the form
attached hereto as Exhibit C (the "Amended and Restated Stockholders Agreement")
and a Post IPO Agreement in the form attached hereto as Exhibit D (the "Post IPO
Agreement"). Each Stockholder hereby agrees to execute and deliver to ICG, on or
prior to the Closing, an Amended and Restated Stockholders Agreement and a Post
IPO Agreement.
(c) At the Closing, the Company (and the Stockholders) will
execute and deliver to ICG a Registration Rights Agreement (the "Registration
Rights Agreement") in the form attached hereto as Exhibit E. The parties to the
Registration Rights Agreement will include the Company, ICG, the Stockholders
and the other holders of preferred stock of the Company on the date hereof.
ARTICLE VI
CONDITIONS TO CLOSING
6.1. Conditions of ICG's and Holdings' Obligations. The obligations of
Holdings to, and of ICG to cause Holdings to, accept for exchange and exchange
shares of Common Stock pursuant to the Offer are subject to the fulfillment at
or before the expiration of the Offer of each of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement that are not qualified by
materiality shall be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on and as of the Closing Date, and
the representations and warranties of the Company that are qualified by
materiality shall be true and correct on and as of the Closing Date with the
same effect as if made on and as of the Closing Date (except, in either case, to
the extent any such representation and warranty specifically refers to a
particular date, in which case such representation and warranty shall be true
and correct as of such date (it being understood that the phrase "as of the date
<PAGE>
hereof' in the preamble to Article II hereof shall not itself be construed as
such a specific reference) and except for actions taken pursuant to Section 5.8
hereof). The representations and warranties of the Stockholders contained in
Article III hereof shall be true and correct on and as of the Closing Date with
the same effect as if made on and as of the Closing Date.
(b) Performance. The Company shall have performed all agreements
and covenants contained herein required to be performed or fulfilled by it
before the Closing. Each Stockholder shall have performed all agreements and
covenants contained herein required to be performed or fulfilled by it before
the Closing.
(c) Material Adverse Effect. Except as disclosed on Schedule
6.1(c), since the date of this Agreement, there shall not have occurred any
Material Adverse Effect or any event, circumstance or change that is reasonably
likely to have a Material Adverse Effect.
(d) Certificate. The Company shall have delivered a certificate
of the Company, executed by the President or any Vice President of the Company
on behalf of the Company, to ICG confirming satisfaction of the conditions set
forth in the first sentences of paragraphs (a) and (b) above and confirming
satisfaction of the condition in paragraph (c) above. Each Stockholder shall
have delivered a certificate of such Stockholder to ICG confirming satisfaction
of the conditions set forth in the second sentences of paragraphs (a) and (b)
with respect to such Stockholder.
(e) HSR and Other Approvals. Any applicable waiting period (and
any extension thereof) applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated. All
material consents, waivers, approvals, authorizations, or orders required to be
obtained by any of the Stockholders, the Company or its Subsidiaries, and all
filings required to be made by any of the Stockholders, the Company or its
Subsidiaries, for the authorization, execution, and delivery of this Agreement
by any such Stockholder or the Company, the performance of any Stockholder's or
the Company's obligations under this Agreement and the consummation by the
Company and each such Stockholder of the transactions contemplated hereby shall
have been obtained and made by each such Stockholder or the Company, as the case
may be (and evidence of the receipt thereof in a form reasonably satisfactory to
ICG shall have been provided to ICG).
(f) No Injunctions or Restraints; Illegality. There shall not
exist any temporary restraining order, preliminary or permanent injunction,
other order issued by any court of competent jurisdiction, or other legal
restraint or prohibition (including any antitrust Authority with jurisdiction
over the Offer) prohibiting ICG or Holdings from entering into this Agreement or
consummating the transactions contemplated hereby.
(g) Charter and Bylaw Amendment. The Charter Amendment shall have
been approved and adopted by the requisite holders of shares of Company capital
stock and the Company's Board of Directors in accordance with the DGCL and shall
have been filed with and accepted for filing by the Secretary of State of the
State of Delaware and shall be effective in accordance with the DGCL. The
<PAGE>
amendment of the Company's Bylaws contemplated by Section 5.6 shall have been
completed in accordance with the Company's Certificate of Incorporation, Bylaws
and the DGCL and shall be effective. (h) Registration Statement; Securities
Laws; Listing. The Registration Statement shall have been declared effective and
no stop order suspending effectiveness shall have been issued, no action, suit,
proceeding or investigation by the SEC to suspend the effectiveness thereof
shall have been threatened or initiated, and all necessary approvals under
federal or state securities laws (including the Securities Act or Exchange Act)
relating to the Offer or the issuance or trading of the ICG Common Stock shall
have been received. The shares of ICG Common Stock issuable pursuant to this
Offer shall have been approved for listing on the NASDAQ National Market System
or the New York Stock Exchange subject to official notice of issuance.
(i) Opinion of the Company's Counsel. There shall have been
delivered to ICG an opinion of Rich, May, Bilodeau & Flaherty, P.C., counsel to
the Company, in the form attached hereto as Exhibit F.
(j) Supporting Documents. ICG shall have received copies of the
following documents:
(i) (A) the Certificate of Incorporation of the Company and
each Subsidiary, certified as of a date not less than five business days prior
to the Closing Date by the Secretary of State of the State of Delaware (or in
the case of a Subsidiary, the jurisdiction of its incorporation (to the extent
such certification is reasonably available)), (B) a certificate of said
Secretary dated as of such date as to the good standing of the Company and each
Subsidiary, the payment of all excise taxes by the Company and each Subsidiary,
and listing all documents of the Company and each Subsidiary on file with said
Secretary (to the extent such certification is reasonably available), and (C)
evidence of the filing with the Secretary of State of Delaware, and acceptance
for filing, of the Charter Amendment; and
(ii) a certificate of the Secretary of the Company dated the
Closing Date certifying: (A) that attached thereto is a true and complete copy
of all resolutions adopted by the Company and its Board of Directors authorizing
the execution, delivery and performance of this Agreement and the other
agreements and instruments contemplated hereby and thereby, and that all such
resolutions are in full force and effect and are the only resolutions adopted in
connection with the transactions contemplated by this Agreement and the other
agreements and instruments contemplated hereby; and (B) to the incumbency and
specimen signature of each officer of the Company executing this Agreement and
such other documents and instruments and any certificate or instrument furnished
pursuant hereto or thereto, and a certification by another officer of the
Company as to the incumbency and signature of the officer signing the
certificate referred to in this clause (B) .
(k) Election of Directors. The Board of Directors of the Company
shall consist of not more than nine persons (one of whom shall be the Chief
Executive Officer of the Company), and Chris Klein and Kenneth Fox and Tony
<PAGE>
Ibarguen shall have been elected to the Board of Directors of the Company.
(l) Warrant, Stockholders Agreement and Registration Rights
Agreement. The Company shall have executed and delivered to ICG the Warrant, the
Amended and Restated Stockholders Agreement, the Post IPO Agreement and the
Registration Rights Agreement referred to in Section 5.13. Each holder of
capital stock of the Company (other than holders of 1% or less of the Common
Stock outstanding on the Closing Date) shall have executed and delivered to ICG
the Amended and Restated Stockholders Agreement and the Post IPO Agreement
referred to in Section 5.13.
(m) Minimum Condition and Other Offer Conditions. The Offer shall
have expired and the Minimum Condition shall have been satisfied. In addition,
this Agreement shall not have been terminated in accordance with its terms.
6.2. Conditions of the Stockholders' Obligations. The obligations of
each Stockholder to validly tender his or its shares of Common Stock pursuant to
the Offer and to consummate the other transactions contemplated hereby are
subject to the fulfillment at or before the expiration of the Offer of each of
the following conditions:
(a) Representations and Warranties. The representations and
warranties of ICG contained in this Agreement that are not qualified by
materiality shall be true and correct in all material respects on and as of the
Closing Date with the same effect as if made on and as of the Closing Date, and
the representations and warranties of ICG that are qualified by materiality
shall be true and correct on and as of the Closing Date with the same effect as
if made on and as of the Closing Date (except, in either case, to the extent any
such representation and warranty specifically refers to a particular date, in
which case such representation and warranty shall be true and correct as of such
date (it being understood that the phrase "as of the date hereof' in the
preamble to Article IV hereof shall not itself be construed as such a specific
reference).
(b) Performance. Each of ICG and Holdings shall have performed
all agreements and covenants contained herein required to be performed or
fulfilled by it before the Closing.
(c) Certificate. ICG shall have delivered a certificate of ICG,
executed by the President or any Vice President of ICG on behalf of ICG, to the
Stockholders confirming satisfaction of the conditions set forth in paragraphs
(a) and (b) above.
(d) HSR and Other Approvals. Any applicable waiting period (and
any extension thereof) applicable to the consummation of the transactions
contemplated hereby under the HSR Act shall have expired or been terminated. All
material consents, waivers, approvals, authorizations, or orders required to be
obtained, and all filings required to be made by ICG and Holdings, for the
authorization, execution, and delivery of this Agreement by ICG and Holdings,
the performance of ICG's and Holdings' obligations under this Agreement and the
consummation by ICG and Holdings of the transactions contemplated hereby shall
<PAGE>
have been obtained and made by ICG and Holdings (and evidence of the receipt
thereof in a form reasonably satisfactory to the Company shall have been
provided to the Company).
(e) No Injunctions or Restraints; Illegality. There shall not
exist any temporary restraining order, preliminary or permanent injunction,
other order issued by any court of competent jurisdiction, or other legal
restraint or prohibition (including any antitrust Authority with jurisdiction
over the Offer) prohibiting such Stockholder from entering into this Agreement
or consummating the transactions contemplated hereby.
(f) Material Adverse Effect. Except as disclosed on Schedule
6.2(f), since the date of this Agreement, there shall not have occurred any ICG
Material Effect or any event, circumstance or change that is reasonably likely
to have an ICG Material Adverse Effect.
(g) Registration Statement: Securities Laws; Listing. The
Registration Statement shall have been declared effective and no stop order
suspending effectiveness shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
threatened or initiated, and all necessary approvals under United States federal
or state securities laws (including the Securities Act or Exchange Act) relating
to the Offer or the issuance or trading of the ICG Common Stock shall have been
received. None of the shares of ICG Common Stock issuable pursuant to the Offer
shall be "restricted securities" for purposes of Rule 144 or Rule 145 under the
Securities Act. The shares of ICG Common Stock issuable pursuant to this
Agreement shall have been approved for listing on the NASDAQ National Market
System or the New York Stock Exchange subject to official notice of issuance.
(h) Opinion of ICG's Counsel. There shall have been delivered to
the Company an opinion of Dechert Price & Rhoads, counsel to ICG and Holdings,
in the form attached hereto as Exhibit G.
(i) Supporting Documents. The Stockholders shall have received
copies of the following documents:
(i) (A) the Certificates of Incorporation of ICG and
Holdings, certified as of a date not less than five business days prior to the
Closing Date by the Secretary of State of the State of Delaware, and (B) a
certificate of said Secretary dated as of such date as to the due incorporation
and good standing of ICG and Holdings, the payment of all excise taxes by ICG,
and listing all documents of ICG on file with said Secretary; and
(ii) a certificate of the Secretary of ICG and Holdings dated
the Closing Date certifying: (A) that attached thereto is a true and complete
copy of all resolutions adopted by such party and its Board of Directors
authorizing the execution, delivery and performance of this Agreement, the other
agreements and instruments contemplated hereby and the other agreements and
instruments contemplated hereby and thereby, and that all such resolutions are
in full force and effect and are the only resolutions adopted in connection with
the transactions contemplated by this Agreement and such other agreements and
<PAGE>
instruments; and (B) to the incumbency and specimen signature of each officer of
such party executing this Agreement, such other documents and instruments and
any certificate or instrument furnished pursuant hereto or thereto, and a
certification by another officer of such party as to the incumbency and
signature of the officer signing the certificate referred to in this clause (B).
(j) Stockholders Agreement and Registration Rights Agreement. ICG
and Holdings shall have executed and delivered to the Company the Amended and
Restated Stockholders Agreement, the Post IPO Agreement and the Registration
Rights Agreement referred to in Section 5.13.
(k) No Termination. This Agreement shall not have been terminated
in accordance with its terms.
6.3. Termination. Except with respect to provisions that expressly
survive the termination of this Agreement, this Agreement may be terminated at
any time prior to Closing:
(a) by mutual written agreement of ICG and the Company;
(b) by ICG (provided neither ICG nor Holdings is in material
breach of this Agreement), by written notice to the other parties hereto, at any
time (i) if the representations and warranties of the Company or any Stockholder
in this Agreement were incorrect in any material respect when made or at any
time thereafter, or (ii) the Company or any Stockholder is in breach in any
material respect of any of its covenants or agreements in this Agreement
(collectively, an "eCredit.com Breach") and, in the case of clause (ii), such
eCredit.com Breach continues uncured for 10 days after written notice thereof by
ICG;
(c) by the Company (provided neither the Company nor any
Stockholder is in material breach of this Agreement), by written notice to the
parties hereto, at any time (i) if the representations and warranties of ICG or
Holdings in this Agreement were incorrect in any material respect when made, or
(ii) ICG or Holdings is in breach in any material respect of any of its
covenants or agreement in this Agreement (collectively, an "ICG Breach") and,
in the case of clause (ii), such ICG Breach continues uncured for 10
calendar days after written notice thereof by the Company;
(d) by the Company or ICG, by written notice to the other party,
if a court of competent jurisdiction or governmental or regulatory body shall
have issued an order, decree or ruling, or taken any other action, restraining,
enjoining or otherwise prohibiting the Closing of the transactions contemplated
hereby and such order, decree, ruling or other action shall have become final
and non-appealable;
(e) by the Company, by written notice to the other parties hereto, if the
number obtained by dividing the Average ICG Closing Price by $119 is less than
the number obtained by (i) dividing the Average Index Price by the Index Price
on January 31, 2000 and (ii) subtracting 0.30. For this purpose, the "Average
Index Price" means the average of the Index Prices for the three trading days
during which the Average ICG Closing Price is calculated pursuant
<PAGE>
to Section 1.1(b). The "Index Price" on a given date means the average of the
closing prices on such date of the companies composing the Index Group. The
"Index Group" means the 10 internet companies listed below, the common stock of
each of which must be publicly traded and as to which there must not have been,
on or after January 31, 2000 and before the Closing Date, any public
announcement of a proposal for such company to be acquired or for such company
to acquire another company or companies in transactions with a value exceeding
25% of the Index Group member's market capitalization as of January 31, 2000. In
the event that the common stock of any such company ceases to be publicly traded
or such an announcement is made, such company will be removed from the Index
Group. The Index Prices will be appropriately adjusted in the event of any stock
split, reverse split, stock dividend, reorganization, recapitalization or
similar event occurring with respect to any member of the Index Group. The
companies are: Ariba, Inc., Chemdex Corporation, Commerce One, Inc.,
FreeMarkets, Inc., Healtheon Corporation, pcOrder.com, Inc., Purchase Pro.com,
Inc., SciQuest.com, Inc., VeriSign, Inc. and VerticalNet, Inc.;
(f) by either the Company or ICG, if the Closing shall not have
occurred by July 1, 2000 and the terminating party (i.e., each of the Company
and any Stockholders, if the terminating party is the Company) is not in
material breach of this Agreement; provided, however, that if the Registration
Statement shall not have been declared effective by the SEC on or prior to May
15, 2000, the Company shall not have the right to terminate this Agreement
pursuant to this clause (f) until July 15, 2000.
6.4. Procedures and Effect of Termination. If this Agreement is
terminated as provided herein, no party shall have any liability or further
obligation to any other party under the terms of this Agreement or otherwise,
provided that any party who has breached this Agreement (whether or not such
breach is the proximate cause of such termination) shall be fully liable for any
and all damages incurred or suffered by the terminating party as a result of
such breach.
ARTICLE VII
Certain Additional Covenants
7.1. Reports. Until the closing of an Initial Public Offering (and
thereafter to the extent such information is reasonably requested by ICG to
assist ICG in complying with its obligations under applicable securities laws),
the Company shall provide ICG with the following reports and information:
(a) As soon as practicable after the end of each fiscal year, and
in any event within 75 days thereafter, consolidated balance sheets of the
Company and its subsidiaries as of the end of such fiscal year, and consolidated
statements of income, equity and cash flows of the Company and its subsidiaries
for such year, prepared in accordance with GAAP (and in compliance with the
rules and regulations of the SEC set forth in Regulation S-X promulgated under
the Securities Act and the Exchange Act) and setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
<PAGE>
detail and audited (without qualification as to scope) by independent auditors
of national standing selected by the Board of Directors of the Company;
(b) As soon as practicable after the end of each month and fiscal
quarter, and in any event within 30 days thereafter, a consolidated balance
sheet of the Company and its subsidiaries as of the end of each such period,
consolidated statements of income, equity and cash flows of the Company and its
subsidiaries for such period and for the current fiscal year to date, and
setting forth in each case in comparative form the figures for corresponding
periods in the previous fiscal year, and setting forth in comparative form the
budgeted figures, prepared in accordance with GAAP (other than for accompanying
notes, in the case of monthly financial statements) and the rules and
regulations of the SEC referred to in paragraph (a) above, all in reasonable
detail and signed by the principal financial or accounting officer of the
Company;
(c) As soon as practicable, but in any event 30 days prior to the
end of each fiscal year, a projected operating budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(d) No later than the business day prior to filing, any reports
or other documents filed with the SEC;
(e) Promptly following receipt by the Company, each audit
response letter, accountant's management letter and other written report
submitted to the Company by its independent public accountants in connection
with any annual or interim audit of the books of the Company or any of its
subsidiaries;
(f) Promptly after the commencement thereof, notice of all
actions, suits, claims, proceedings investigations or inquiries that could
reasonably be expected to have a Material Adverse Effect;
(g) Promptly upon sending, making available or filing the same,
all press releases, reports and financial statements that the Company sends or
makes available to its equityholders or files with the SEC;
(h) Promptly from time to time following request, such other
information regarding the business, financial condition, results of operations
or affairs of the Company as ICG may reasonably request.
7.2. Proprietary Information Agreements. The Company shall maintain a
practice consistent with industry practice of requiring officers, directors,
employees and consultants of the Company and its Subsidiaries to execute and
deliver an agreement which provides protection from misappropriation of the
Company's and its Subsidiaries' intellectual property.
<PAGE>
7.3. Books and Records. The Company shall maintain complete and
accurate records and books of account in which entries shall be made in
accordance with GAAP consistently applied, reflecting all transactions of the
Company and its Subsidiaries.
7.4. Investor Rights. The Company shall permit ICG (and its
representatives), at ICG's expense, to visit and inspect the Company's and any
Subsidiary's properties, to examine their books of account and records and to
discuss the Company's or any Subsidiary's affairs, finances and accounts with
its officers and employees (and its independent public accountants), all at such
reasonable times as may be requested by ICG; provided, however, that the Company
shall not be obligated pursuant to this Section 7.4 to provide access to any
information that it reasonably considers to be a trade secret or similar
confidential information unless ICG executes and delivers to the Company a
confidentiality agreement in a form reasonably acceptable to the Company.
7.5. Expenses of Directors. The Company shall reimburse each director
elected to the Board of Directors of the Company as a representative of ICG
pursuant to Section 5(b) and 5(c) of the Amended and Restated Stockholders
Agreement, in accordance with the Company's standard reimbursement policies, for
all reasonable travel expenses incurred by each such director in attending any
meetings of the Board of Directors of the Company or any committee thereof. The
Company shall at all times maintain provisions in its Bylaws indemnifying all
directors against liability and absolving or limiting directors from liability
to the maximum extent permitted by law.
7.6. Additional Shares in Connection with Initial Public Offering. In
the event of an Initial Public Offering, the Company will, pursuant to a private
placement that will close concurrently with the closing of the Initial Public
Offering, offer to sell to ICG (or an affiliate of ICG designated by ICG in
writing) a number of shares of Common Stock equal to at least thirty-three
percent (33%) of the aggregate number of primary shares offered by the Company
in its Initial Public Offering. The purchase price for such shares will be the
price at which shares of Common Stock are offered to the public in the Initial
Public Offering. ICG will accept such offer in respect of a number of shares
equal to at least 13% of the aggregate number of primary shares offered by the
Company pursuant to the Initial Public Offering. The Company will give ICG not
less than 45 days' prior written notice of the intended initial filing date with
the SEC of its Registration Statement for the Initial Public Offering (provided
that if such intended filing date is within 45 days after the date of this
Agreement, the Company will give ICG not less than 30 days prior written notice
of such intended filing date). If ICG accepts such offer for a number of shares
in excess of 13% of such shares, ICG will provide the Company with written
notice, not less than 10 days prior to such intended initial filing date of the
Company's Registration Statement for the Initial Public Offering, of such
acceptance and the number of shares for which such offer is to be accepted. In
the event the SEC requires, in connection with ICG's acquisition of such shares,
that ICG be given an opinion of counsel as to the inapplicability of Section 5
of the Securities Act to such acquisition, ICG will use its reasonable efforts
to cause its counsel to render such opinion. ICG shall acquire such shares for
investment and not with a view to the distribution thereof that would violate
the Securities Act. ICG agrees that, in connection with the Initial Public
<PAGE>
Offering, it shall execute and deliver to the managing underwriters of the
Initial Public Offering such customary "lock-up agreement" as is signed by all
officers, directors and other significant stockholders in connection with the
Initial Public Offering.
7.7. Termination of Certain Covenants. The covenants set forth in
Sections 7.2 - 7.5 of this Agreement shall terminate and be of no further force
and effect on the first day on which ICG's (together with its direct or indirect
majority owned subsidiaries, including majority owned limited liability
companies and partnerships of which ICG or a majority owned subsidiary owns a
majority of the voting interests of the general partner) record ownership of
Common Stock has been less than 15% of the number of shares of Common Stock it
owns on the Closing Date for an uninterrupted period of not less than 20
business days (appropriately adjusted for stock splits, reclassifications and
similar events affecting Common Stock).
ARTICLE VIII
Indemnification
8.1. Indemnification By the Company and the Stockholders.
(a) Subject to Section 8.3, the Company hereby agrees to
indemnify, defend and hold harmless ICG, Holdings and their affiliates, and
their and their affiliates' respective directors, officers, employees and
representatives (any of the foregoing, an "ICG Indemnified Party"), from and
against any loss, liability, claim, obligation, damage, deficiency, costs and
expenses, fines or penalties (including reasonable attorney fees and other
defense costs) ("Losses") suffered, sustained, incurred or required to be paid
by any such ICG Indemnified Party due to, based upon, arising out of or
otherwise in respect of(i) any inaccuracy in, or breach of, a representation or
warranty of the Company contained in this Agreement or in any agreement or
statement or certificate furnished or to be furnished by or on behalf of the
Company to ICG pursuant hereto (including pursuant to Section 6.1(d)) or in
connection with the transactions contemplated hereby, (ii) any breach or
nonfulfillment of any covenant or agreement of the Company contained in this
Agreement or in any agreement or statement or certificate furnished or to be
furnished to ICG pursuant hereto or in connection with the transactions
contemplated hereby, or (iii) the enforcement by any ICG Indemnified Party of
its rights under this Section 8.1(a).
(b) Subject to Section 8.3, each Stockholder hereby agrees to
indemnify, defend and hold harmless ICG, Holdings, the Company and their
affiliates, and their and their affiliates' respective directors, officers,
employees and representatives, from and against any Losses suffered, sustained,
incurred or required to be paid by any such party due to, based upon, arising
out of or otherwise in respect of (i) any inaccuracy in, or breach of, a
representation or warranty of such Stockholder contained in this Agreement or in
any agreement or statement or certificate furnished or to be furnished by or on
behalf of such Stockholder to ICG pursuant hereto (including pursuant to Section
6.1(d)) or in connection with the transactions contemplated hereby, (ii) any
breach or nonfulfillment of any covenant or agreement of such Stockholder
contained in this Agreement or in any agreement or statement or certificate
<PAGE>
furnished or to be furnished to ICG pursuant hereto or in connection with the
transactions contemplated hereby, or (iii) the enforcement by any ICG
Indemnified Party of its rights under this Section 8.1(b).
8.2. Indemnification by ICG. Subject to Section 8.3, each of ICG and
Holdings hereby agrees to indemnify, defend and hold harmless each of the
Company and the Stockholders and their affiliates, and their and their
affiliates' respective directors, officers, employees and representatives (any
of the foregoing, a "eCredit.com Indemnified Party"), from and against any
Losses suffered, sustained, incurred or required to be paid by any such
eCredit.com Indemnified Party due to, based upon, arising out of or otherwise in
respect of (a) any inaccuracy in, or breach of, a representation or warranty of
ICG contained in this Agreement or in any agreement or statement or certificate
furnished or to be furnished by or on behalf of ICG to the Company or the
Stockholders pursuant hereto or in connection with the transactions contemplated
hereby, (b) any breach or nonfulfillment of any covenant or agreement of ICG
contained in this Agreement or in any agreement or statement or certificate
furnished or to be furnished to the Company or the Stockholders pursuant hereto
(including pursuant to Section 6.2(c)) or in connection with the transactions
contemplated hereby, or (c) the enforcement by any eCredit.com Indemnified Party
of its rights under this Section 8.2(a).
8.3. Limitations on Indemnification. The indemnification provided for
in Sections 8.1 and 8.2 shall be subject to the following limitations:
(a) Except as otherwise provided below, the Company shall not be obligated
to pay any indemnification amounts for Losses pursuant to Section 8.1(a)(i) in
respect of breaches of, or inaccuracies in, representations and warranties of
the Company unless and until the aggregate amount of all Losses pursuant thereto
exceeds an amount equal to $5,625,000 (the "Indemnification Threshold Amount"),
whereupon the applicable ICG Indemnified Parties shall be entitled to
indemnification under Section 8.1(a)(i) to the full extent of all such Losses in
excess of such amount; provided, however, that, except as so provided below, in
no event will the aggregate liability of the Company for Losses pursuant to
Section 8.l(a)(i) exceed $225,000,000. Except as otherwise provided below,
neither ICG nor Holdings shall be obligated to pay any indemnification amounts
for Losses pursuant to Section 8.2(a) in respect of breaches of, or inaccuracies
in, representations and warranties unless and until the aggregate amount of all
Losses pursuant thereto exceeds an amount equal to the Indemnification Threshold
Amount, whereupon the applicable eCredit.com Indemnified Parties shall be
entitled to indemnification under Section 8.2(a) to the full extent of all such
Losses in excess of such amount (it being understood that limitation on
indemnification imposed on the eCredit.com Indemnified Parties by virtue of the
Indemnification Threshold Amount shall be allocated among such parties on a pro
rata basis based upon the Loss suffered by each eCredit.com Indemnified Party);
provided, however, that, except as so provided below, in no event will the
aggregate liability of ICG and Holdings (taken together) for Losses pursuant to
Section 8.2(a) exceed $225,000,000. Except as prohibited by law, in no event
will the liability of any Stockholder for breaches of or inaccuracies in,
representations and warranties of such Stockholder in this Agreement exceed the
value of the shares of ICG Common Stock received by such Stockholder on the
Closing Date, which will be deemed to equal
<PAGE>
the product of the number of shares of ICG Common Stock received and the Average
ICG Closing Price.
(b) Subject to Section 8.5 hereof, no claims for indemnification
in respect of Sections 8.1(a)(i) or 8.2(a) in respect of breaches of, or
inaccuracies in, representations and warranties of the Company or ICG shall be
made after the date, if any, on which the applicable representation or warranty
upon which such claim was based ceases to survive pursuant to Section 8.5.
(c) The foregoing limitations on the indemnification obligations
of the Company, on the one hand, and ICG, on the other hand, set forth in this
Section 8.3 shall not apply to any covenants or agreements of any party in this
Agreement. In addition, notwithstanding the provisions of paragraph (a) above,
the limitations on the indemnification obligations set forth therein shall not
apply to breaches of the representations and warranties in Sections 2.1-2.5, 2.8
or 2.17(h) or (i), or Sections 4.1-4.4.
(d) Solely for purposes of calculating the amount of Losses
incurred arising out of or relating to any breach of a representation or
warranty by any party (and not for purposes of determining whether or not a
breach of said representation or warranty has occurred), the references to
"Material Adverse Effect" or "Material Adverse Change" or other materiality
qualifications (or correlative terms), including as expressed in accounting
concepts such as GAAP, shall be disregarded.
(e) No right of indemnification hereunder shall be limited by
reason of any investigation or audit conducted before or after the Closing or
the knowledge of any party of any breach of a representation, warranty, covenant
or agreement by the other party at any time, or the decision of any party to
complete the Closing. Notwithstanding anything to the contrary herein, ICG, the
Company and the Stockholders shall have the right, irrespective of any knowledge
or investigation of such party, to rely fully on the representations, warranties
and covenants of the Company and the Stockholders, in the case of ICG and
Holdings, or ICG, in the case of the Company and the Stockholders contained
herein. Except as otherwise prohibited by law, the rights of indemnification
provided hereunder shall be the sole remedy of the parties in respect of
breaches of this Agreement (other than specific performance and injunctive
relief associated therewith).
(f) Notwithstanding anything to the contrary set forth herein, no
limitation or condition of liability or indemnity shall apply to any breach of a
representation or warranty if such representation or warranty was made with
actual knowledge that it (i) contained an untrue statement of a material fact or
(ii) omitted to state a material fact necessary to make the statements contained
therein not misleading.
(g) Effective upon the Closing, each of the Stockholders hereby
waives and releases the Company from any common law, equitable or other right of
contribution or other claim the Stockholders may have against the Company
arising out of or relating to the indemnification of any party hereunder for a
breach by the Company of any of its representations, warranties, agreements or
<PAGE>
covenants in this Agreement or any document or instrument executed and delivered
in connection with this Agreement.
(h) Except as otherwise prohibited by law, the Stockholders shall
have no indemnification obligations in respect of any breach of this Agreement
by the Company, and, likewise, the Company shall have no indemnification
obligations in respect of any breach of this Agreement by the Stockholders. The
indemnification liabilities of the Stockholders in this Agreement shall be
several and not joint and several.
8.4. Insurance Effect. The amount of any Loss for which
indemnification is provided under any of Sections 8.1 or 8.2 shall be net of any
amounts actually recovered by the Indemnified Party under insurance policies
with respect to such Loss.
8.5. Survival of Representations and Warranties. The provisions set
forth in Section 5.4(b) and Section 9.2 of this Agreement shall expressly and
permanently survive the termination or abandonment of this Agreement. Except as
otherwise expressly set forth herein, all covenants and agreements contained in
this Agreement shall survive the Closing Date in perpetuity and shall remain in
full force and effect. The representations and warranties set forth in Articles
II and IV of this Agreement shall survive the Closing Date for a period expiring
(a) in the case of the representations and warranties in Article II, on the
earlier of (i) the date that is 60 days after the delivery to ICG of the audited
financial statements referred to in Section 7.1(a) for the fiscal year ended,
and as of, December 31, 2000 or (ii) the effective date of the Company's
registration statement for an Initial Public Offering, or (b) in the case of the
representations and warranties in Article IV, on the earlier of (i) the date
that is 60 days after the filing with the SEC of ICG's Form 10-K relating to the
fiscal year ended December 31, 2000 or (ii) the effective date of the Company's
registration statement for an Initial Public Offering; provided, however, that
(a) claims based on fraud or knowing misrepresentation shall survive the Closing
Date in perpetuity and (b) the foregoing time limitations shall not apply to any
claims which have been the subject of a written notice prior to expiration of
the applicable time period. The representations and warranties set forth in
Article III shall survive the Closing Date in perpetuity.
8.6. Notice and Opportunity to Defend. The obligations and liabilities
of any party hereto against which indemnification is sought hereunder with
respect to claims resulting from the assertion of liability by third parties
shall be subject to this Section 8.6.
(a) Promptly after receipt by any party entitled to
indemnification hereunder (each, an "Indemnified Party") of notice of any demand
or claim or the commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that could reasonably be
expected to result in a Loss, the Indemnified Party shall give notice thereof (a
"Claims Notice") to any other party obligated to provide indemnification
pursuant to Section 8.1 or 8.2 (each, an "Indemnifying Party"). Each Claims
Notice shall describe the Asserted Liability in reasonable detail, and shall
indicate the amount (estimated, if necessary) of the Loss that has been or may
be suffered by the Indemnified Party. The rights of any Indemnified Party to be
indemnified hereunder shall not be adversely affected by its failure to give, or
its failure
<PAGE>
to timely give, a Claims Notice with respect thereto unless, and if so, only to
the extent that, the Indemnifying Party is materially prejudiced thereby.
(b) The Indemnifying Party may elect to compromise or defend, at
its own expense and by its own counsel, any Asserted Liability if (i) the claim
involves (and continues to involve) solely monetary damages and the Indemnifying
Party's assumption of the defense or settlement of such claim will not have a
material adverse effect on the Indemnified Party's business, (ii) the
Indemnifying Party expressly agrees in writing to the Indemnified Party that, as
between the two, the Indemnifying Party is solely obligated to satisfy and
discharge the claim, and (iii) the Indemnifying Party makes reasonably adequate
provision to satisfy the Indemnified Party of the Indemnifying Party's ability
to satisfy and discharge the claim (the foregoing collectively, the "Litigation
Conditions"); provided, however, that if the parties in any action shall include
both an Indemnifying Party and an Indemnified Party, and the Indemnified Party
shall have reasonably concluded that counsel selected by the Indemnifying Party
has a conflict of interest because of the availability of different or
additional defenses to the Indemnified Party, the Indemnified Party shall have
the right to select separate counsel to participate in the defense of such
action on its behalf, at the expense of the Indemnifying Party; and provided
further, however, that the Indemnifying Party shall forfeit the right to control
the defense or settlement of any such claim if at any time after assuming the
defense or settlement thereof, the Indemnifying Party no longer satisfies the
Litigation Conditions. Subject to the foregoing, if the Indemnifying Party
elects to compromise or defend such Asserted Liability, it shall within 30 days
(or sooner, if the nature of the Asserted Liability so requires) notify the
Indemnified Party of its intent to do so, and the Indemnified Party shall
cooperate, at the expense of the Indemnifying Party, in the compromise of, or
defense against, such Asserted Liability controlled by the other party. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnified Party of its election as herein provided, or
fails to satisfy the Litigation Conditions, the Indemnified Party may pay,
compromise or defend such Asserted Liability. If the Indemnifying Party duly
elects to compromise or defend the Asserted Liability, the Indemnified Party may
participate, at its own expense, in the defense of such Asserted Liability. If
the Indemnifying Party chooses to defend any claim, the Indemnified Party shall,
subject to receipt of a reasonable confidentiality agreement, make available to
the Indemnifying Party any books, records or other documents within its control,
and the reasonable assistance of its employees, for which the Indemnifying Party
shall be obliged to reimburse the Indemnified Party the reasonable out-of-pocket
expenses of making such information and personnel available.
8.7. Procedure for Claims by Parties. In the event that any party
incurs or suffers any Losses with respect to which indemnification may be sought
by such party pursuant to this Article VIII (other than in respect of third
party claims dealt with in Section 8.6), the Indemnified Party must assert the
claim by a Claims Notice to the Indemnifying Party. The Claims Notice must
state the nature and basis of the claim in reasonable detail based on the
information available to the Indemnified Party. Each Indemnifying Party to whom
a Claims Notice is given shall respond to any Indemnified Party that has given a
Claims Notice (a "Claim Response") within 30 days (the "Response Period") after
the date that the Claims Notice is given. Any Claim Response shall specify
whether or not the Indemnifying Party giving the Claim Response disputes the
claim
<PAGE>
described in the Claims Notice. If any Indemnifying Party fails to give a
Claim Response within the Response Period, such Indemnifying Party shall be
deemed not to dispute the claim described in the related Claims Notice. If any
Indemnifying Party elects not to, or is deemed to elect not to, dispute a claim
described in a Claims Notice, whether by failing to give a timely Claim Response
or otherwise, then the amount of such claim shall be conclusively deemed to be
an obligation of such Indemnifying Party. If any Indemnifying Party fails to
pay all or any part of any indemnification obligation on or before the later to
occur of (a) 30 calendar days after the last day of the applicable Response
Period, and (b) if the Claims Notice relates to Losses that have not been
liquidated as of the date of the Claims Notice, the date on which all such
Losses shall have become liquidated and determined (it being understood that if
such Losses are liquidated in increments, the Indemnifying Party shall pay its
indemnification obligations as such Losses become liquidated), then the
Indemnifying Party shall also be obligated to pay to the Indemnified Party
interest on the unpaid amount for each day during which the obligation remains
unpaid at an annual rate equal to the prime or base rate for commercial loans
charged from time to time by Chase Manhattan Bank, N.A.
ARTICLE IX
Miscellaneous.
9.1. Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement. The words
"include," "includes" and "including," when used herein, shall be deemed in each
case to be followed by the words "without limitation." The headings of the
various Articles and Sections of this Agreement have been inserted for the
purpose of convenience of reference only, and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this Agreement.
References to "$" or "dollars" in this Agreement mean United States dollars.
All accounting terms used but not otherwise defined in this Agreement shall have
the meanings determined by GAAP. The words "hereof', "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
definitions contained in this Agreement are applicable to the singular as well
as to the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. This Agreement has been negotiated
"at arm's length" by the parties, each represented by counsel of its choice and
each having an equal opportunity to participate in the drafting of the
provisions hereof. Accordingly, in construing the provisions of this Agreement,
no party shall be presumed or deemed to be the "drafter" or "preparer" of the
same.
9.2. Expenses. Each of the parties hereto will bear its own expenses in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the documents and instruments contemplated hereby and in
connection with and the transactions contemplated hereby and thereby, including
all fees and disbursements of counsel, accountants, appraisers and other
advisors retained by such party, whether or not the transactions contemplated by
<PAGE>
this Agreement are consummated; provided, however, that (a) all filing fees
under the HSR Act shall be divided equally between the Company and ICG, and (b)
the Company shall bear the legal expenses of any Stockholder in connection with
the negotiation and execution of this Agreement (but not to exceed $10,000 for
any single Stockholder or $100,000 in the aggregate).
9.3. Amendment of Agreement. No provision of this Agreement may be
amended or modified except by a written instrument signed by all the parties to
this Agreement.
9.4. Waiver of Compliance; Consents. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be waived, but
only if such waiver is in writing and is signed by the party against whom the
waiver is to be effective. Any such waiver or any failure to insist upon strict
compliance with any obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
9.4.
9.5. Notices. All notices and other communications hereunder shall be
in writing (including by fax during business hours) and shall be deemed to have
been duly given when delivered in person (including by reputable overnight
courier), when faxed (with written confirmation of transmission having been
received) or three days after being mailed by registered or certified mail
(postage prepaid, return receipt requested), in each case to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice).
(a) If to ICG:
Internet Capital Group, Inc.
435 Devon Park Drive
Building 800
Wayne, PA 19087
Attention: Henry N. Nassau, Esq.
Fax No.: (610) 989-0112
with a copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Christopher G. Karras, Esq.
Fax No.: (215) 994-2222
<PAGE>
(b) If to the Company:
eCredit.com, Inc.
20 CareMatrix Drive
Dedham, MA 02026
Attention: Mr. Louis Paglia
Fax No.: (781) 752-1400
with a copy to:
Rich, May, Bilodeau & Flaherty, P.C.
176 Federal Street
Boston, MA 02110-2223
Attention: Walter A. Wright, III, Esq.
Fax No.: (617) 556-3889
(c) If to any Stockholder, to the address set forth on Schedule
2.5(d).
9.6. Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agree that in the event of any such breach the aggrieved party
shall be entitled (without the necessity of the posting of any bond or similar
requirement) to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
9.7. Successors and Assigns; Third Party Beneficiaries. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective executors, administrators, heirs, successors and assigns of the
parties. No party hereto may assign its rights or delegate its obligations
hereunder without the consent of the other parties hereto, except that ICG may
assign its rights or delegate its obligations to any affiliate of ICG who
expressly agrees in writing to assume such obligations, provided that ICG shall
remain liable for such obligations to the extent they remain unperformed by such
affiliate. The affiliates, directors, officers, employees and representatives
of any of ICG, the Company or the Stockholders are intended third party
beneficiaries of Sections 8.1 and Section 8.2 of this Agreement. Nothing else
contained in this Agreement is intended to confer upon any person other than the
parties hereto and their respective successors and permitted assigns any rights
or remedies hereunder.
9.8. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts applicable to
contracts entered into and wholly to be performed within the Commonwealth of
Massachusetts, except as to those matters as to which the DGCL mandatorily
applies hereto.
<PAGE>
9.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
9.10. Severability. If any provision or provisions of this Agreement or
of any of the documents or instruments delivered pursuant hereto, or any portion
of any provision hereof or thereof shall be deemed invalid or unenforceable
pursuant to a final determination of any court of competent jurisdiction or as a
result of future legislative action, such determination or action shall be
construed so as not to affect the validity or enforceability hereof or thereof
and shall not affect the validity or effect of any other portion hereof or
thereof.
9.11. Entire Agreement. This Agreement and the other agreements and
instruments contemplated hereby, together with the Nondisclosure Agreement
referred to in Section 5.4(b), constitute the entire agreement among the
Company, the Stockholders, ICG and Holdings relative to the subject matter
hereof. Any previous agreements among the Company, the Stockholders, ICG and
Holdings, except such Nondisclosure Agreement, are hereby superseded.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Exchange
Offer Agreement as of the day and year first above written.
ECREDIT.COM, INC.
By /s/ Venkat Srinivasan
--------------------------------
Name: Venkat Srinivasan
Title:
INTERNET CAPITAL GROUP, INC.
By /s/ Kenneth A. Fox
--------------------------------
Name: Kenneth A. Fox
Title: Managing Director
ICG HOLDINGS, INC.
By /s/ Kenneth A. Fox
--------------------------------
Name: Kenneth A. Fox
Title: Managing Director
STOCKHOLDERS
/s/ Venkat Srinivasan
-----------------------------------
Venkat Srinivasan
/s/ Peter McKay
-----------------------------------
Peter McKay
/s/ Deepak Verma
-----------------------------------
Deepak Verma
/s/ Louis Paglia
-----------------------------------
Louis Paglia
/s/ Mahantesh Kothiwale
-----------------------------------
Mahantesh Kothiwale
<PAGE>
J.P. MORGAN INVESTMENT CORPORATION
By /s/ John Fullerton
---------------------------------
Name: John Fullerton
Title: Managing Director
SIXTY WALL STREET SBIC FUND, L.P.
By Sixty Wall Street SBIC Corporation, its
general partner
By /s/ John Fullerton
---------------------------------
Name: John Fullerton
Title: Managing Director
DRAPER RICHARDS MANAGEMENT COMPANY
By /s/ William H. Draper
---------------------------------
Name: William H. Draper, III
Title: President
WILLIAM H. DRAPER REVOCABLE TRUST
By /s/ William Draper
---------------------------------
Name: William Draper
Title: Trustee
By /s/ Phyllis C. Draper
---------------------------------
Name: Phyllis C. Draper
Title: Trustee
ROBIN A. RICHARDS TRUST
By /s/ Robin Richards Donohue
---------------------------------
Name: Robin A. Richards
Title: Trustee
<PAGE>
DRAPER INTERNATIONAL INDIA, L.P.
By Draper International Management, L.P.,
its general partner
By Draper International, L.L.C., its
general partner
By /s/ William H. Draper
---------------------------------
Name: William H. Draper
Title: Manager
BATTERY VENTURES IV, L.P.
By Battery Ventures IV, LLC,
its general partner
By /s/ Oliver D. Curme
---------------------------------
Name: Oliver Curme
Title: Member Manager
BATTERY INVESTMENT PARTNERS IV LLC
By /s/ Oliver D. Curme
---------------------------------
Name: Oliver Curme
Title: Member Manager
INFORMATION PARTNERS CAPITAL FUND, L.P.
By /s/ Mark Nunnelly
---------------------------------
Name: Mark Nunnelly
Title: General Partner
BCIP ASSOCIATES
By /s/ Mark Nunnelly
---------------------------------
Name: Mark Nunnelly
Title: General Partner
BCIP TRUST ASSOCIATES, L.P.
By /s/ Mark Nunnelly
---------------------------------
Name: Mark Nunnelly
Title: General Partner
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
KEY EMPLOYEES:
/s/ Richard Olson
----------------------
Richard Olson
/s/ Jai Dev Dasgupta
----------------------
Jai Dev Dasgupta
/s/ Mahautesh Kotiwale
----------------------
Mahautesh Kotiwale
/s/ Louis Paglia
----------------------
Louis Paglia
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
ABN AMRO CAPITAL (USA), INC.
By: /s/ David L. Bogetz
--------------------------------
David L. Bogetz
Managing Director
I EAGLE TRUST
By: /s/ David L. Bogetz
--------------------------------
David L. Bogetz
Managing Director
BURNHAM CAPITAL, LLC
By: /s/ David L. Bogetz
--------------------------------
David L. Bogetz
Managing Director
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
ACCESS TECHNOLOGY PARTNERS BROKERS
FUND, L.P.
By: /s/ Thomas [ILLEGIBLE]
-----------------------
Name: Thomas [ILLEGIBLE]
-----------------------
Its: Attorney-in-fact
------------------------
ACCESS TECHNOLOGY PARTNERS, L.P.
By: /s/ Thomas [ILLEGIBLE]
-----------------------
Name: Thomas [ILLEGIBLE]
-----------------------
Its: Attorney-in-fact
------------------------
H&Q EMPLOYEE VENTURE FUND, 2000 L.P.
By: /s/ Thomas [ILLEGIBLE]
-----------------------
Name: Thomas [ILLEGIBLE]
-----------------------
Its: Attorney-in-fact
------------------------
HAMBRECHT & QUIST CALIFORNIA
By: /s/ Thomas [ILLEGIBLE]
-----------------------
Name: Thomas [ILLEGIBLE]
-----------------------
Its: Attorney-in-fact
------------------------
/s/ Oliver Curme
------------------------
Oliver Curme
BATTERY VENTURES IV, L.P.
By: Battery Partners IV, LLC
By: /s/ Oliver D. Curme
-----------------------
Member Manager
BATTERY INVESTMENT PARTNERS IV LLC
By: /s/ Oliver D. Curme
-----------------------
Member Manager
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
/s/ William Draper
------------------------------------
William Draper
ARGUS CAPITAL LLC
By: /s/ Charles R. Conrad
---------------------------------
Name: Charles R. Conrad
-------------------------------
Its: Manager
--------------------------------
DRAPER INTERNATIONAL INDIA, L.P.
By: DRAPER INTERNATIONAL
MANAGEMENT, L.P.
as General Partner
By: DRAPER INTERNATIONAL, L.L.C.,
as General Partner
By: /s/ William H. Draper, III
---------------------------------
William H. Draper, III, Its Member
DRAPER RICHARDS MANAGEMENT COMPANY
By: /s/ William H. Draper, III
---------------------------------
Name: William H. Draper, III
-------------------------------
Its: President
--------------------------------
William H. Draper, III and Phyllis C. Draper,
Trustees of the William H. Draper Revocable
Trust dated 12/23/88
/s/ William H. Draper, III
------------------------------------
William H. Draper, III, Trustee
/s/ Phyllis C. Draper
------------------------------------
Phyllis C. Draper, Trustee
Robin A. Richards, Trustee of the
Robin A. Richards Trust dated
January 30, 1996
/s/ Robin Richards Donohue
------------------------------------
Robin A. Richards, Trustee
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
CITICORP
By: /s/ Ronald A. Walter
---------------------------------
Name: Ronald A. Walter
--------------------------
Its: Vice President
---------------------------
Douglas DiNardo and Michael S. McKay, Trustees
of the Peter McKay Irrevocable Trust
-----------------------------------
Douglas DiNardo, Trustee
-----------------------------------
Michael S. McKay, Trustee
-----------------------------------
Kerry S. DiNardo
/s/ Peter C. McKay
-----------------------------------
Peter McKay
-----------------------------------
Anne P. McKay
-----------------------------------
Matthew J. McKay
-----------------------------------
Michael S. McKay
Peter McKay, Trustee of the Peter McKay
Grantor Retained Annuity Trust
/s/ Peter C. McKay
-----------------------------------
Peter McKay, Trustee
-----------------------------------
Walter W. McKay
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
/s/ Mark Nunnelly
--------------------------------------
Mark Nunnelly
INFORMATION PARTNERS CAPITAL FUND, L.P.
By: /s/ Mark Nunnelly
--------------------------------------
Mark Nunnelly, General Partner
BCIP ASSOCIATES
By: /s/ Mark Nunnelly
--------------------------------------
Mark Nunnelly, General Partner
BCIP ASSOCIATES, L.P.
By: /s/ Mark Nunnelly
--------------------------------------
Mark Nunnelly, General Partner
-----------------------------------------
Tracy Blake
CHASE EQUITY HOLDINGS, INC.
By:
--------------------------------------
Name:
------------------------------------
Its:
-------------------------------------
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
EASTMAN CHEMICAL COMPANY
By: James P. Rogers 2/18/00
-------------------------------------
Name: James P. Rogers
-----------------------------------
Its: CFO
------------------------------------
ENTERPRISE ASSOCIATES, INC.
By: /s/ Venetia Kontogouris 2/18/00
-------------------------------------
Name: Venetia Kontogouris
-----------------------------------
Its: Investment Manager
------------------------------------
/s/ Venetia Kontogouris 2/18/00
-----------------------------------------
Venetia Kontogouris Date
EZEKIEL INVESTMENT GROUP I, LLC
By: /s/ Douglas R. Wolf Randy J. Pritzker
--------------------------------------
Name: Douglas R. Wolf Randy J. Pritzker
-----------------------------------
Its: Managers
------------------------------------
FINANCIAL TECHNOLOGY VENTURES (Q), LP
By: /s/ James C. Hale
-------------------------------------
Name: James C. Hale
-----------------------------------
Its: Managing Member
------------------------------------
FINANCIAL TECHNOLOGY VENTURES, LP
By: /s/ James C. Hale
-------------------------------------
Name: James C. Hale
-----------------------------------
Its: Managing Member
------------------------------------
FIRST UNION INVESTORS, INC.
By: /s/ Timothy Monnin
------------------------------------
Name: Timothy Monnin
-----------------------------------
Its: TNM
------------------------------------
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
J.P. MORGAN INVESTMENT CORPORATION
By: /s/ John Fullerton
-------------------------------
John Fullerton
Managing Director
SIXTY WALL STREET SBIC FUND, L.P.
By: Sixty Wall Street SBIC Corporation
As General Partner
By: /s/ John Fullerton
-------------------------------
John Fullerton
Managing Director
GATEWAY COMPANIES, INC.
By: /s/ Thomas W. Reedy
-------------------------------
Name: Thomas W. Reedy
-----------------------------
Its: Vice President & Treasurer
------------------------------
HEWLETT-PACKARD COMPANY
By: /s/ Craig A. White
-------------------------------
Name:
-----------------------------
Its:
------------------------------
/s/ Peter Keen
----------------------------------
Peter Keen
/s/ Robert Mahoney
----------------------------------
Robert Mahoney
MAPLECREST FUND I
By: /s/ Daniel T. Clark
-------------------------------
Daniel T. Clark, General Partner
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
---------------------------------
Susan M. McConville
MELLON/NETWORTH PARTNERS I, LLC
By: /s/ John K. Adams
-------------------------------
Name: John K. Adams
--------------------
Its: Vice President
---------------------
NETWORTH ENTERPRISES IV, LLC
By: /s/ [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
--------------------
Its: Managing Member
---------------------
MELLON/NETWORTH PARTNERS IV, LLC
By: /s/ John K. Adams
-------------------------------
Name: John K. Adams
--------------------
Its: Vice President
---------------------
NETWORTH ENTERPRISES VI, LLC
By: /s/ [ILLEGIBLE]
-------------------------------
Name: [ILLEGIBLE]
--------------------
Its: Managing Member
---------------------
MITSUI & CO. (U.S.A.), INC.
By:
-------------------------------
Name:
--------------------
Its:
---------------------
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
------------------------------------
Arun Oberoi
/s/ Suresh Ramachandran 2-22-00
------------------------------------
Suresh Ramachandran
------------------------------------
Donald Reigrod
/s/ Richard Sandor /s/ Ellen Sandor
------------------------------------
Richard Sandor and Ellen Sandor
SAP AMERICA, INC.
By:
---------------------------------
Name:
-------------------------------
Its:
--------------------------------
/s/ Mohanbir Sawhney
------------------------------------
Mohanbir Sawhney
/s/ Stubbro Sen
------------------------------------
Stubbro Sen
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
/s/ Venkat Srinivasan 2/21/00
-----------------------------------
Venkat Srinivasan
Pratima V. Srinivasan, Custodian UTMA,
f/b/o Tarangini Suresh
/s/ Pratima V. Srinivasan 2/22/00
-----------------------------------
Pratima V. Srinivasan, Custodian
Pratima V. Srinivasan, Custodian UTMA,
f/b/o V. Anand
/s/ Pratima V. Srinivasan 2/22/00
-----------------------------------
Pratima V. Srinivasan, Custodian
Pratima V. Srinivasan, Custodian UTMA,
f/b/o V. Ashok
/s/ Pratima V. Srinivasan 2/22/00
-----------------------------------
Pratima V. Srinivasan, Custodian
Pratima V. Srinivasan, Custodian UTMA,
f/b/o Yashaswini Suresh
/s/ Pratima V. Srinivasan 2/22/00
-----------------------------------
Pratima V. Srinivasan, Custodian
Pratima V. Srinivasan, Trustee of the
Venicat Srinivasan Grantor Retained
Annuity Trust
/s/ Pratima V. Srinivasan 2/22/00
-----------------------------------
Pratima V. Srinivasan, Trustee
/s/ Sushama Suresh 2/22/00
-----------------------------------
Sushama Suresh
<PAGE>
Signature Page to Consent of Certain Stockholders and Key Employees of
eCredit.com, Inc.
to the Exchange Offer Agreement and Related Transactions
TRIDENT CAPITAL FUND IV, L.P.
By: /s/ Venetia Kontogouris
------------------------------------
Name: Venetia Kontogouris
----------------------------------
Its: General Partner
-----------------------------------
/s/ G. Venkatesan
---------------------------------------
G. Venkatesan
/s/ Padmasini Venkatesan
---------------------------------------
Padmasini Venkatesan
/s/ Deepak Verma
---------------------------------------
Deepak Verma
Priya Verma, Trustee of the Verma
Irrevocable Trust
---------------------------------------
Priya Verma, Trustee
VORTEX PARTNERS CDT, LP
a Texas Limited Partnership
By: Vortex Partners, L.P., its General Partner
By: Vortex Investments, Inc., its General
Partner
By: /s/ Christopher O'Neill
-------------------------------------
Christopher O'Neill
Chief Executive Officer
<PAGE>
Exhibit B
---------
THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE IN VIOLATION OF APPLICABLE SECURITIES LAWS, AND MAY NOT
BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL, SATISFACTORY TO
THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE
STATE SECURITIES LAWS.
Date: ______________, 2000
eCREDIT.COM, INC.
COMMON STOCK PURCHASE WARRANT
eCredit.com, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
-------
that, for value received, ICG Holdings, Inc., a Delaware corporation (the
"HOLDER"), or its assigns, is entitled, subject to the terms set forth below, to
------
purchase from the Company, at any time and from time to time during the Exercise
Period (as hereinafter defined) an aggregate of ____________ fully paid and non-
assessable shares of the Company's Common Stock [Note: Number to be equal to
five percent (5%) of the Company's Common Stock, on a fully-diluted basis,
determined as of the Closing Date] (the "WARRANT SHARES"), at the Purchase Price
--------------
(as hereinafter defined), subject to the provisions of Section 3 hereof. For
purposes of this Warrant, "PURCHASE PRICE" shall mean (i) $_______ per share
--------------
[Note: Number to be equal to $300,000,000 divided by number of Warrant Shares
issuable on the date of the Warrant] if notice of exercise is given at any time
prior to the date eighteen (18) months after the completion of a Public Offering
(as hereinafter defined) by the Company, and (ii) if such notice is given at any
time thereafter during the Exercise Period, $___ per share [Note: Number to be
equal to $400,000,000 divided by the number of Warrant Shares issuable on the
date of the Warrant]. For purposes of this Warrant, "COMMON STOCK" shall mean,
------------
the common stock, par value $.001 per share, of the Company. For purposes of
this Warrant, the "EXERCISE PERIOD" shall mean, except as otherwise provided in
---------------
Section 1.3, the period beginning on the effective date (the "COMMENCEMENT
------------
DATE") of the registration statement for a Public Offering of the Company's
- ----
Common Stock and ending at 11:59 p.m. (New York City time) on the fourth (4th)
anniversary of the Commencement Date. For purposes of this Warrant, a "PUBLIC
------
OFFERING" shall mean an underwritten public offering by the Company pursuant to
- --------
an effective registration statement under the Securities Act of 1933, as amended
(the "SECURITIES ACT") in respect of the offer and sale of shares of the
--------------
Company's Common Stock for the account of the Company resulting in aggregate net
proceeds to the Company of not less than Thirty Million Dollars ($30,000,000).
Notwithstanding the foregoing, the Purchase Price and the number and character
of Warrant Shares issuable under this Warrant are subject to adjustment as set
forth in Section 3. This Warrant is herein called the "WARRANT."
-------
1. EXERCISE OF WARRANT. The purchase rights evidenced by this Warrant shall
be exercised by the holder hereof by surrendering this Warrant, with the form of
<PAGE>
subscription at the end hereof duly executed by such holder, to the Company, at
its office at 20 CareMatrix Drive, Dedham, Massachusetts 02026, Attention:
Treasurer or such other address as the Company may specify by written notice to
the registered holder hereof, accompanied by payment, in cash, by certified or
official bank check or by wire transfer of an amount equal to the applicable
Purchase Price.
1.1. PARTIAL EXERCISE. This Warrant may be exercised for less than the
----------------
full number of Warrant Shares, in which case the number of Warrant Shares
receivable upon the exercise of this Warrant as a whole, and the sum payable
upon the exercise of this Warrant as a whole, shall be proportionately reduced.
Upon any such partial exercise, the Company, at its expense shall forthwith
issue to the holder hereof a new Warrant or Warrants of like tenor calling for
the number of remaining Warrant Shares as to which rights have not been
exercised, such Warrant or Warrants to be issued in the name of the holder
hereof or its nominee (upon payment by such holder of any applicable transfer
taxes).
1.2. NET ISSUE EXERCISE.
------------------
(1) In lieu of paying the Purchase Price in cash, the holder may
elect to pay the Purchase Price with Warrant Shares by surrender of this Warrant
at the principal office of the Company together with notice of such election, in
which event the Company shall issue to the holder that number of Warrant Shares
computed using the following formula:
X= Y(A-B)
------
A
Where
X is the number of Warrant Shares to be issued to Holder pursuant to this
Section 1.2;
Y is the number of Warrant Shares as to which Holder is exercising this
Warrant;
A is the Fair Market Value Price (as hereinafter defined) of the Company's
Common Stock in effect under this Warrant as of the date of exercise of
this Warrant; and
B is the Purchase Price in effect under this Warrant as of the date of
exercise of this Warrant.
(2) As used herein, the "FAIR MARKET VALUE PRICE" of the Company's
-----------------------
Common Stock shall be the average of the closing prices per share of the
Company's Common Stock as reported by the NASDAQ National Market (or on any
exchange on which Common Stock is listed) or, if there is no such closing price,
the average of the closing bid and asked prices quoted in the Over-The-Counter
Market Summary, whichever is applicable, as published in the Eastern Edition of
The Wall Street Journal for the ten (10) trading days immediately prior to the
date of determination of such price. If the Company's Common Stock is not traded
on
<PAGE>
NASDAQ (or other exchange) or Over-The-Counter, the "FAIR MARKET VALUE PRICE"
-----------------------
of the Company's Common Stock shall be the price per share that the Company
could obtain from a willing buyer for shares sold by the Company from authorized
but unissued shares, as such price shall be agreed by the Company and the
Holder.
1.3. ACCELERATION OF EXERCISE PERIOD. Notwithstanding anything to the
-------------------------------
contrary herein, in the event of a Change of Control of the Company prior to the
effective date of a registration statement for a Public Offering by the Company,
the commencement of the Exercise Period shall be accelerated to the date that is
ten (10) business days prior to such Change of Control. The Company will give
the Holder not less than thirty (30) days prior written notice of any Change in
Control of the Company. For purposes of this Warrant "CHANGE OF CONTROL" means
-----------------
the occurrence of any of the following events: (i) any person, other than the
Company or a subsidiary of the Company or the Holder or a wholly owned
subsidiary of the Holder, is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
--------
ACT")), directly or indirectly, of securities of the Company representing fifty
- ---
percent (50%) or more (or, if the Company then has a class of stock which is
registered under the Exchange Act, twenty percent (20%) or more) of the total
voting power of all the then outstanding Voting Securities of the Company; or
(ii) a person, other than the Company or a subsidiary of the Company or the
Holder or a wholly owned subsidiary of the Holder, purchases or otherwise
acquires, securities representing fifty percent (50%) or more (or, if the
Company then has a class of stock which is registered under the Exchange Act,
twenty percent (20%) or more) or more of the total voting power of all the then
outstanding Voting Securities; or (iii) the individuals (a) who as of the date
of issuance of this Warrant constitute the Board of Directors of the Company or
(b) who thereafter are elected to the Board and whose election, or nomination
for election, to the Board was approved by a vote of at least a majority of the
directors then still in office who either were directors as of the date of this
Warrant or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or (iv) the stockholders
of the Company approve a merger, consolidation, recapitalization or
reorganization of the Company or an acquisition by the Company, or consummation
of any such transaction if stockholder approval is not obtained, other than any
such transaction which would result in the Voting Securities outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the total voting power represented by
the Voting Securities of such surviving entity outstanding immediately after
such transaction if the voting rights of each Voting Security relative to the
other Voting Securities were not altered in such transaction; or (v) the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets other than any such transaction which
would result in a wholly owned subsidiary owning or acquiring the assets to be
sold or disposed of; or (vi) the Board adopts a resolution to the effect that a
Change of Control has occurred and the transaction giving rise to such
resolution has been thereafter approved by the stockholders of the Company or
been consummated if such approval is not sought. The term "VOTING SECURITIES"
-----------------
means the securities of the Company which carry the right generally to elect the
directors of the Company. The term "PERSON" means any individual, corporation,
------
partnership, limited liability company, joint venture, association, trust or
other entity or organization.
<PAGE>
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable after
the exercise of this Warrant and payment of the Purchase Price, and in any event
within ten (10) business days thereafter, the Company, at its expense, will
cause to be issued in the name of and delivered to the holder hereof a
certificate or certificates for the number of fully paid and non-assessable
shares or other securities or property to which such holder shall be entitled
upon such exercise, plus, in lieu of any fractional share to which such holder
would otherwise be entitled, cash in an amount determined in accordance with
Paragraph 3.9 hereof. The Company agrees that the shares so purchased shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
3. ADJUSTMENTS.
3.1. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK, PROPERTY, ETC.;
-------------------------------------------------------
RECLASSIFICATION, ETC. In case at any time or from time to time, the holders of
- ---------------------
Common Stock (or any Other Securities, as defined below) have received, or (on
or after the record date fixed for the determination of stockholders eligible to
receive) have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property (other than
cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of earnings or
earned surplus of the Company), or
(c) other or additional stock or other securities or property (including
cash) by way of spin-off, split-up, reclassification, recapitalization,
combination of shares or similar corporate rearrangement, or any merger or
consolidation or the sale of all or substantially all the assets of the
Company,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in Section 3.2), then and in each such case the Holder, on the exercise
hereof as provided in Section 1, will be entitled to receive the amount of stock
and other securities and property (including cash in the cases referred to in
subdivisions (b) and (c) of this Section 3.1) that such holder would be entitled
to receive on the date of such exercise if on the date hereof such holder had
been the holder of record of the number of shares of Common Stock called for on
the face of this Warrant and had thereafter, during the period from the date
hereof to and including the date of such exercise, retained such shares and all
such other or additional stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) of this Section 3.1) receivable
by such holder as aforesaid during such period, giving effect to all adjustments
called for during such period by Section 3.2. The term "OTHER SECURITIES" means
----------------
stock or other securities of the Company or any other entity (corporate or
otherwise) (i) which the Holder at any time shall be entitled to receive, or
shall have received, on the exercise of this Warrant, in lieu of or in addition
to Common Stock, or (ii) which at any time shall be issuable or shall have been
issued in exchange for or in replacement of Common Stock or such other stock or
securities pursuant to the terms hereof.
<PAGE>
3.2. ADJUSTMENT FOR STOCK DIVIDEND, STOCK SPLIT, ETC. If the Company (a)
-----------------------------------------------
issues additional shares of Common Stock as a dividend or other distribution on
outstanding Common Stock, (b) subdivides its outstanding shares of Common Stock,
(c) combines its outstanding shares of Common Stock into a smaller number of
shares of Common Stock, then, in each such event, the Purchase Price will,
simultaneously with such event, be adjusted by multiplying the current Purchase
Price by a fraction, the numerator of which will be the number of shares of
Common Stock outstanding immediately prior to such event and the denominator of
which will be the number of shares of Common Stock outstanding immediately after
such event, and the product so obtained will thereafter be the Purchase Price
then in effect. The Purchase Price, as so adjusted, will be readjusted in the
same manner upon the happening of any successive event or events described in
this Section 3.2. The Holder of this Warrant will thereafter, on the exercise
hereof as provided in Section 1, be entitled to receive that number of shares of
Common Stock determined by multiplying the number of shares of Common Stock
which would otherwise (but for the provisions of this Section 3.2) be issuable
on such exercise by a fraction of which (i) the numerator is the Purchase Price
that would otherwise (but for the provisions of this Section 3.2) be in effect,
and (ii) the denominator is the Purchase Price in effect on the date of such
exercise.
Whenever the Purchase Price is adjusted, as herein provided, the
Company will promptly deliver to the record holder of this Warrant a certificate
of its Treasurer setting forth the Purchase Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
3.3. NOTICES OF RECORD DATE, ETC. In the event of:
---------------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any sale of the
Company (whether by sale of stock, merger, consolidation or sale of all or
substantially all the assets of the Company or otherwise), or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, and (ii) the date on
which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) will be entitled to exchange their shares of Common
Stock (or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice will be mailed at
least
<PAGE>
10 days prior to the date specified in such notice on which any such action is
to be taken. Failure to give such notice, or any defect therein, will not affect
the legality or validity of any dividend or distribution.
3.4. FRACTIONAL SHARES. The Company shall not issue fractions of shares of
-----------------
Common Stock upon exercise or partial exercise pursuant to Section 1.1 or net
issue exercise pursuant to Section 1.2 of this Warrant. If any fraction of a
share of Common Stock would, except for the provisions of this Section 3.4, be
issuable upon such exercise of this Warrant, the Company shall in lieu thereof
pay to the person entitled thereto an amount in cash equal to the Fair Market
Value Price of such fraction, calculated to the nearest one-hundredth (1/100) of
a share.
3.5. OFFICERS' STATEMENT AS TO ADJUSTMENTS. Whenever the Purchase Price
-------------------------------------
shall be adjusted as provided in Section 3.2 hereof, the Company shall forthwith
file at each office designated for the exercise of this Warrant a statement,
signed by the Chairman of the Board, the President, or any Vice President or
Treasurer of the Company, showing in reasonable detail the facts requiring such
adjustment and the Purchase Price that will be effective after such adjustment.
The Company also shall cause a notice setting forth any such adjustments to be
sent by mail, first class, postage prepaid, to the record holder of this Warrant
at its address appearing on the stock register. If such notice relates to an
adjustment resulting from an event referred to in Section 3.1, such notice shall
be included as part of the notice required to be mailed and published under the
provisions of Section 3.1 hereof.
3.6. ADJUSTMENT BY BOARD OF DIRECTORS. If any event occurs as to which the
--------------------------------
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holder of this warrant in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such rights as aforesaid, but in no event shall any adjustment have the
effect of increasing the Purchase Price as otherwise determined pursuant to any
of the provisions of this Section 3 except in the case of a combination of
shares of a type contemplated in section 3.2 and then in no event to an amount
larger than the Purchase Price as adjusted pursuant to Section 3.2.
4. NO IMPAIRMENT. The Company will not, by amendment of its Certificate of
Incorporation or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder hereof . Without limiting the generality of the
foregoing, the Company will not increase the par value of any shares of stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise, and at all times will take all such action as may be
necessary or reasonably appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of this
Warrant.
5. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The Company shall at
all times reserve and keep available out of its authorized but unissued stock,
solely for the issuance and delivery upon the exercise of this Warrant and other
similar Warrants,
<PAGE>
such number of its duly authorized shares of Common Stock as from time to time
shall be issuable upon the exercise of this Warrant and all other similar
Warrants at the time outstanding. All of the shares of Common Stock issuable
upon exercise of this Warrant, when issued and delivered in accordance with the
terms hereof, will be duly authorized, validly issued, fully-paid and
non-assessable.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant and
(in the case of loss, theft or destruction) upon delivery of an indemnity
agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Warrant in the event of any default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will not be
adequate, and that the same may be specifically enforced.
8. TRANSFER. This Warrant is issued upon the following terms, to all of which
each taker or owner hereof consents and agrees:
(a) subject to the legend appearing on the first page hereof, title to
this Warrant may be transferred by endorsement (by the holder hereof executing
the form of assignment at the end hereof including guaranty of signature) and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery. Absent an effective registration
statement under the Securities Act and applicable state securities laws,
covering the disposition of this Warrant or the Warrant Shares of Common Stock
issued or issuable upon exercise hereof, the holder will not sell or transfer
any or all of such Warrant or shares, as the case may be, without first
providing the Company with an opinion of counsel (which may be counsel for the
Company) to the effect that such sale or transfer will be exempt from the
registration and prospectus delivery requirements of the Act. Each certificate
representing shares of Common Stock issued pursuant to this Warrant, unless at
the same time of exercise such Warrant shares are registered under the Act,
shall bear a legend in substantially the following form on the face thereof:
THIS WARRANT AND THE UNDERLYING SHARES OF COMMON STOCK HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THIS WARRANT HAS BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE IN
VIOLATION OF APPLICABLE SECURITIES LAWS, AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF
COUNSEL,
<PAGE>
SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR APPLICABLE STATE SECURITIES LAWS.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a certificate issued upon completion of
a distribution under a registration statement covering the securities
represented) shall also bear such legend unless, in the reasonable opinion of
counsel to the Company, the securities represented thereby may be transferred as
contemplated by such holder without violation of the registration requirements
of the Act. Upon any transfer of this Warrant in accordance with the terms
hereof, the transferee will be deemed to be the "Holder" for purposes of this
Warrant as to the portion of this Warrant so transferred.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent itself as absolute owner hereof and is granted power to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of its equities or rights in this Warrant in favor of every such bona fide
purchaser, and every such bona fide purchaser shall acquire title hereto and to
all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company, the
Company may treat the registered holder of this Warrant as the absolute owner
hereof for all purposes without being affected by any notice to the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall not be
entitled to any rights of a stockholder of the Company with respect to shares
for which this Warrant shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or state transfer
tax or charge that may be payable in respect of any transfer involved in the
transfer or delivery of this Warrant or the issuance or conversion or delivery
of certificates for Warrant Shares in a name other than that of the registered
holder of this Warrant or to issue or deliver any certificates for Common Stock
upon the exercise of this Warrant until any and all such taxes and charges shall
have been paid by the holder of this Warrant or until it has been established to
the Company's reasonable satisfaction that no such tax or charge is due.
9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. This Warrant is issued
and delivered by the Company on the basis of the following:
(a) AUTHORIZATION AND DELIVERY. This Warrant has been duly authorized and
--------------------------
executed by the Company and when delivered will be the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms;
<PAGE>
(b) WARRANT SHARES. The Warrant Shares to be issued pursuant to this
--------------
Warrant have been duly authorized and reserved for issuance by the Company and,
when issued and paid for in accordance with the terms hereof, will be validly
issued, fully-paid and non-assessable;
(c) RIGHTS AND PRIVILEGES. The rights, preferences, privileges and
---------------------
restrictions granted to or imposed upon such Warrant Shares and the holders
thereof are as set forth herein, in the Company's Certificate of Incorporation,
and in the Common Stock, true and complete copies of which have been delivered
to the original Holder; and
(d) NO INCONSISTENCY. The execution and delivery of this Warrant are not,
----------------
and the issuance of the shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof will not (i) violate or conflict with or result
in a breach of any provision of the Certificate of Incorporation or Bylaws of
the Company; (ii) require any consent, approval or notice under, or registration
under or payment on account of, or conflict with, or result in a violation or
breach of, or constitute (with or without the giving of notice or the lapse of
time or both) a default (or give rise to any right or termination, modification
(including, in the case of leases, any change in the amount of nature of the
rent), cancellation or acceleration or result in the creation or imposition of
any lien upon the property of the Company or result in any "anti-dilution" or
similar adjustment) under, any of the terms, conditions or provisions or any (A)
note, bond, mortgage, indenture, license, lease, agreement or other instrument
or obligation to which the Company is a party or by which any portion of its
properties or assets may be bound, or (B) any permit, license approval,
franchise or other governmental or regulatory authorization held or used by or
bonding on the Company; (iii) violate or contravene any law, statute, rule or
regulation, or any order, writ, judgment, injunction, decree, determination or
award of any Authority; (iv) require any action, consent, approval or
authorization of, or review by, or declaration, registration or filing with, or
notice to, any Authority, or any stock exchange or similar self-regulatory
organization. For purposes of this Warrant, "AUTHORITY" shall mean any federal,
---------
state, local or foreign governmental or regulatory entity (or any department,
agency, authority or political subdivision thereof) or court or arbitration.
<PAGE>
10. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(a) The Holder hereby represents and warrants to the Company that it has
substantial knowledge, skill and experience in making investment decisions of
the type represented by this Warrant and the shares issuable upon exercise of
this Warrant, that it is capable of evaluating the risk of its investment in
this Warrant and the shares issuable upon exercise of this Warrant and is able
to bear the economic risk of such investment, including the risk of losing the
entire investment, that it is acquiring this Warrant and the shares issuable
upon exercise of this Warrant for its own account, and that this Warrant and the
shares issuable upon exercise of this Warrant are being acquired by it for
investment and not with a present view to any distribution thereof in violation
of applicable securities law. If the holder should in the future decide to
dispose of any of this Warrant and the shares issuable upon exercise of this
Warrant, it is understood that it may so do only in compliance with the Act and
applicable state securities laws. The Holder represents and warrants that it is
an "Accredited Investor" as defined in Rule 501(a) under the Act.
(b) The Holder understands that (i) this Warrant and the shares issuable
upon exercise of this Warrant have not been registered under the Act by reason
of their issuance in a transaction exempt from the registration requirements of
the Act, (ii) this Warrant and the shares issuable upon exercise of this Warrant
must be held indefinitely unless a subsequent disposition thereof is registered
under the Act and applicable state securities laws or is exempt from such
registration (and, upon request, evidence satisfactory to the Company is
provided by such holder of the availability of such exemptions, including, upon
request, the delivery to the Company of opinions of counsel to such holder,
which opinions and counsel are satisfactory to the Company), and (iii) this
Warrant and the shares issuable upon exercise of this Warrant may bear a legend
to such effect.
11. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants issued
pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new warrants of like tenor and date representing in the
aggregate the right to subscribe for and purchase the number of shares of Common
Stock of the Company that may be subscribed for and purchased hereunder.
12. MAILING OF NOTICES. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first-class certified mail,
postage prepaid, to the address furnished to the Company in writing by the last
holder of this Warrant who shall have furnished an address to the Company in
writing.
13. HEADINGS. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect the meaning hereof.
14. CHANGE, WAIVER. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought.
<PAGE>
15. GOVERNING LAW. This Warrant shall be construed and enforced in accordance
with the laws of the State of Delaware, without regard to principles of
conflicts of law.
<PAGE>
EXHIBIT B
---------
IN WITNESS WHEREOF, the Company, by the undersigned thereunto duly
authorized, has duly executed this Warrant as of the date first written above.
ECREDIT.COM, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Dated: __________, 2000
Attest:
- -----------------------
ACCEPTED AS OF THE DATE HEREOF:
ICG HOLDINGS, INC.
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE>
[To be signed only upon exercise of Warrant]
To ___________________:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______ shares of Common Stock of _____________ and herewith
makes payment of $_____ therefor, and requests that the certificates for such
shares be issued in the name of, and be delivered to ____________, whose address
is _____________.
Dated:
--------------
--------------------------------------------
By
---------------------------------
Address:
--------------------------------------------
--------------------------------------------
<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ___________ the right represented by the within Warrant to
purchase the ______ shares of the Common Stock of ____________________ to which
the within Warrant relates, and appoints _____________ attorney to transfer said
right on the books of _____________________ with full power of substitution in
the premises.
Dated:
----------------
---------------------------------------------
By
------------------------------------------
Address:
--------------------------------------------
--------------------------------------------
In the presence of
- -----------------------------
Signature Guarantee
<PAGE>
[Net Issue Exercise of Warrant]
To: eCredit.com, Inc.
20 Carematrix Drive
Dedham, MA 02026
Attn: Secretary
The undersigned, the holder of the attached Warrant number W _____, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
pursuant to Section 1.2 (Net Issue Exercise) thereof, and requests that the
certificates for such shares be issued in the name of, and be delivered to
_____________________, whose address is ___________________________________.
Dated:
------------------ --------------------------------------------
By:
-----------------------------------------
Address:
--------------------------------------------
--------------------------------------------
<PAGE>
EXHIBIT C
---------
THIRD AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
-------------------------------------------------
THIS THIRD AMENDED AND RESTATED STOCKHOLDERS AGREEMENT is made as of the
___ day of __________, 2000 (the "AGREEMENT"), by and among (i) eCredit.com,
---------
Inc., formerly known as SRR Solutions, Inc., a Delaware corporation (the
"COMPANY"), (ii) ICG Holdings, Inc., a Delaware Corporation ("ICG HOLDINGS"),
------- ------------
(iii) each person who is listed on SCHEDULE I hereto and each person who shall,
----------
after the date hereof, acquire more than one percent (1%) of the outstanding
shares of Common Stock (as hereinafter defined) of the Company, on a fully
diluted basis and join in and become a party to this Agreement as a "HOLDER" by
------
executing and delivering to the Company a joinder to this Agreement ("HOLDERS",
-------
and each a "HOLDER"), (iv) each person who is a key employee and who is listed
------
on SCHEDULE II hereto (each a "KEY EMPLOYEE" or collectively, the "KEY
----------- ------------ ---
EMPLOYEES"), (v) each Investor as listed on SCHEDULE III hereto (each an
- --------- ------------
"INVESTOR" or collectively the "INVESTORS"). ICG Holdings, the Holders, the Key
-------- ---------
Employees and the Investors are collectively known as the "STOCKHOLDERS" and
------------
each is known as a "STOCKHOLDER". This Third Amended and Restated Stockholders
-----------
Agreement shall amend, restate and supersede in its entirety the Second Amended
and Restated Stockholders Agreement, dated as of December 22, 1999 (the
"DECEMBER 1999 STOCKHOLDERS AGREEMENT") among the Company, the Holders (as
------------------------------------
defined therein), the Key Employees (as defined therein), the Old Investors (as
defined therein) and the New Investors (as defined therein).
BACKGROUND
----------
A. The Company, ICG Holdings, Internet Capital Group, Inc., a Delaware
corporation ("ICG"), and certain of the Investors, Holders and Key Employees are
---
parties to an Exchange Offer Agreement, dated as of February 24, 2000 (the
"EXCHANGE AGREEMENT"). Subject to the satisfaction of certain conditions set
-------- ---------
forth in the Exchange Agreement, the Exchange Agreement contemplates that, at
the Closing (as defined in the Exchange Agreement), ICG Holdings will acquire
thirty percent of the Company's capital stock on a fully-diluted basis.
B. It is a condition of the obligations of the various parties to the
Exchange Agreement to consummate the transactions contemplated by the Exchange
Agreement, that each of the Company, ICG Holdings, ICG, the Investors, the
Holders and the Key Employees execute and deliver this Agreement.
C. Capitalized terms used herein and not otherwise defined (as well as the
term "FULLY DILUTED BASIS") shall have the meanings ascribed to such terms in
-------------------
the Exchange Agreement.
D. ICG Holdings, ICG, the Holders, the Key Employees and the Investors
desire to enter into this Agreement in order to fulfill such condition.
TERMS
-----
In consideration of the mutual covenants contained herein and intending to
be legally bound hereby, the parties hereto agree as follows:
<PAGE>
1. PROHIBITED TRANSFERS. None of the Stockholders shall sell, assign,
--------------------
transfer, pledge, hypothecate, mortgage or dispose of, by gift or otherwise, or
in any way encumber, all or any part of the Shares (as hereinafter defined)
owned by them, except in compliance with the terms of this Agreement. For
purposes of this Agreement, the term "SHARES" shall mean and include all shares
------
of Common Stock of the Company, and options, rights and convertible securities
exercisable for or convertible into such Common Stock, owned by the
Stockholders, whether presently held or hereafter acquired, with all convertible
or derivative securities being treated on an as-exercised or as-converted basis.
2. RIGHT OF FIRST REFUSAL ON DISPOSITIONS BY THE HOLDERS, INVESTORS OR KEY
-----------------------------------------------------------------------
EMPLOYEES PRIOR TO AN INITIAL PUBLIC OFFERING. Subject to the limitations of
- ---------------------------------------------
Section 1 hereof, if at any time any Holder, Investor or Key Employee (any such
person is referred to as a "SELLER") wishes to sell, assign, transfer or
------
otherwise dispose of any or all Shares then owned by such person, such Seller
shall comply with the provisions set forth in this Section 2.
(a) Prior to an Initial Public Offering, a Seller may only sell Shares
pursuant to a bona fide written offer (the "BONA FIDE OFFER"). The Seller shall
---------------
submit a written offer (an "OFFER") to sell such Shares to ICG Holdings on terms
-----
and conditions, including price, not less favorable to ICG Holdings than those
contained in the Bona Fide Offer. The Seller shall submit a copy of the Offer to
the Company, and the Company shall submit copies of the Offer to the Investors.
The Seller's Offer shall disclose the identity of the proposed purchaser or
transferee, the Shares proposed to be sold or transferred, the agreed terms of
the sale or transfer and any other material facts relating to the sale or
transfer.
(b) Within three (3) business days after receipt of the Offer, ICG
Holdings shall give notice to such Seller and to the Company of its intent to
purchase all, but not less than all, of the offered Shares on the same terms and
conditions as set forth in the Offer. Such notice, when taken in conjunction
with the Offer shall constitute a valid, legally binding and enforceable
agreement for the sale and purchase of the Shares covered thereby. ICG Holdings
shall have the right to transfer part or all of ICG Holdings right to purchase
the Shares to any Qualified Transferee, as that term is defined below.
(c) If, for any reason whatever, ICG Holdings shall not exercise its
right to purchase all of the offered Shares as provided herein, ICG Holdings
shall notify in writing the Company, and the Company shall submit copies of ICG
Holdings' notice to the Investors, then the Company shall have the right to
purchase, on the same terms and conditions as set forth in the Offer, all, but
not less than all, of the offered Shares. Within three (3) business days after
receipt of ICG Holdings' notice with respect to the Offer, the Company shall
give notice to such Seller and to the Investors of its intent to purchase all,
but not less than all, of the offered Shares on the same terms and conditions as
set forth in the Offer. Such notice, when taken in conjunction with the Offer
shall constitute a valid, legally binding and enforceable agreement for the sale
and purchase of the Shares covered thereby.
(d) If, for any reason whatever, the Company shall not exercise its
right to purchase all of the offered Shares as provided herein, the Company
shall notify the Investors in writing of such decision, then the Investors shall
have the right to purchase, on the same terms and conditions set forth in the
Offer, all, but not less than all, of the offered Shares in the manner set forth
herein. Each Investor shall have the right to purchase that number of the
offered Shares as shall be equal to the aggregate offered Shares multiplied by a
fraction, the numerator of which is the number of shares of Common Stock of the
Company then owned by such Investor
<PAGE>
(including any shares of Common Stock deemed to be beneficially owned by such
Investor pursuant to Rule 13d-3 promulgated under the Exchange Act of 1934
("RULE 13D-3")) and the denominator of which is the aggregate number of shares
----------
of said Common Stock then issued and outstanding and held by (and deemed to be
beneficially owned by) all the Investors. The amount of Shares each Investor or
Qualified Transferee, as that term is defined below, is entitled to purchase
under this Section 2 shall be referred to as such Investor's "PRO RATA
--------
FRACTION". Each Investor shall have the right to transfer such Investor's right
- --------
to any Pro Rata Fraction or part thereof to any Qualified Transferee. In the
event an Investor does not wish to purchase or to transfer such Investor's right
to purchase such Investor's Pro Rata Fraction, then any Investors who so elect
shall have the right to purchase, on a pro rata basis with any other Investors
who so elect, any Pro Rata Fraction not purchased by an Investor or Qualified
Transferee.
(e) The Company and each Investor shall act upon the Offer as soon as
practicable after receipt from ICG Holdings or the Company of notice that it has
not elected to purchase all of the offered Shares, and in all events within
three (3) business days after receipt thereof. Each Investor shall have the
right to accept the Offer as to his Pro Rata Fraction of all of the offered
Shares offered thereby. In the event that an Investor shall elect to purchase
such Investor's Pro Rata Fraction of all of the offered Shares covered by the
Offer, said Investor shall individually communicate in writing such election (as
well as any election to purchase such Investor's pro rata share of any Pro Rata
Fraction not purchased by an Investor or Qualified Transferee) to purchase to
whichever Seller has made the Offer, which communication shall be delivered by
hand or mailed to such Seller at the address set forth in Section 7 below and
shall, when taken in conjunction with the Offer (but subject to the first
sentence of paragraph (f) below), be deemed to constitute a valid, legally
binding and enforceable agreement for the sale and purchase of the Shares
covered thereby, which election may specify a maximum number of shares to be so
purchased.
(f) In the event that ICG Holdings, the Company and the Investors, taken
together, do not purchase all of the Shares offered by a Seller pursuant to and
within forty-five (45) calendar days after the Offer, each agreement
contemplated above for the sale and purchase of the Shares covered by the Offer
shall be deemed null and void, and such Shares may be sold by such Seller at any
time within ninety (90) calendar days after the expiration of the Offer but
subject to the provisions of Section 3 below. Any such sale shall be at not less
than the price and upon other terms and conditions, if any, not more favorable
to the purchaser than those specified in the Offer. Any Shares not sold within
such ninety (90) day period shall continue to be subject to the requirements of
a prior offer and re-sale pursuant to this Section. In the event that Shares are
sold to any purchaser pursuant to this Section, said Shares shall remain
entitled to the benefits conferred by, and subject to the restrictions imposed
by, this Agreement. No such sale of more than one percent (1%) shall occur until
the purchaser signs a joinder to this Agreement in the form attached to this
Agreement.
(g) For purposes of this Agreement, a "QUALIFIED TRANSFEREE" shall mean
--------------------
any person (i) who is an Investor, (ii) who is an "AFFILIATED PERSON", as that
-----------------
term is defined in the Investment Company Act of 1940, of an Investor, (iii) who
is a partner or member of an Investor or of ICG Holdings or ICG or an affiliate
of ICG Holdings or ICG (other than an officer or director of ICG Holdings, ICG
or their affiliates), (iv) who acquires at least 50,000 shares of Common Stock
(as adjusted for stock splits, stock dividends, reclassifications,
recapitalizations or other similar events after the date hereof) or, if less
than 50,000 shares, all of the shares of Common Stock held by such Investor, or
(v) who is directly or indirectly (A) a majority-owned subsidiary, or (B) a
majority-owned limited liability company, or (C) a partnership of which ICG
<PAGE>
Holdings, ICG or a majority-owned subsidiary or a majority-owned limited
liability company owns the majority of the voting interests of the general
partner (the persons referred to in clause (A), (B) and (C) are referred to
hereinafter individually as a "ICG AFFILIATE" and collectively as the "ICG
------------- ---
AFFILIATES") (other than an officer or director of ICG Holdings, ICG or ICG
- ----------
Affiliates ). Notwithstanding the foregoing, no person who is a competitor of
the Company shall qualify as a Qualified Transferee under this Agreement.
(h) Notwithstanding the foregoing in this Section 2, the rights of first
refusal set forth in this Section 2 shall not apply to any person who is an
employee of the Company (other than Key Employees and Messrs. Srinivasan, McKay
and Verma) who is selling such employee's Shares to the Company in connection
with the termination of such employee's employment pursuant to a restrictive
stock purchase agreement. Each of the Investors and ICG Holdings acknowledge and
agree that with respect to such sales by such employees, only the Company shall
have the right to purchase the Shares.
3. OTHER STOCKHOLDER RIGHTS.
------------------------
(a) RIGHT OF PARTICIPATION IN SALES BY STOCKHOLDERS. If at any time a
-----------------------------------------------
Stockholder wishes to sell, or otherwise dispose of any Shares owned by such
Stockholder (a "SELLING STOCKHOLDER") to any person (the "PURCHASER") in a
------------------- ---------
transaction which is subject to the provisions of Section 2, ICG Holdings and
each Investor shall have the right to require, as a condition to such sale or
disposition, that the Purchaser purchase from ICG Holdings and/or said Investor
at the same price per Share and on the same terms and conditions as involved in
such sale or disposition by such Selling Stockholder the same percentage of
Shares of Common Stock owned (including any shares of Common Stock deemed to be
beneficially owned pursuant to Rule 13d-3) by ICG Holdings and/or such Investor
as such sale or disposition (as finally consummated) represents with respect to
said Shares of Common Stock then owned (and deemed to be beneficially owned
hereunder) by such Selling Stockholder. ICG Holdings and each Investor wishing
so to participate in any such sale or disposition shall notify the Selling
Stockholder of such intention as soon as practicable after receipt of the Offer
made pursuant to Section 2, and in all events within fifteen (15) calendar days
after receipt thereof. In the event that ICG Holdings and/or an Investor shall
elect to participate in such sale or disposition, ICG Holdings and/or said
Investor shall individually communicate such election to the Selling
Stockholder, which communication shall be delivered by hand or mailed to the
Selling Stockholder at the address set forth in Section 7 below. The Selling
Stockholder and/or ICG Holdings and/or each participating Investor shall sell to
the Purchaser all, or at the option of the Purchaser, any part of the Shares
proposed to be sold by them at not less than the price and upon other terms and
conditions, if any, not more favorable to the Purchaser than those originally
offered; PROVIDED, HOWEVER, that any purchase of less than all of such Shares by
-------- -------
the Purchaser shall be made from the Selling Stockholder, and/or ICG Holdings,
and/or each participating Investor based upon a fraction, the numerator of which
is the number of shares of Common Stock of the Company then owned by the Selling
Stockholder, ICG Holdings (if participating) or such participating Investor
(including any shares of Common Stock deemed to be beneficially owned by such
Selling Stockholder, ICG Holdings or Investor under Rule 13d-3) and the
denominator of which is the aggregate number of shares of Common Stock held by
(and deemed to be beneficially owned by) the Selling Stockholder, ICG Holdings
(if participating) and all of the participating Investors. The Selling
Stockholder, ICG Holdings or Investor shall use his or its best efforts to
obtain the agreement of the Purchaser to the participation of ICG Holdings
and/or the participating Investors in the contemplated sale, and shall not sell
any Shares to such Purchaser if such Purchaser declines to permit ICG Holdings
or the participating Investors to
<PAGE>
participate pursuant to the terms of this Section 3(a). The provisions of this
Section 3(a) shall not apply to the sale of any Shares by the Selling
Stockholder to ICG Holdings, the Company or an Investor pursuant to an Offer
under Section 2.
(b) SALE OF THE COMPANY.
-------------------
(i) If the holders of two-thirds (2/3) of the Common Stock of the
Company held by (A) Investors and (B) ICG Holdings and its affiliates
(considering the holders described in (A) and (B) as a single class) desire to
effect a "SALE OF THE COMPANY" (as hereinafter defined and subject to the
-------------------
provisions of the Company's Certificate of Incorporation) (the "APPROVED SALE"),
-------------
the Stockholders will consent to and raise no objections to the Approved Sale,
will use their best efforts to cause their representatives on the Board to vote
in favor of such Approved Sale, and (i) if the Approved Sale is structured as a
sale of stock, the Stockholders will agree to sell all of their Stock and rights
to acquire Stock on the terms and conditions approved by the holders of two-
thirds (2/3) of the Common Stock of the Company, and (ii) if the Approved Sale
is structured as a merger, consolidation or other reorganization, the
Stockholders will vote in favor thereof. The Stockholders will use best efforts
to cooperate in the Approved Sale and will take all necessary and desirable
actions in connection with the consummation of the Approved Sale as are
reasonably requested by the holders of two-thirds (2/3) of the Common Stock;
PROVIDED HOWEVER, that no Stockholder shall be required to make any
- -------- -------
representations and warranties in connection with any Approved Sale other than
the representations and warranties made by the "Stockholders" set forth in
Article III of the Exchange Agreement. For purposes hereof, "SALE OF THE
-----------
COMPANY" shall mean the sale of (a) the Company to any unaffiliated third person
- -------
or group of persons pursuant to which such person or persons acquire capital
stock of the Company possessing the voting power to elect a majority of the
Company's board of directors (whether by merger, consolidation or sale or
transfer of the Company's capital stock) or (b) all or substantially all of the
Company's assets determined on a consolidated basis.
(ii) The obligations of the Stockholders with respect to the
Approved Sale also are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Approved Sale, all of the Stockholders will
receive the same form and amount of consideration for their Shares as all other
Stockholders of the same class of Stock, or if any Stockholders are given an
option as to the form and amount of consideration to be received, all holders of
the same class of Stock will be given the same option; and (ii) all holders of
then currently exercisable rights to acquire, directly or indirectly, shares of
Common Stock will be given an opportunity to either (A) exercise such rights
prior to the consummation of the Approved Sale and participate in such sale as
holders of Common Stock or (B) upon the consummation of the Approved Sale,
receive in exchange for such rights consideration equal to the amount determined
by multiplying (1) the same amount of consideration per share of Common Stock
received by the holders of Common Stock in connection with the Approved Sale
less the exercise price or conversion price per share of Common Stock of such
right to acquire, directly or indirectly, Common Stock by (2) the number of
shares of Common Stock represented by such rights.
(iii) No right of first refusal pursuant to Section 2 of this
Agreement shall apply to any sale made pursuant to an Approved Sale by any
Stockholder. No right of participation pursuant to Section 3(a) of this
Agreement shall apply to any sale made pursuant to an Approved Sale by any
Stockholder.
<PAGE>
4. PERMITTED TRANSFERS. Anything herein to the contrary notwithstanding,
-------------------
the provisions of Sections 1, 2 and 3 shall not apply to: (a) any transfer of
Shares by a Holder or Key Employee by gift or bequest or through inheritance to,
or for the benefit of or in trust for, any member or members of his immediate
family (including spouses, parents, children, siblings and their spouses, and
aunts and uncles, and nieces and nephews, whether step, in-law or adopted) and
the parties hereto hereby consent and agree to any amendments to restricted
stock purchase agreements and other stock purchase or option agreements to which
any Holder or Key Employee is or shall become a party which conform to the terms
of transfer set forth in this Section 4(a); (b) any transfer of Shares by a
Holder or Key Employee to a trust in respect of which he or she serves as
trustee; (c) any sale of Shares pursuant to a public offering pursuant to a
registration statement filed by the Company with the SEC; (d) any repurchase of
Shares from officers, employees, directors or consultants of the Company which
are subject to restrictive stock purchase agreements under which the Company has
the option to repurchase such shares upon the occurrence of certain events,
including termination of employment, and (e) with respect to ICG Holdings or any
Investor, any transfer (i) to one or more partners of the transferor (in the
case of a transferor that is a partnership), (ii) to one or more members of the
transferor (in the case of a transferor that is a limited liability company),
(iii) to an affiliated corporation (in the case of a transferor that is a
corporation) so long as such "affiliated corporation" constitutes a Qualified
Transferee, (iv) to Overseas Private Investment Corporation ("OPIC") (in the
----
case of Draper International India, L.P. "DRAPER" or one of its authorized
------
affiliates under contractual arrangements with OPIC), (v) between affiliated
Investors in accordance with presently existing agreements between such
affiliated Investors, (vi) to an affiliate of ICG Holdings or such Investor to
comply with state or federal laws or regulations applicable to such Investor's
ownership and holding of Shares (for purposes of this Section 4, the transferee
of a corporation pursuant to a merger, consolidation or sale of all or
substantially all of the assets of such corporation shall be deemed to be an
"affiliated corporation"); PROVIDED, that such transferee constitutes a
--------
Qualified Transferee, (vii) to a Qualified Transferee of such party or (viii) of
ICG's Shares to the Agent (defined below) for the benefit of the Banks (defined
below), in connection with that certain credit agreement dated as of April 30,
1999, as amended or supplemented to date (the "Credit Agreement"), among ICG and
its subsidiary, Internet Capital Group Operations, Inc., as borrowers under the
Credit Agreement, PNC Bank, National Association as Agent for the Banks (the
"AGENT") and the banks named therein the "BANKS"). In the event of any such
----- -----
transfer, other than pursuant to subsection (c) of this Section 4 or to a
Purchaser pursuant to Section 3(a) (except as provided therein) or to a limited
partner or a non-managing general partner transferee of a private equity fund
Investor who receives one percent (1%) or less of the Common Stock of the
Company on a fully diluted basis, the transferee of the Shares shall hold the
Shares so acquired with all the rights conferred by, and subject to all the
restrictions imposed by, this Agreement. No Stockholder can complete any such
transfer, other than pursuant to subsection (c) of this Section 4 or to a
limited partner or a non-managing general partner transferee of a private equity
fund Investor who receives one percent (1%) or less of the Common Stock of the
Company on a fully diluted basis until the transferee has signed a joinder to
this Agreement in the form attached to this Agreement.
5. ELECTION OF DIRECTORS.
---------------------
(a) At the Closing, the Company and each Stockholder shall take all
action necessary or appropriate to (i) increase the size of the Board of
Directors of the Company to consist of nine (9) directors, (ii) elect three (3)
directors designated by ICG Holdings to the Board of Directors of the Company,
(iii) elect one (1) director who shall be the Chief Executive Officer to the
Board of Directors, initially Venkat Srinivasan, and (iv) elect the remaining
five
<PAGE>
(5) directors as designated by the Investors holding shares having at least
fifty percent (50%) of the voting power (in the general of directors) of the
shares held by the Investors, initially Venetia Kountogouris, Mark E. Nunnelly,
William H. Draper, III, Oliver D. Curme and John Fullerton. From and after the
Closing, each of the Company and each Stockholder shall take, at any time and
from time to time, all legally permissible action necessary or appropriate to
ensure that the Board of Directors is composed of nine (9) directors and that
(i) until such time as ICG Holdings' and ICG's (together with ICG Affiliates')
record ownership of Common Stock is less than twenty (20%) of the outstanding
shares of Common Stock for an uninterrupted period of not less twenty (20)
business days, not less than three (3) of such directors are such individuals as
are designated by ICG Holdings and (ii) until such time as ICG Holdings' and
ICG's (together with ICG Affiliates') record ownership of Common Stock is less
than ten percent (10%) of the outstanding shares of Common Stock for an
uninterrupted period of not less than twenty (20) business days, not less than
two (2) of such directors are such individuals as are designated by ICG Holdings
and (iii) until such time as ICG Holdings' and ICG's (together with ICG
Affiliates') record ownership of Common Stock is less than five percent (5%) of
the outstanding shares of Common Stock for an uninterrupted period of not less
than twenty (20) business days, not less than one of such directors is an
individual designated by ICG Holdings.
(b) The Company and each Stockholder agrees that any person who has a
right to designate a director pursuant to Section 5(a) may request that any
director designated by such person be removed (with or without cause) by written
notice to the Company (and the Stockholders), and, in such event, the Company
and each Stockholder shall promptly consent in writing or vote or cause to be
voted all shares of Common Stock entitled to vote thereon now or hereafter owned
or controlled by any of them for the removal of such person as director. Each of
the Company and each Stockholder agrees that the directors designated by any
person who has the right to designate a director pursuant to Section 5(a) on the
Company's Board of Directors may not be removed except in accordance with the
immediately preceding sentence. (c) In the event that a vacancy is created on
the Company's Board of Directors at any time by the death, disability,
retirement, resignation or removal (with or without cause) of a director
designated by any person who has the right to designate a director pursuant to
Section 5(a), or if otherwise there shall exist a vacancy on the Company's Board
of Directors in a directorship subject to designation by a person pursuant to
Section 5(a), such vacancy shall not be filled by the remaining members of the
Company's Board of Directors, but each Stockholder hereby agrees to promptly
consent in writing or vote or cause to be voted all shares of Common Stock
entitled to vote thereon now or hereafter owned or controlled by such
Stockholder to elect that individual designated by the party with the right to
so designate that director to fill such vacancy (it being understood the party
with the right to so designate the director may elect not to fill such vacancy,
in which case such directorship shall remain vacant until such party elects to
fill such vacancy as provided in this paragraph (c)).
(d) The Company and each Stockholder agrees that it will take all action
necessary or appropriate to ensure that at least one (1) individual designated
by ICG Holdings is a member of any committee of the Board of Directors of the
Company. In addition, so long as ICG Holdings, ICG and/or ICG Affiliates own at
least five percent (5%) of the outstanding Common Stock, ICG Holdings shall have
the right to designate one observer (the "OBSERVER") to attend meetings of the
--------
Board of Directors (or similar governing body), or any
<PAGE>
committee thereof, of any subsidiary of the Company. The Observer shall have the
right to participate in, but not vote on any matter presented at, such meetings.
The Company shall give each such Observer written notice of each meeting of the
Board of Directors (or similar governing body), or any committee thereof, of any
such subsidiary at the same time and in the same manner as the members of such
Board of Directors (or similar governing body), or any committee thereof,
receive notice of such meetings. The Observer shall be entitled to receive, and
the Company will provide each Observer with, all written materials and other
information given to the directors in connection with such meetings (or any
action by consent in lieu of a meeting) at the same time such materials and
information are given to the directors. If any such Board of Directors (or
similar governing body), or any committee thereof, proposes to take any action
by written consent in lieu of a meeting, the Company shall provide written
notice thereof to each Observer prior to the effective date of such consent.
Such Observer shall be required to execute a confidentiality agreement, in form
reasonably satisfactory to the Company and ICG Holdings prior to exercising any
such Observer's Rights. The Company will pay the reasonable out-of-pocket
expenses of any Observer incurred in attending such meetings in accordance with
the Company's' standard reimbursement policies.
(e) In the absence of any designation from the persons or groups so
designating directors as specified above, the director previously designated by
them and then serving shall be reelected if still eligible to serve as provided
herein.
(f) The Company shall reimburse each director elected to the Board of
Directors of the Company pursuant to Sections 5(b) and 5(c), in accordance with
the Company's standard reimbursement policies, for all reasonable travel
expenses incurred by each such director in attending any meetings of the Board
of Directors of the Company or any committee thereof.
6. TERMINATION. This Agreement shall terminate upon the completion of an
-----------
Initial Public Offering by the Company. The rights of any Stockholder (other
than ICG Holdings) hereunder shall terminate when such Stockholder (together
with its affiliates) owns a number of shares of Common Stock that is less than
fifteen percent (15%) of the number of shares of Common Stock such Stockholder
(together with its affiliates) owns on the date hereof determined on a fully
diluted basis (appropriately adjusted for stock splits, stock dividends,
recapitalizations and other like changes). The rights of ICG Holdings shall
terminate hereunder when ICG Holdings and ICG (together with ICG Affiliates)
owns a number of shares of Common Stock that is less than fifteen percent (15%)
of the number of shares of Common Stock that ICG Holdings and ICG (together with
ICG Affiliates) owns on the date hereof on a fully diluted basis (appropriately
adjusted for stock splits, stock dividends, recapitalizations and other like
changes).
7. NOTICES. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been given when delivered or mailed by first
class, registered or certified mail (air mail if to or from outside the United
States), return receipt requested, postage prepaid, if to the Company, at 20
CareMatrix Drive, Dedham, MA 02026, Attn: Chief Financial Officer (with a copy
to Rich, May, Bilodeau & Flaherty, P.C., 176 Federal Street, Boston, MA 02110.
Attn: Walter A. Wright, III, Esq.), if to each Holder at his respective address
set forth on SCHEDULE I hereto or on the joinder to the Agreement
----------
pursuant to which he became a party to this Agreement, if to each Key Employee
at his respective address set forth on SCHEDULE I hereto, and if to
----------
the Investors, at their respective addresses set forth on SCHEDULE I hereto or
----------
if to ICG Holdings at 435 Devon Park Drive, 800 The Safeguard Building, Wayne,
PA 19087, Attn: Henry Nassau, Esq. (with a copy to Dechert Price & Rhoads, 4000
Bell Atlantic Tower, 1717 Arch Street, Philadelphia, PA. 19103, Attn:
Christopher Karras, Esq.) or to such other address as
<PAGE>
the addressee shall have furnished to the other parties hereto in the manner
prescribed by this Section 7.
8. LOCK-UP AGREEMENT. Each of the Stockholders hereby agrees in connection
-----------------
with the Company's Initial Public Offering, upon the request of the principal
underwriter managing the initial public offering of the Company, not to sell
publicly any Shares now owned or hereafter acquired by such Stockholder and
subject to this Agreement without the prior written consent of such underwriter
for a period of time (not to exceed one hundred eighty (180) days) from the
effective date of such registration as the underwriter may specify, in all
events subject to the provisions of Section 5.13 of the Registration Rights
Agreement. Notwithstanding the foregoing, the parties hereto hereby acknowledge
and agree that any lock-up agreement or arrangement shall not apply to sales of
Shares by any Stockholder to ICG Holdings or an ICG Holdings' Qualified
Transferee.
9. SPECIFIC PERFORMANCE. The rights of the parties under this Agreement are
--------------------
unique and, accordingly, the parties shall, in addition to such other remedies
as may be available to any of them at law or in equity, have the right to
enforce their rights hereunder by actions for specific performance to the extent
permitted by law.
10. FAILURE TO DELIVER SHARES. If a Stockholder becomes obligated to sell
-------------------------
any Shares to ICG Holdings, an Investor or the Company (or to any permitted
assignee of ICG Holdings, an Investor or the Company) or to any third party in
connection with a Sale of the Company (each, a "PURCHASING PARTY") under this
----------------
Agreement and fails to deliver such Shares in accordance with the terms of this
Agreement, such Purchasing Party may, at its option, in addition to all other
remedies it may have, send to said Stockholder the purchase price for such
Shares as is herein specified. Thereupon, the Company upon written notice to
said Stockholder (a) shall cancel on its books the certificate or certificates
representing the Shares to be sold and (b) shall issue, in lieu thereof, in the
name of such Purchasing Party a new certificate or certificates representing
such Shares, and thereupon all of said Stockholder's rights in and to such
Shares shall terminate.
11. LEGEND. The certificates representing the Shares issued after the date
------
of this Agreement shall bear on their face a legend indicating the existence of
the restrictions imposed hereby.
12. ENTIRE AGREEMENT. This Agreement, the Third Amended and Restated Rights
----------------
Agreement and the Exchange Agreement (including any and all exhibits, schedules
and other instruments contemplated thereby (and the confidentiality agreements
referred to therein)) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings between them or any of them as to such subject matter.
13. WAIVERS AND FURTHER AGREEMENTS. Subject to applicable law and the
------------------------------
provisions of Section 6 of this Agreement, provisions of this Agreement may only
be waived with the written consent of (i) ICG Holdings and (ii) the holders of
two-thirds (2/3) of the Common Stock held by the Investors. Any waiver by any
party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach of that provision or of any other
provision hereof. Each of the parties hereto agrees to execute all such further
instruments and documents and to take all such further action as any other party
may reasonably require in order to effectuate the terms and purposes of this
Agreement. Notwithstanding the foregoing, no waiver approved in accordance
herewith shall be effective if and to the extent that such waiver
<PAGE>
grants to any one or more Stockholders any rights more favorable than any rights
granted to all other Stockholders or otherwise treats any one or more
Stockholders differently than all other Stockholders.
14. AMENDMENTS. Subject to applicable law and the provisions of Section 6
----------
of this Agreement, provisions of this Agreement may only be amended with the
written consent of (i) ICG Holdings and (ii) the holders of two-thirds (2/3) of
the Common Stock held by the Investors; PROVIDED, HOWEVER, that the rights set
-------- -------
forth in Section 5 with respect to the designation of the Board of Directors of
the Company may not be amended without the prior written consent of the
constituency affected by such amendment, which consent shall be obtained in a
manner consistent with, and shall require the same percentages prescribed in,
Section 5. Notwithstanding the foregoing, no amendment approved in accordance
with the first sentence of this Section 14 above shall be effective if and to
the extent that such amendment creates any additional affirmative obligations to
be complied with by any Stockholder that is different from the affirmative
obligations imposed on each Stockholder.
15. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding
----------------------------------
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, legal representatives, successors and permitted transferees,
except as may be expressly provided otherwise herein; PROVIDED, that no Investor
--------
may transfer its rights or obligations hereunder except to a Qualified
Transferee.
16. SEVERABILITY. In case any one or more of the provisions contained in
------------
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
17. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The Company shall require
each person who shall, after the date hereof, acquire from the Company a number
of shares which will result in such person owning more than one percent (1%) of
the shares of Common Stock of the Company on a fully diluted basis, as a
condition to such acquisition, to become a party to this Agreement by executing
and delivering to the Company a joinder to this Agreement in the form attached
hereto. In addition, in connection with Section 4 hereof, the Company shall not
effect any transfer of shares of Common Stock on its stock transfer ledger, if
such transfer involves more than one percent (1%) of the Common Stock of the
Company on a fully diluted basis, until the Company receives from said
transferee a joinder to this Agreement executed in the form attached hereto.
18. SECTION HEADINGS. The headings contained in this Agreement are for
----------------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
19. JOINDER. Internet Capital Group, Inc. hereby joins in this Agreement,
-------
agrees to be a party hereto with respect to the obligations of ICG Holdings, its
wholly-owned subsidiary, and agrees to cause ICG Holdings to comply with its
obligations hereunder.
20. WAIVER OF RIGHTS OF PARTICIPATION, ETC. Each of the Company and each of
--------------------------------------
the Investors who are parties to the December 1999 Stockholders Agreement hereby
(i) waive all provisions of and all rights existing under the December 1999
Stockholders Agreement, including any rights to receive notices thereunder, on
behalf of themselves and each of the other
<PAGE>
parties thereto to the extent necessary to effectuate the provisions hereof and
the transactions contemplated under the Exchange Agreement and further agrees
not to exercise or attempt to exercise any rights under the December 1999
Stockholders Agreement or any prior agreement related thereto from and after the
date hereof, and (ii) terminate the December 1999 Stockholders Agreement or any
prior agreement related thereto, and agree that each of them be and hereby is
released from its obligations thereunder and acknowledge that this Agreement
supersedes the December 1999 Stockholders Agreement or any prior agreement
related thereto as contemplated by Section 12 hereof. Each of the Stockholders
waives any preemptive or similar rights such Stockholder would otherwise have in
connection with the issuance of the Company's equity securities to ICG Holdings
(or its affiliates) pursuant to the Exchange Agreement (including pursuant to
Section 7.6 thereof), including any preemptive rights granted pursuant to the
Stock Purchase Agreement, dated September 16, 1993, among the Company, V.
Srinivasan, S. Sen and the Purchasers named therein. In addition, each of the
Investors who have rights to purchase Shares from an employee who is selling
such employee's Shares in connection with the termination of such employee's
employment pursuant to a restrictive stock purchase agreement, hereby (i) waives
all provisions of and all rights existing under such restrictive stock purchase
agreements, including any rights to receive notices thereunder, on behalf of
themselves and each of the other parties thereto to the extent necessary to
effectuate the provisions of Section 2(h) hereof and further agrees not to
exercise or attempt to exercise any rights under such restrictive stock purchase
agreements or any prior agreements related thereto from and after the date
hereof.
21. GOVERNING LAW. This Agreement shall be construed and enforced in
-------------
accordance with and governed by the General Corporation Law of the State of
Delaware as to matters within the scope thereof, and as to all other matters
shall be governed by and construed in accordance with the internal laws of the
Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
ECREDIT.COM, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
ICG HOLDINGS, INC.
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
INTERNET CAPITAL GROUP, INC.*
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
[SIGNATURE PAGES FOR HOLDERS FOLLOW]
- ----------------------
* For purposes of the joinder set forth in Section 19 to this Agreement
<PAGE>
Actual signature blocks in this Agreement will change on the date this Agreement
is executed to reflect the holders of more than 1% of the Common Stock of
eCredit.com, Inc. (except for Key Employee signatories who may own 1% or less)
as of the Closing.
HOLDERS:
--------------------------------------
Venkat Srinivasan
--------------------------------------
Peter McKay
--------------------------------------
Jai Dev Dasgupta
--------------------------------------
Deepak Verma
--------------------------------------
Ian Edmonds
--------------------------------------
Robert Mahoney
--------------------------------------
Mark E. Nunnelly
--------------------------------------
Venetia Kontogouris
--------------------------------------
Oliver D. Curme
--------------------------------------
William H. Draper, III
[SIGNATURE PAGES FOR KEY EMPLOYEES FOLLOW]
<PAGE>
KEY EMPLOYEES:
--------------------------------------
Richard Olson
--------------------------------------
Mahantesh Kotiwale
--------------------------------------
Louis Paglia
[SIGNATURE PAGES FOR INVESTORS FOLLOW]
<PAGE>
INVESTORS:
J.P. MORGAN INVESTMENT CORPORATION
By:
-----------------------------------
John Fullerton
Managing Director
SIXTY WALL STREET SBIC FUND, L.P.
By: Sixty Wall Street SBIC Corporation
As General Partner
By:
-----------------------------------
John Fullerton
Managing Director
ABN AMRO CAPITAL (USA), INC.
By:
-----------------------------------
David L. Bogetz
Managing Director
I EAGLE TRUST
By:
-----------------------------------
David L. Bogetz
Managing Director
BURNHAM CAPITAL, LLC
By:
-----------------------------------
David L. Bogetz
Managing Director
<PAGE>
TRIDENT CAPITAL FUND-IV, L.P.
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
VORTEX PARTNERS CDT, LP
a Texas Limited Partnership
By: Vortex Partners, L.P.,
a Texas limited partnership
Its: General Partner
By: Vortex Investments, Inc.
Its: General Partner
By:
-----------------------------------
Christopher O'Neill
Chief Executive Officer
DRAPER RICHARDS COMPANY MANAGEMENT
By:
-----------------------------------
Name:
Title:
WILLIAM H. DRAPER REVOCABLE TRUST
By:
-----------------------------------
Name: William Draper
Title: Trustee
By:
-----------------------------------
Name: Phyllis C. Draper
Title: Trustee
ROBIN A. RICHARDS TRUST
By:
-----------------------------------
Name: Robin A. Richards
Title: Trustee
<PAGE>
DRAPER INTERNATIONAL INDIA, L.P.
By: DRAPER INTERNATIONAL
MANAGEMENT, L.P.
as General Partner
By: DRAPER INTERNATIONAL, L.L.C.,
as General Partner
By:
-----------------------------------
William H. Draper, III
Its Manager
<PAGE>
ARGUS CAPITAL LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BATTERY VENTURES IV, L.P.
By: Battery Partners IV, LLC
By:
-----------------------------------
Member Manager
BATTERY INVESTMENT
PARTNERS IV LLC
By:
-----------------------------------
Member Manager
MAPLECREST FUND I
By:
-----------------------------------
Walter A. Wright, III,
General Partner
INFORMATION PARTNERS CAPITAL FUND,
L.P.
By:
-----------------------------------
Mark Nunnelly,
General Partner
BCIP ASSOCIATES
By:
-----------------------------------
Mark Nunnelly,
General Partner
<PAGE>
BCIP TRUST ASSOCIATES, L.P.
By:
-----------------------------------
Mark Nunnelly,
General Partner
ENTERPRISE ASSOCIATES, INC.
By:
-----------------------------------
Venetia Kontogouris,
President
CITICORP
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
SAP AMERICA, INC.
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
FINANCIAL TECHNOLOGY VENTURES (Q),
LP
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
FINANCIAL TECHNOLOGY VENTURES, LP
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
<PAGE>
MELLON/NETWORTH PARTNERS I, LLC
By:
-----------------------------------
Name:
---------------------------------
Its: Authorized Officer
NETWORTH ENTERPRISES IV, LLC
By:
-----------------------------------
Name:
---------------------------------
Its: Authorized Officer
CHASE EQUITY HOLDINGS, INC.
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
--------------------------------------
Richard Sandor
--------------------------------------
Ellen Sandor
--------------------------------------
Full Legal Name of Entity (Print)
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Mailing Address - Street
--------------------------------------
City State Zip Code
<PAGE>
ACCESS TECHNOLOGY PARTNERS BROKERS
FUND L.P.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ACCESS TECHNOLOGY PARTNERS, L.P.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ARGUS CAPITAL LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ARUN OBEROI
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EASTMAN CHEMICAL CO.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EZEKIEL INVT. GROUP I, LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
FIRST UNION INVESTORS
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
GATEWAY COMPANIES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
H&Q EMPLOYEE VENTURE FUND 2000, LP
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
HAMBRECHT & QUIST CALIFORNIA
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
HEWLETT PACKARD COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
MITSUI & CO. (USA), INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
NETWORTH ENTERPRISES VI, LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
WELLS FARGO SMALL BUSINESS
INVESTMENT COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
SCHEDULE I
----------
ECREDIT.COM, INC.
SCHEDULE OF HOLDERS
-------------------
NAMES AND ADDRESSES
- -------------------
Venkat Srinivasan*
Peter McKay*
Deepak Verma*
Robert Mahoney*
Jai Dev Dasgupta*
Mark E. Nunnelly
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Venetia Kontogouris
c/o Enterprise Associates, LLC
200 Nyala Farms Road
Westport, CT 06880
Oliver D. Curme
c/o Battery Partners IV, LLC
20 William Street
Wellesley, MA 02181
William H. Draper, III
c/o Draper International India, L.P.
50 California Street, Suite 2925
San Francisco, CA 94111
Ian E. Edmonds (Option holder)
64 Slough Road
Harvard, MA 01451
<PAGE>
SCHEDULE II
eCREDIT.COM, INC.
SCHEDULE OF KEY EMPLOYEES
-------------------------
Richard Olson*
Mahantesh Kotiwale*
Louis Paglia*
*c/o eCredit.com, Inc.
400 Blue Hill Drive, Suite 300
Westwood, MA 02090
<PAGE>
SCHEDULE III
eCREDIT.COM, INC.
SCHEDULE OF INVESTORS
---------------------
J.P. Morgan Investment Corporation*
60 Wall Street
New York, NY 10260
Attn: John Fullerton
Sixty Wall Street SBIC Fund, L.P.*
60 Wall Street
New York, NY 10260
Attn: John Fullerton
*A copy of all correspondence should be sent to:
Bruce Lieb, Esq.
Proskauer Rose LLP
1585 Broadway
New York, NY 10036-8299
ABN AMRO Capital (USA), Inc.
c/o ABN AMRO Incorporated
208 South LaSalle Street, Suite 1000
Chicago, IL 60604
Attn: David L. Bogetz
I Eagle Trust
c/o ABN AMRO Incorporated
208 South LaSalle Street, Suite 1000
Chicago, IL 60604
Attn: David L. Bogetz
Burnham Capital, LLC
c/o ABN AMRO Incorporated
208 South LaSalle Street, Suite 1000
Chicago, IL 60604
Attn: David L. Bogetz
Trident Capital Fund-IV, L.P.
c/o Trident Capital, Inc.
2480 Sand Hill Road, Suite 100
Menlo Park, CA 94025
VORTEX PARTNERS, CDT LP
c/o Christopher O'Neill
Vortex Partners, L.P.
2626 Cole Avenue, Suite 700
Dallas, TX 75204
<PAGE>
Battery Ventures IV, L.P.
20 William Street
Wellesley, MA 02181
Battery Investment Partners IV LLC
20 William Street
Wellesley, MA 02181
Draper International India, L.P.
50 California Street, Suite 2925
San Francisco, CA 94111
Attn: William H. Draper
Maplecrest Fund I
c/o Walter A. Wright, III
121 Thornton Road
Needham, MA 02192
Information Partners Capital Fund, L.P.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
BCIP Associates
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attn: Mark Nunnelly
BCIP Trust Associates, L.P.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attn: Mark Nunnelly
Enterprise Associates, Inc.
200 Nyala Farms Road
Westport, CT 06880
Attn: Venetia Kontogouris
<PAGE>
Citicorp *
399 Park Avenue, 14th Floor
New York, NY 10043
Attn: Selwin A. George
* A copy of all correspondence should be sent to:
David Smith, Esq.
Citicorp
425 Park Avenue, 2nd Floor
New York, NY 10043
SAP America, Inc. *
3999 West Chester Pike
Headquarters Bldg., 3rd Floor
Newtown Square, PA 19073
Attn: Gary Fromer
* A copy of all correspondence should be sent to:
Jeffrey Nolan
SAP Labs, Inc.
3475 Deer Creek Road
Palo Alto, CA 94304
Financial Technology Ventures (Q), LP
601 California Street, Suite 2200
San Francisco, CA 94108
Attn: Scott Wu
Financial Technology Ventures, LP
601 California Street, Suite 2200
San Francisco, CA 94108
Mellon/Networth Partners I, LLC *
3060 Peachtree Road
Suite 780
Atlanta, GA 30305-2240
Attn: John K. Adams
<PAGE>
Networth Enterprises IV, LLC *
3060 Peachtree Road
Suite 780
Atlanta, GA 30305-2240
Attn: John K. Adams
* A copy of all correspondence should be sent to:
Greg Orenstein, Esq.
Alston & Bird
1201 West Peachtree Street
Atlanta, GA 30309
Chase Equity Holdings, Inc.
c/o The Chase Manhattan Bank
Legal Department
One Chase Manhattan Plaza, 25th Floor
New York, NY 10081
Attn: Robert J. Egan
Richard Sandor and Ellen Sandor
c/o Environmental Financial Products
111 West Jackson, 14th Floor
Chicago, IL 60604
Access Technology Partners, LP
Argus Capital LLC
Arun Oberoi
Draper Richards LP
Eastman Chemical Co.
Ezekiel Invt. Group I, LLC
First Union Investors
Gateway Companies, Inc.
H&Q Employee Venture Fund 2000, LP
Hambrecht & Quist California
Hewlett Packard Company
Mitsui & Co. (USA), Inc.
<PAGE>
NetWorth Enterprises VI, LLC
Wells Fargo Small Business Investment Company, Inc.
<PAGE>
eCredit.com, Inc.
JOINDER
The undersigned, _________________, as a condition precedent to becoming
the owner or holder of record of ___________________ (______) shares of the
Common Stock, par value $.001 per share, of eCredit.com, Inc., a Delaware
corporation (the "Company"), hereby agrees to become a Holder party to and bound
by that certain Third Amended and Restated Stockholders Agreement, dated as of ,
2000 by and among the Company and other stockholders of the Company. This
Joinder shall take effect and shall become an integral part of the said Third
Amended and Restated Stockholders Agreement immediately upon execution and
delivery to the Company of this Instrument.
IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed by
or on behalf of the undersigned, as a sealed instrument under the laws of the
State of Delaware, as of the date below written.
Signature:
----------------------------
--------------------------------------
(Print Name)
Address:
Date:
---------------------------------
Accepted:
eCredit.com, Inc.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Date:
---------------------------------
<PAGE>
EXHIBIT D
---------
POST IPO AGREEMENT
------------------
THIS POST IPO AGREEMENT is made as of the ____ day of ______, 2000 (the
"AGREEMENT"), by and among (i) eCredit.com, Inc., formerly known as SRR
---------
Solutions, Inc., a Delaware corporation (the "COMPANY"), (ii) ICG Holdings,
-------
Inc., a Delaware Corporation ("ICG HOLDINGS"), (iii) each person who is listed
------------
on SCHEDULE I hereto and each person who shall, after the date hereof, acquire
----------
more than one percent (1%) of the outstanding shares of Common Stock (as
hereinafter defined) of the Company, on a fully diluted basis and join in and
become a party to this Agreement as a "HOLDER" by executing and delivering to
the Company a joinder to this Agreement ("HOLDERS", and each a "HOLDER"), (iv)
------- ------
each person who is a key employee and who is listed on SCHEDULE II hereto (each
-----------
a "KEY EMPLOYEE" or collectively, the "KEY EMPLOYEES"), (v) each Investor who is
------------ -------------
listed on SCHEDULE III hereto (each an "INVESTOR" or collectively the
------------ --------
"INVESTORS"). ICG Holdings, the Holders, the Key Employees and the Investors are
---------
collectively known as the "STOCKHOLDERS" and each is known as a "STOCKHOLDER".
------------ -----------
BACKGROUND
----------
A. The Company, ICG Holdings, Internet Capital Group, Inc., a Delaware
corporation ("ICG") and certain of the Investors, Holders and Key Employees are
----
parties to an Exchange Offer Agreement, dated as of February 24, 2000 (the
"EXCHANGE AGREEMENT"). Subject to the satisfaction of certain conditions set
------------------
forth in the Exchange Agreement, the Exchange Agreement contemplates that, at
the Closing (as defined in the Exchange Agreement), ICG Holdings will acquire
thirty percent of the Company's capital stock on a fully-diluted basis.
B. It is a condition of the obligations of the various parties to the
Exchange Agreement to consummate the transactions contemplated by the Exchange
Agreement, that each of the Company, ICG Holdings, ICG, the Investors, the
Holders and the Key Employees execute and deliver this Agreement.
C. Capitalized terms used herein and not otherwise defined (as well as
the term "FULLY DILUTED BASIS") shall have the meanings ascribed to such
-------------------
terms in the Exchange Agreement.
D. ICG Holdings, ICG, the Holders, the Key Employees and the Investors
desire to enter into this Agreement in order to fulfill such condition.
TERMS
-----
In consideration of the mutual covenants contained herein and intending to
be legally bound hereby, the parties hereto agree as follows:
1. PROHIBITED TRANSFERS. From and after the completion of an
--------------------
Initial Public Offering by the Company, none of the Holders, the Key Employees,
<PAGE>
assign, transfer, pledge, hypothecate, mortgage or dispose of, by gift or
otherwise, or in any way encumber, all or any part of the Shares (as hereinafter
defined) owned by them, except in compliance with the terms of this Agreement.
For purposes of this Agreement, the term "Shares" shall mean and include all
shares of Common Stock of the Company, and options, rights and convertible
securities exercisable for or convertible into such Common Stock, owned by the
Holders, the Investors and the Key Employees, whether presently held or
hereafter acquired, with all convertible or derivative securities being treated
on an as-exercised or as-converted basis.
a. For a period of twenty-four (24) months following the
completion of an Initial Public Offering by the Company, any sale of Shares by a
Holder, Key Employee or Investor, other than any of the foregoing who then owns
one percent (1%) or less of the capital stock of the Company, on a fully-diluted
basis, shall be made only after such Holder, Key Employee or Investor submits a
written offer (the "WRITTEN OFFER") to ICG Holdings. The Written Offer shall
-------------
disclose the Shares proposed to be sold or transferred, the Offer Price (as
defined below) and any other material facts relating to the sale or transfer.
For purposes of this Agreement the "OFFER PRICE" shall mean the closing price as
-----------
reported by the Nasdaq National Market (or on any exchange on which the Shares
are listed), or if there is no closing price, the average of the closing bid and
asked prices quoted in the Over-The-Counter Market Summary, whichever is
applicable, on the last trading day immediately prior to the date of the Written
Offer, as published in the Eastern Edition of The Wall Street Journal.
b. Within three (3) business days after receipt of the Written
Offer, ICG Holdings shall give notice to such Seller of its intent to purchase
all, but not less than all, of the offered Shares on the same terms and
conditions as set forth in the Written Offer. Such notice, when taken in
conjunction with the Written Offer shall constitute a valid, legally binding and
enforceable agreement for the sale and purchase of the Shares covered thereby.
ICG Holdings shall have the right to transfer part or all of ICG Holdings' right
to purchase the Shares to any Qualified Transferee, as that term is defined
below.
c. If, for any reason whatever, ICG Holdings shall not
exercise its right to purchase all of the Shares offered by the Seller, such
Seller will have the right to sell all of the Shares offered to ICG Holdings
that ICG Holdings has not elected to purchase for a period of forty-eight (48)
calendar days the receipt of the Written Offer by ICG Holdings and each
agreement contemplated above for the sale and purchase of the Shares covered by
the Written Offer shall be deemed null and void. Any Shares not sold within such
forty-eight (48) day period shall continue to be subject to the requirements of
a prior offer and re-sale pursuant to this Section.
d. For purposes of this Agreement, a "QUALIFIED TRANSFEREE"
shall mean any person (i) who is an Investor, (ii) who is an "AFFILIATED
PERSON", as that term is defined in the Investment Company Act of 1940, of an
Investor, (iii) who is a partner or member of an Investor or of ICG Holdings or
ICG or of an affiliate of ICG Holdings or ICG (other than an officer or director
of ICG Holdings, ICG or their affiliates), (iv) who acquires at least 50,000
<PAGE>
shares of Common Stock (as adjusted for stock splits, stock dividends,
reclassifications, recapitalizations or other similar events after the date
hereof) or, if less than 50,000 shares, all of the shares of Common Stock held
by such Investor, or (v) who is directly or indirectly (A) a majority-owned
subsidiary, or (B) a majority-owned limited liability company or (C) a
partnership of which of which ICG Holdings, ICG or a majority-owned subsidiary
or a majority-owned limited liability company owns the majority of the voting
interests of the general partner (the persons referred to in clause (A), (B) and
(C) are referred to hereinafter individually as a "ICG AFFILIATE" and
-------------
collectively as the "ICG AFFILIATES") (other than an officer or director of ICG
--------------
Holdings, ICG or ICG Affiliates). Notwithstanding the foregoing, no person who
is a competitor of the Company shall qualify as a Qualified Transferee under
this Agreement.
2. PERMITTED TRANSFERS. Anything herein to the contrary
-------------------
notwithstanding, the provisions of Section 1 shall not apply to: (a) any
transfer of Shares by a Holder or Key Employee by gift or bequest or through
inheritance to, or for the benefit of or in trust for, any member or members of
his immediate family (including spouses, parents, children, siblings and their
spouses, aunts and uncles, and nieces and nephews, whether step, in-law or
adopted) and the parties hereto hereby consent and agree to any amendments to
restricted stock purchase agreements and other stock purchase or option
agreements to which any Holder or Key Employee is or shall become a party which
conform to the terms of transfer set forth in this Section 2(a); (b) any
transfer of Shares by a Holder or Key Employee to a trust in respect of which he
or she serves as trustee; (c) any sale of Shares pursuant to a public offering
pursuant to a registration statement filed by the Company with the SEC; (d) any
repurchase of Shares from officers, employees, directors or consultants of the
Company which are subject to restrictive stock purchase agreements under which
the Company has the option to repurchase such shares upon the occurrence of
certain events, including termination of employment, and (e) with respect to ICG
Holdings or any Investor, any transfer (i) to one or more partners of the
transferor (in the case of a transferor that is a partnership), (ii) to one or
more members of the transferor (in the case of a transferor that is a limited
liability company), (iii) to an affiliated corporation (in the case of a
transferor that is a corporation) so long as such affiliated corporation
constitutes a Qualified Transferee, (iv) to Overseas Private Investment
Corporation ("OPIC") (in the case of Draper International India, L.P. "DRAPER"
---- ------
or one of its authorized affiliates under contractual arrangements with OPIC),
(v) between affiliated Investors in accordance with presently existing
agreements between such affiliated Investors, (vi) to an affiliate of ICG
Holdings or such Investor to comply with state or federal laws or regulations
applicable to such Investor's ownership and holding of Shares (for purposes of
this Section 2, the transferee of a corporation pursuant to a merger,
consolidation or sale of all or substantially all of the assets of such
corporation shall be deemed to be an "affiliated corporation"); PROVIDED, that
such transferee constitutes a Qualified Transferee, or (vii) to a Qualified
Transferee of such party. In the event of any such transfer, other than pursuant
to subsection (c) of this Section 2 or to a limited partner or a
<PAGE>
non-managing general partner transferee of a private equity fund Investor who
receives one percent (1%) or less of the Common Stock of the Company on a fully
diluted basis, the transferee of the Shares shall hold the Shares so acquired
with all the rights conferred by, and subject to all the restrictions imposed
by, this Agreement. No Stockholder can complete any such transfer, other than
pursuant to subsection (c) of this Section 2 or to a limited partner or a
non-managing general partner transferee of a private equity fund Investor who
receives one percent (1%) or less of the Common Stock of the Company on a fully
diluted basis until the transferee has signed a joinder to this Agreement in the
form attached to this Agreement.
3. Election of ICG Holdings Director.
---------------------------------
a. From the date hereof, the Company and each Stockholder shall
take all action necessary or appropriate to elect one (1) director designated by
ICG Holdings to the Board of Directors of the Company. Until such time as ICG
Holdings' and ICG's (together with ICG Affiliates') record ownership of Common
Stock is less than five percent (5%) of the outstanding shares of Common Stock
for an uninterrupted period of not less than twenty (20) business days, the
Company and each Stockholder shall take, at any time and from time to time, all
legally permissible action necessary or appropriate to ensure that not less than
one of the members of the Board of Directors of the Company is an individual
designated by ICG Holdings.
b. The Company and each Stockholder agrees that ICG Holdings may
request that the director it has designated be removed (with or without cause)
by written notice to the Company (and the Stockholders), and, in such event, the
Company and each Stockholder shall promptly consent in writing or vote or cause
to be voted all shares of Common Stock entitled to vote thereon now or hereafter
owned or controlled by any of them for the removal of such person as director.
Each Stockholder agrees that such Stockholder will not vote such Stockholder's
shares to remove the director designated by ICG Holding to the Company's Board
of Directors from the Company's Board of Directors, except in accordance with
the immediately preceding sentence or removal for cause as provided for in the
Company Bylaws and applicable law.
c. In the event that a vacancy is created on the Company's Board
of Directors at any time by the death, disability, retirement, resignation or
removal (with or without cause) of the director designated by ICG Holdings, or
if otherwise there shall exist a vacancy on the Company's Board of Directors in
the directorship subject to designation by ICG Holdings, such vacancy shall not
be filled by the remaining members of the Company's Board of Directors, but each
Stockholder hereby agrees to promptly consent in writing or vote or cause to be
voted all shares of Common Stock entitled to vote thereon now or hereafter owned
or controlled by such Stockholder to elect that individual designated by ICG
Holdings (it being understood that ICG Holdings may elect not to fill such
vacancy, in which case such directorship shall remain vacant until ICG Holdings
elects to fill such vacancy as provided in this paragraph (c)).
d. The Company and each Stockholder agrees that it will take all
action necessary or appropriate to ensure that the one (1) individual designated
by ICG Holdings is a member of any committee of the Board of Directors of the
Company. In addition, so long as ICG Holdings, ICG and/or ICG Affiliates own at
least five percent (5%) of the outstanding Common Stock, ICG Holdings shall have
the right to designate one observer (the "OBSERVER") to attend meetings of the
Board of Directors (or similar governing body), or any committee thereof, of any
subsidiary of the Company. Such observer shall be required to execute a
confidentiality agreement, in form reasonably satisfactory to the Company and
ICG Holdings' prior to the
<PAGE>
exercising any such Observer's Rights. The Observer shall have the right to
participate in, but not vote on any matter presented at, such meetings. The
Company shall give each such Observer written notice of each meeting of the
Board of Directors (or similar governing body), or any committee thereof, of any
such subsidiary at the same time and in the same manner as the members of such
Board of Directors (or similar governing body), or any committee thereof,
receive notice of such meetings. The Observer shall be entitled to receive, and
the Company will provide each Observer with, all written materials and other
information given to the directors in connection with such meetings (or any
action by consent in lieu of a meeting) at the same time such materials and
information are given to the directors. If any such Board of Directors (or
similar governing body), or any committee thereof, proposes to take any action
by written consent in lieu of a meeting, the Company shall provide written
notice thereof to each Observer prior to the effective date of such consent.
Such Observer shall be required to execute a confidentiality agreement, in form
reasonably satisfactory to the Company and ICG Holdings, prior to exercising any
such Observer's Rights. The Company will pay the reasonable out-of-pocket
expenses of any Observer incurred in attending such meetings in accordance with
the Company's standard reimbursement policies.
e. In the absence of any designation by ICG Holdings as
specified above, the director previously designated by ICG Holdings and then
serving shall be reelected if still eligible to serve as provided herein.
f. The Company shall reimburse each director elected to the
Board of Directors of the Company pursuant to Sections 3(a) and 3(c), in
accordance with the Company's standard reimbursement policies, for all
reasonable travel expenses incurred by each such director in attending any
meetings of the Board of Directors of the Company or any committee thereof.
4. TERMINATION. This Agreement hereunder shall terminate when ICG
-----------
Holdings and ICG (together with ICG Affiliates) owns a number of shares of
Common Stock that is less than fifteen percent (15%) of the number of shares of
Common Stock that ICG Holdings and ICG (together with ICG Affiliates) owns on
the date hereof on a fully diluted basis (appropriately adjusted for stock
splits, stock dividends, recapitalizations and other like changes).
5. NOTICES. All notices and other communications hereunder shall be
-------
in writing and shall be deemed to have been given when delivered or mailed by
first class, registered or certified mail (air mail if to or from outside the
United States), return receipt requested, postage prepaid, if to the Company, at
the address 20 CareMatrix Drive, Dedham, MA 02026, Attn: Chief Financial Officer
(with a copy to Rich, May, Bilodeau & Flaherty, P.C., 176 Federal Street,
Boston, MA 02110. Attn: Walter A. Wright, III, Esq.), if to each Holder at his
respective address set forth on SCHEDULE I hereto or on the joinder to the
Agreement pursuant to which he became a party to this Agreement, if to each Key
Employee at his respective address set forth on SCHEDULE I hereto, and if to the
Investors, at their respective addresses set forth on SCHEDULE I hereto or if to
ICG Holdings at 435 Devon Park Drive, 800 The Safeguard Building, Wayne, PA
19087, Attn: Henry Nassau, Esq. (with a copy to Dechert Price & Rhoads, 4000
Bell
<PAGE>
Atlantic Tower, 1717 Arch Street, Philadelphia, PA. 19103, Attn: Christopher
Karras, Esq.) or to such other address as the addressee shall have furnished to
the other parties hereto in the manner prescribed by this Section 5.
6. SPECIFIC PERFORMANCE. The rights of the parties under this
--------------------
Agreement are unique and, accordingly, the parties shall, in addition to such
other remedies as may be available to any of them at law or in equity, have the
right to enforce their rights hereunder by actions for specific performance to
the extent permitted by law.
7. FAILURE TO DELIVER SHARES. If a Stockholder becomes obligated to
-------------------------
sell any Shares to ICG Holdings (or to any permitted assignee of ICG Holdings)
(each, a "PURCHASING PARTY") under this Agreement and fails to deliver such
Shares in accordance with the terms of this Agreement, such Purchasing Party
may, at its option, in addition to all other remedies it may have, send to said
Stockholder the purchase price for such Shares as is herein specified.
Thereupon, the Company upon written notice to said Stockholder (a) shall cancel
on its books the certificate or certificates representing the Shares to be sold
and (b) shall issue, in lieu thereof, in the name of such Purchasing Party a new
certificate or certificates representing such Shares, and thereupon all of said
Stockholder's rights in and to such Shares shall terminate.
8. LEGEND. The certificates representing the Shares issued after
------
the date of this Agreement shall bear on their face a legend indicating the
existence of the restrictions imposed hereby.
9. ENTIRE AGREEMENT. This Agreement, the Registration Rights
----------------
Agreement, the Amended and Restated Stockholders Agreement and the Exchange
Agreement (including any and all exhibits, schedules and other instruments
contemplated thereby) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings between them or any of them as to such subject matter.
10. WAIVERS AND FURTHER AGREEMENTS. Subject to applicable law and
------------------------------
the provisions of Section 5 of this Agreement, provisions of this Agreement may
only be waived with the written consent of (i) ICG Holdings and (ii) the holders
of two-thirds (2/3) of the Common Stock held by the Investors. Any waiver by any
party of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach of that provision or of any other
provision hereof. Each of the parties hereto agrees to execute all such further
instruments and documents and to take all such further action as any other party
may reasonably require in order to effectuate the terms and purposes of this
Agreement. Notwithstanding the foregoing, no waiver approved in accordance
herewith shall be effective if and to the extent that such waiver grants to any
one or more Stockholders any rights more favorable than any rights granted to
all other Stockholders or otherwise treats any one or more Stockholders
differently than all other Stockholders.
11. AMENDMENTS. Subject to applicable law, provisions of this
----------
Agreement may only be amended with the written consent of (i) ICG Holdings and
(ii) the holders of two-thirds (2/3) of the Common Stock held by the Investors;
PROVIDED, HOWEVER, that the rights
<PAGE>
set forth in Section 3 with respect to the designation of the Board of Directors
of the Company may not be amended without the prior written consent of ICG
Holdings, which consent shall be obtained in a manner consistent with, and shall
require the same percentages prescribed in, Section 10. Notwithstanding the
foregoing, no amendment approved in accordance with the first sentence of this
Section 11 above shall be effective if and to the extent that such amendment
creates any additional affirmative obligations to be complied with by any
Stockholder that is different from the affirmative obligations imposed on each
Stockholder.
12. ASSIGNMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be
----------------------------------
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, legal representatives, successors and permitted
transferees, except as may be expressly provided otherwise herein; PROVIDED,
--------
that no Investor may transfer its rights or obligations hereunder except to a
Qualified Transferee; and PROVIDED, FURTHER, that ICG Holdings shall have no
--------- -------
right to transfer its right to designate a director to the Board of Directors
other than to ICG or to a permitted transferee who is an ICG Affiliate.
13. SEVERABILITY. In case any one or more of the provisions
------------
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement and such invalid, illegal
and unenforceable provision shall be reformed and construed so that it will be
valid, legal, and enforceable to the maximum extent permitted by law.
14. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The Company shall require
each person who shall, after the date hereof, acquire from the Company a number
of shares which will result in such person owning more than one percent (1%) of
the shares of Common Stock of the Company on a fully diluted basis, as a
condition to such acquisition, to become a party to this Agreement by executing
and delivering to the Company a joinder to this Agreement in the form attached
hereto. In addition, in connection with Section 2 hereof, the Company shall not
effect any transfer of shares of Common Stock on its stock transfer ledger, if
such transfer involves more than one percent (1%) of the Common Stock of the
Company on a fully diluted basis, until the Company receives from said
transferee a joinder to this Agreement executed in the form attached hereto.
15. SECTION HEADINGS. The headings contained in this Agreement are
----------------
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
16. JOINDER. Internet Capital Group, Inc. hereby joins in this
-------
Agreement, agrees to be a party hereto with respect to the obligations of ICG
Holdings, its wholly-owned subsidiary, and agrees to cause ICG Holdings to
comply with its obligations hereunder.
17. GOVERNING LAW. This Agreement shall be construed and enforced in
-------------
accordance with and governed by the General Corporation Law of the State of
Delaware as to
<PAGE>
matters within the scope thereof, and as to all other matters shall be governed
by and construed in accordance with the internal laws of the Commonwealth of
Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as a
sealed instrument as of the day and year first above written.
ECREDIT.COM, INC.
By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------
ICG Holdings HOLDINGS, INC.
By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------
INTERNET CAPITAL GROUP, INC.*
By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------
[SIGNATURE PAGES FOR HOLDERS FOLLOW]
- --------
* For purposes of the joinder set forth in Section 19 to this Agreement
<PAGE>
Actual signature blocks in this Agreement will change on the date this Agreement
is executed to reflect the holders of more than 1% of the Common Stock of
eCredit.com, Inc. (except for Key Employee signatories who may own 1% or less)
as of the Closing.
HOLDERS:
-----------------------------
Venkat Srinivasan
-----------------------------
Peter McKay
-----------------------------
Deepak Verma
-----------------------------
Ian Edmonds
-----------------------------
Robert Mahoney
-----------------------------
Mark E. Nunnelly
-----------------------------
Venetia Kontogouris
-----------------------------
Oliver D. Curme
-----------------------------
William H. Draper, III
-----------------------------
Jai Dev Dasgupta
[SIGNATURE PAGES FOR KEY EMPLOYEES FOLLOW]
<PAGE>
KEY EMPLOYEES:
-----------------------------
Richard Olson
-----------------------------
Mahantesh Kotiwale
-----------------------------
Louis Paglia
[SIGNATURE PAGES FOR INVESTORS FOLLOW]
<PAGE>
INVESTORS:
J.P. MORGAN INVESTMENT CORPORATION
By:
-----------------------------------
John Fullerton
Managing Director
SIXTY WALL STREET SBIC FUND, L.P.
By: Sixty Wall Street SBIC
Corporation
As General Partner
By:
-----------------------------------
John Fullerton
Managing Director
ABN AMRO CAPITAL (USA), INC.
By:
-----------------------------------
David L. Bogetz
Managing Director
I EAGLE TRUST
By:
-----------------------------------
David L. Bogetz
Managing Director
BURNHAM CAPITAL, LLC
By:
-----------------------------------
David L. Bogetz
Managing Director
<PAGE>
TRIDENT CAPITAL FUND-IV, L.P.
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
VORTEX PARTNERS CDT, LP
a Texas Limited Partnership
By: Vortex Partners, L.P.,
a Texas limited partnership
Its: General Partner
By: Vortex Investments, Inc.
Its: General Partner
By:
-----------------------------------
Christopher O'Neill
Chief Executive Officer
DRAPER RICHARDS COMPANY MANAGEMENT
By:
-----------------------------------
Name:
Title:
WILLIAM H. DRAPER REVOCABLE TRUST
By:
-----------------------------------
Name: William Draper
Title: Trustee
By:
-----------------------------------
Name: Phyllis C. Draper
Title: Trustee
<PAGE>
ROBIN A. RICHARDS TRUST
By:
-----------------------------------
Name: Robin A. Richards
Title: Trustee
DRAPER INTERNATIONAL INDIA, L.P.
By: DRAPER INTERNATIONAL
MANAGEMENT, L.P.
as General Partner
By: DRAPER INTERNATIONAL, L.L.C.,
as General Partner
By:
-----------------------------------
William H. Draper, III
Its Manager
<PAGE>
ARGUS CAPITAL LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BATTERY VENTURES IV, L.P.
By: Battery Partners IV, LLC
By:
-----------------------------------
Member Manager
BATTERY INVESTMENT PARTNERS IV LLC
By:
-----------------------------------
Member Manager
MAPLECREST FUND I
By:
-----------------------------------
Walter A. Wright, III,
General Partner
INFORMATION PARTNERS CAPITAL FUND,
L.P.
By:
-----------------------------------
Mark Nunnelly,
General Partner
BCIP ASSOCIATES
By:
-----------------------------------
Mark Nunnelly,
General Partner
<PAGE>
BCIP TRUST ASSOCIATES, L.P.
By:
-----------------------------------
Mark Nunnelly,
General Partner
ENTERPRISE ASSOCIATES, INC.
By:
-----------------------------------
Venetia Kontogouris,
President
CITICORP
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
SAP AMERICA, INC.
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
FINANCIAL TECHNOLOGY VENTURES (Q),
LP
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
FINANCIAL TECHNOLOGY VENTURES, LP
By:
-----------------------------------
Name:
---------------------------------
Its:
----------------------------------
<PAGE>
MELLON/NETWORTH PARTNERS I, LLC
By:
-----------------------------------
Name:
---------------------------------
Its: Authorized Officer
NETWORTH ENTERPRISES IV, LLC
By:
-----------------------------------
Name:
---------------------------------
Its: Authorized Officer
CHASE EQUITY HOLDINGS, INC.
By:
-----------------------------------
Name:
---------------------------------
Its:
---------------------------------
--------------------------------------
Richard Sandor
--------------------------------------
Ellen Sandor
--------------------------------------
Full Legal Name of Entity (Print)
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
______________________________________
Mailing Address - Street
______________________________________
City State Zip Code
<PAGE>
ACCESS TECHNOLOGY PARTNERS BROKERS
FUND L.P.
By:
-----------------------------------
Name:
---------------------------------
Title:
---------------------------------
ACCESS TECHNOLOGY PARTNERS, L.P.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ARGUS CAPITAL LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ARUN OBEROI
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EASTMAN CHEMICAL CO.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
EZEKIEL INVT. GROUP I, LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
FIRST UNION INVESTORS
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
GATEWAY COMPANIES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
H&Q EMPLOYEE VENTURE FUND 2000, LP
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
HAMBRECHT & QUIST CALIFORNIA
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
HEWLETT PACKARD COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
MITSUI & CO. (USA), INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
NETWORTH ENTERPRISES VI, LLC
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
WELLS FARGO SMALL BUSINESS
INVESTMENT COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
SCHEDULE I
----------
eCredit.com, Inc.
SCHEDULE OF HOLDERS
-------------------
NAMES AND ADDRESSES
- -------------------
Venkat Srinivasan*
Peter McKay*
Deepak Verma*
Robert Mahoney*
Mark E. Nunnelly
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Venetia Kontogouris
c/o Enterprise Associates, LLC
200 Nyala Farms Road
Westport, CT 06880
Oliver D. Curme
c/o Battery Partners IV, LLC
20 William Street
Wellesley, MA 02181
William H. Draper, III
c/o Draper International India, L.P.
50 California Street, Suite 2925
San Francisco, CA 94111
Ian E. Edmonds (Option holder)
64 Slough Road
Harvard, MA 01451
Jai Dev Dasgupta*
<PAGE>
SCHEDULE II
eCredit.com, Inc.
SCHEDULE OF KEY EMPLOYEES
-------------------------
Richard Olson*
Mahantesh Kotiwale*
Louis Paglia*
*c/o eCredit.com, Inc.
400 Blue Hill Drive, Suite 300
Westwood, MA 02090
<PAGE>
SCHEDULE III
eCredit.com, Inc.
SCHEDULE OF INVESTORS
---------------------
J.P. Morgan Investment Corporation*
60 Wall Street
New York, NY 10260
Attn: John Fullerton
Sixty Wall Street SBIC Fund, L.P.*
60 Wall Street
New York, NY 10260
Attn: John Fullerton
*A copy of all correspondence should be sent to:
Bruce Lieb, Esq.
Proskauer Rose LLP
1585 Broadway
New York, NY 10036-8299
ABN AMRO Capital (USA), Inc.
c/o ABN AMRO Incorporated
208 South LaSalle Street, Suite 1000
Chicago, IL 60604
Attn: David L. Bogetz
I Eagle Trust
c/o ABN AMRO Incorporated
208 South LaSalle Street, Suite 1000
Chicago, IL 60604
Attn: David L. Bogetz
Burnham Capital, LLC
c/o ABN AMRO Incorporated
208 South LaSalle Street, Suite 1000
Chicago, IL 60604
Attn: David L. Bogetz
Trident Capital Fund-IV, L.P.
c/o Trident Capital, Inc.
2480 Sand Hill Road, Suite 100
Menlo Park, CA 94025
<PAGE>
VORTEX PARTNERS, CDT LP
c/o Christopher O'Neill
Vortex Partners, L.P.
2626 Cole Avenue, Suite 700
Dallas, TX 75204
Battery Ventures IV, L.P.
20 William Street
Wellesley, MA 02181
Battery Investment Partners IV LLC
20 William Street
Wellesley, MA 02181
Draper International India, L.P.
50 California Street, Suite 2925
San Francisco, CA 94111
Attn: William H. Draper
Maplecrest Fund I
c/o Walter A. Wright, III
121 Thornton Road
Needham, MA 02192
Information Partners Capital Fund, L.P.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
BCIP Associates
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attn: Mark Nunnelly
BCIP Trust Associates, L.P.
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Attn: Mark Nunnelly
Enterprise Associates, Inc.
200 Nyala Farms Road
<PAGE>
Westport, CT 06880
Attn: Venetia Kontogouris
<PAGE>
Citicorp *
399 Park Avenue, 14th Floor
New York, NY 10043
Attn: Selwin A. George
* A copy of all correspondence should be sent to:
David Smith, Esq.
Citicorp
425 Park Avenue, 2nd Floor
New York, NY 10043
SAP America, Inc. *
3999 West Chester Pike
Headquarters Bldg., 3rd Floor
Newtown Square, PA 19073
Attn: Gary Fromer
* A copy of all correspondence should be sent to:
Jeffrey Nolan
SAP Labs, Inc.
3475 Deer Creek Road
Palo Alto, CA 94304
Financial Technology Ventures (Q), LP
601 California Street, Suite 2200
San Francisco, CA 94108
Attn: Scott Wu
Financial Technology Ventures, LP
601 California Street, Suite 2200
San Francisco, CA 94108
Mellon/Networth Partners I, LLC *
3060 Peachtree Road
Suite 780
Atlanta, GA 30305-2240
Attn: John K. Adams
<PAGE>
Networth Enterprises IV, LLC *
3060 Peachtree Road
Suite 780
Atlanta, GA 30305-2240
Attn: John K. Adams
* A copy of all correspondence should be sent to:
Greg Orenstein, Esq.
Alston & Bird
1201 West Peachtree Street
Atlanta, GA 30309
Chase Equity Holdings, Inc.
c/o The Chase Manhattan Bank
Legal Department
One Chase Manhattan Plaza, 25th Floor
New York, NY 10081
Attn: Robert J. Egan
Richard Sandor and Ellen Sandor
c/o Environmental Financial Products
111 West Jackson, 14th Floor
Chicago, IL 60604
Access Technology Partners, LP
Argus Capital LLC
Arun Oberoi
Draper Richards LP
Eastman Chemical Co.
Ezekiel Invt. Group I, LLC
First Union Investors
Gateway Companies, Inc.
H&Q Employee Venture Fund 2000, LP
<PAGE>
Hambrecht & Quist California
Hewlett Packard Company
Mitsui & Co. (USA), Inc.
NetWorth Enterprises VI, LLC
Wells Fargo Small Business Investment Company, Inc.
<PAGE>
eCredit.com, Inc.
JOINDER
The undersigned, _________________, as a condition precedent to becoming
the owner or holder of record of ___________________ (______) shares of the
Common Stock, par value $.001 per share, of eCredit.com, Inc., a Delaware
corporation (the "Company"), hereby agrees to become a Holder party to and bound
by that certain Right of First Refusal Agreement, dated as of ________
_________, 2000 by and among the Company and other stockholders of the Company.
This Joinder shall take effect and shall become an integral part of the said
Right of First Refusal Agreement immediately upon execution and delivery to the
Company of this Instrument.
IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed by
or on behalf of the undersigned, as a sealed instrument under the laws of the
State of Delaware, as of the date below written.
Signature:
----------------------------
-------------------------------------
(Print Name)
Address:
Date:
---------------------------------
Accepted:
eCredit.com, Inc.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Date:
---------------------------------
<PAGE>
EXHIBIT E
---------
THIRD AMENDED AND RESTATED RIGHTS AGREEMENT
-------------------------------------------
THIS THIRD AMENDED AND RESTATED RIGHTS AGREEMENT ("Agreement") is made as
---------
of the ___ day of _________, 2000 by and among (i) eCredit.com, Inc., formerly
known as SRR Solutions, Inc., a Delaware corporation (the "Company"), (ii) ICG
-------
Holdings, Inc., a Delaware corporation ("ICG Holdings") and (iii) certain other
------------
stockholders of the Company listed on the signature pages hereto (the "Existing
Investors" and, collectively with ICG Holdings, the "Investors"). This
---------
agreement amends and restates in its entirety the Second Amended and Restated
Rights Agreement by and between the Company and the Existing Investors dated as
of December 22, 1999 (the "Existing Rights Agreement").
-------------------------
WITNESSETH:
WHEREAS, the Company and the Existing Investors are parties to the Existing
Rights Agreement;
WHEREAS, the Company and ICG Holdings are parties to an Exchange Offer
Agreement dated as of February 24, 2000 (the "ICG Holdings Agreement") pursuant
----------------------
to which ICG Holdings will acquire from the Existing Investors and certain other
stockholders/optionees and warrantholders of the Company shares of Common Stock,
par value $.001 per share ("Common Stock") of the Company in exchange for common
------------
stock of Internet Capital Group, Inc., a Delaware Corporation;
WHEREAS, pursuant to the ICG Holdings Agreement all of the Company's issued
and outstanding shares of Preferred Stock have been converted into shares of
Common Stock of the Company;
WHEREAS, one of the conditions to the obligations of the various parties to
the ICG Holdings Agreement to consummate the transactions contemplated by the
ICG Holdings Agreement is the execution of this Agreement, and the Company, ICG
Holdings, ICG, and the Existing Investors are willing to enter into this
Agreement; and
NOW, THEREFORE, in consideration of these premises and the mutual covenants
and agreements contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1. Common Definitions. Unless otherwise defined in this Agreement,
------------------
capitalized terms used in this Agreement (as well as the term "fully diluted
-------------
basis") that are defined in the ICG Holdings Agreement shall have the meanings
- -----
assigned to them in the ICG Holdings Agreement.
1.2. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
<PAGE>
Third Amended and Restated Rights Agreement -- Page 2
"Commission" shall mean the Securities and Exchange Commission, or any
----------
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, par value $.001 per share,
------------
of the Company, as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued or issuable
-----------------
upon conversion of the Preferred Shares or upon conversion of the Warrant
Shares, and any shares of capital stock received in respect thereof.
"December 1999 Stock and Warrant Purchase Agreement" shall mean the Stock
--------------------------------------------------
and Warrant Purchase Agreement dated as of December 22, 1999 by and among the
Company and certain Investor signatures thereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934 or any
------------
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Existing Agreements" shall mean the agreements listed in Exhibit A
------------------- ---------
attached hereto.
"ICG Holdings Warrant" shall mean the warrants to purchase shares of
--------------------
Common Stock of the Company issued to ICG Holdings pursuant to the ICG Holdings
Agreement.
"Indebtedness" shall mean all obligations, contingent and otherwise, which
------------
should, in accordance with generally accepted accounting principles, be
classified upon the obligor's balance sheet (or the notes thereto) as
liabilities, but in any event including liabilities secured by any mortgage on
property owned or acquired subject to such mortgage, whether or not the
liability secured thereby shall have been assumed, and also including (i) all
guaranties, endorsements and other contingent obligations, in respect of
Indebtedness of others, whether or not the same are or should be so reflected in
said balance sheet (or the notes thereto), except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and (ii) the present value of any lease payments due
under leases required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards, determined by discounting all such payments
at the interest rate determined in accordance with applicable Statements of
Financial Accounting Standards.
"October 1999 Stock Purchase Agreement" shall mean that certain Series D
-------------------------------------
Convertible Preferred Stock Purchase Agreement dated as of October 22, 1999 by
and among the Company and certain Investor signatories thereto.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company, joint venture, association, trust or other entity or
organization.
"Preferred Shares" shall mean the shares of Series E Preferred Stock,
----------------
Series D Preferred Stock, Series C Preferred Stock, Series B Preferred Stock and
Series A Preferred
<PAGE>
Third Amended and Restated Rights Agreement -- Page 3
Stock, which were converted to shares of Common Stock of the Company immediately
prior to the Closing of the ICG Holdings Agreement.
"Qualified Public Offering" shall mean a fully underwritten, firm
-------------------------
commitment public offering pursuant to an effective registration under the
Securities Act covering the offer and sale by the Company of its Common Stock in
which the aggregate net proceeds to the Company equal or exceed $20,000,000, and
in which the price per share of such Common Stock equals or exceeds $8.35 (such
price subject to equitable adjustment in the event of any stock split, stock
dividend, combination, reorganization, reclassification or other similar event
after the date hereof).
"Registration Expenses" shall mean the expenses so described in Section
---------------------
2.7.
"Reserved Employee Shares" shall mean shares of Common Stock reserved by
------------------------
the Company from time to time for issuance in connection with stock grants, the
exercise of options to purchase Common Stock or other stock purchase rights
granted to employees, consultants or non-employee directors (other than
representatives of the Investors) of the Company, not to exceed in the aggregate
10,270,250 shares, which includes an aggregate of [__________] shares purchased
by employees, directors and consultants upon exercise of options granted to such
employees, directors and consultants to purchase Common Stock, which shares are,
upon the occurrence of certain events, subject to repurchase and being made
available for purchase under future stock grants or grants of options or other
stock purchase rights to the individuals contemplated above, options outstanding
as of the date hereof to purchase [_______] shares and options to be granted to
purchase up to [_______] shares plus that number of shares of Common tock
repurchased from Shubro Sen in accordance with the provisions of Section 1.07 of
that certain Series C Convertible Preferred Stock and Preferred Stock Warrant
Purchase Agreement dated as of September 21, 1998, by and among the Company and
certain Old Investors who are signatories thereto (the "1998 Purchase
-------------
Agreement") (with each such number of shares appropriately adjusted to reflect
- ---------
stock splits, stock dividends, combinations of shares and the like occurring
after the date hereof with respect to the Common Stock).
"Restricted Stock" shall mean the shares of Common Stock owned or
----------------
hereafter purchased by the Investors, excluding shares of Common Stock which
have been (a) registered under the Securities Act pursuant to an effective
registration statement filed thereunder and disposed of in accordance with the
registration statement covering them, or (b) publicly sold pursuant to Rule 144
under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933 or any similar
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 2.7.
----------------
"Series C Amended Warrants" shall mean warrants to purchase an aggregate
-------------------------
of 2,686,280 shares of Common Stock issued pursuant to the Stock and Warrant
Purchase Agreement dated as of September 21, 1998.
<PAGE>
Third Amended and Restated Rights Agreement -- Page 4
"Series E Warrants" shall mean the warrants to purchase in the
-----------------
aggregate 255,183 shares of Common Stock issued pursuant to the Stock and
Warrant Purchase Agreement dated as of December 22, 1999.
"Subsidiary" or "Subsidiaries" shall mean any corporation,
---------- ------------
partnership, limited liability company, trust or other entity of which the
Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time a majority of the outstanding shares of every class
of equity securities of such corporation, partnership, trust or other entity.
"Warrant Shares" shall mean the shares of Common Stock issuable upon
--------------
exercise of the ICG Holdings Warrants, the Series C Amended Warrants and the
Series E Warrants.
ARTICLE II
TRANSFER OF SHARES AND REGISTRATION RIGHTS
2.1. Restrictive Legend. Each certificate representing Restricted Stock
------------------
shall, except as otherwise provided in this Section 2.1 or in Section 2.2, be
stamped or otherwise imprinted with a legend substantially in the following form
(subject to modification to the extent necessary to comply with applicable
Federal and state securities laws):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state securities laws.
These securities have been acquired for investment and not with a view to
distribution or resale, and may not be sold mortgaged, pledged, hypothecated or
otherwise transferred without an effective registration statement for such
securities under the Securities Act of 1933 and applicable state securities
laws, or the availability of an exemption from the registration provisions of
the Securities Act of 1933 and applicable state securities laws."
A certificate shall not bear such legend if in the opinion of counsel reasonably
satisfactory to the Company (it being agreed that Dechert Price & Rhoads,
Proskauer Rose LLP, Testa, Hurwitz & Thibeault, LLP or Rich, May, Bilodeau &
Flaherty, P.C. shall be satisfactory) the securities being sold thereby may be
publicly sold without registration under the Securities Act and applicable state
securities laws. In addition, in lieu of the foregoing legend and opinion
requirements, certificates representing Restricted Stock issued to Draper
International India, L.P. shall be stamped or otherwise imprinted with a legend
substantially in the following form (subject to modification to the extent
necessary to comply with applicable Federal and state securities laws):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 or applicable state securities laws.
These securities have been acquired for investment and not with a view to
distribution or resale, and, except as provided below, may not be sold
mortgaged, pledged, hypothecated or otherwise transferred without an effective
registration statement for such securities under the Securities Act of 1933 and
applicable state securities laws, or the availability of an exemption from the
registration provisions of the Securities Act of 1933 and applicable state
securities laws. The securities represented by this
<PAGE>
Third Amended and Restated Rights Agreement -- Page 5
certificate may be transferred, by pledge or otherwise, to Overseas Private
Investment Corporation ("OPIC") as required under contractual arrangements
between Draper International India, L.P. and OPIC, without registration or proof
of an exemption from registration, provided OPIC agrees to be bound by the terms
of (a) that certain Third Amended and Restated Rights Agreement dated as of
__________, 2000, as amended from time to time, among eCredit.com, Inc. and
certain investor signatories thereto (the "Rights Agreement"), (b) that certain
----------------
Third Amended and Restated Stockholders Agreement dated as of _________, 2000,
as amended from time to time, among eCredit.com, Inc. and certain investor and
employee signatories thereto (the "Stockholders Agreement") and (c) that certain
----------------------
Post IPO Agreement dated as of __________, 2000, as amended form time to time,
among eCredit.com, Inc. and certain investor and employee signatories thereto
(the "Post IPO Agreement"). A copy of the Rights Agreement, the Stockholders
------------------
Agreement and Post IPO Agreement shall be furnished by eCredit.com, Inc. to the
holder hereof upon written request and without charge."
2.2. Notice of Proposed Transfer. Prior to any proposed transfer of any
---------------------------
Restricted Stock (other than under the circumstances described in Sections 2.3,
2.4 or 2.5), the holder thereof shall give written notice to the Company of its
intention to effect such transfer. Each such notice shall describe the manner
of the proposed transfer and, if requested by the Company, shall be accompanied
by an opinion of counsel reasonably satisfactory to the Company (it being agreed
that Dechert Price & Rhoads, Proskauer Rose LLP, Testa, Hurwitz & Thibeault, LLP
or Rich, May, Bilodeau & Flaherty, P.C. shall be satisfactory) to the effect
that the proposed transfer may be effected without registration under the
Securities Act and applicable state securities laws, whereupon the holder of
such stock shall be entitled to transfer such stock in accordance with the terms
of its notice; provided, however, that no such opinion of counsel shall be
-------- -------
required for a transfer to (i) one or more partners of the transferor (in the
case of a transferor that is a partnership), (ii) one or more members of the
transferor (in the case of a transferor that is a limited liability company),
(iii) an affiliated corporation (in the case of a transferor that is a
corporation), (iv) Overseas Private Investment Corporation ("OPIC") (in the case
of Draper International India, L.P. "Draper" or one of its authorized affiliates
------
under contractual arrangements with OPIC) in the case of a transfer by any
Investor, (v) to ICG Holdings or one of its affiliates (which shall include,
directly or indirectly, (A) a majority-owned subsidiary, or (B) a majority-owned
limited liability company, or (C) a partnership of which ICG Holdings, ICG or a
majority-owned subsidiary or a majority-owned limited liability company owns the
majority of the voting interests of the general partner (the persons referred to
in clause (A), (B) and (C) are referred to hereinafter individually as a "ICG
---
Affiliate" and collectively as the "ICG Affiliates") (other than an officer or
- --------- --------------
director of ICG Holdings, ICG or ICG Affiliates) , or (vi) between affiliated
Investors in accordance with presently existing agreements between such
affiliated Investors (for purposes of this Section 2.2, the transferee of a
corporation pursuant to a merger, consolidation or sale of all or substantially
all of the assets of such corporation shall be deemed to be an "affiliated
corporation"); provided, further, however, that any transferee other than a
-------- ------- -------
partner or affiliate of the transferor shall execute and deliver to the Company
a representation letter in form reasonably satisfactory to the Company's counsel
to the effect that the transferee is acquiring Restricted Stock for its own
account, for investment purposes and without any view to distribution thereof.
Each certificate for Restricted Stock transferred as above provided shall bear
the applicable legend set forth in Section 2.1, except that such certificate
shall not bear such
<PAGE>
Third Amended and Restated Rights Agreement -- Page 6
legend if (i) such transfer is in accordance with the provisions of Rule 144 (or
any other rule permitting public sale without registration under the Securities
Act) or (ii) the opinion of counsel referred to above is to the further effect
that the transferee and any subsequent transferee (other than an affiliate of
the Company) would be entitled to transfer such securities in a public sale
without registration under the Securities Act. The restrictions provided for in
this Section 2.2 shall not apply to securities which are not required to bear
one of the legends prescribed by Section 2.1 in accordance with the provisions
of that Section. If the Company does not accept an opinion of counsel required
hereby signed by Dechert Price & Rhoads, Proskauer Rose, LLP, Testa, Hurwitz &
Thibeault, LLP or Rich, May, Bilodeau & Flaherty, P.C., the Company will pay the
reasonable fees and disbursements of other counsel in connection with all
opinions rendered by them pursuant to this Section 2.2.
2.3. Required Registration.
---------------------
(a) The holders of Restricted Stock constituting a majority of the
total shares of Restricted Stock then outstanding may request the Company to
register under the Securities Act all or any portion of the shares of Restricted
Stock held by such requesting holder or holders for sale in the manner specified
in such notice. Notwithstanding anything to the contrary contained herein, the
Company shall not be required to effect any registration within 180 days of the
effective date of any other registration statement filed by the Company on Form
S-1, or any similar long-form registration statement.
(b) Following receipt of any notice under this Section 2.3, the
Company shall immediately notify all holders of Restricted Stock from whom
notice has not been received and such holders shall then be entitled within 30
thereafter to request the Company to include in the requested registration all
or any portion of their shares of Restricted Stock. The Company shall use its
best efforts to register under the Securities Act, for public sale in accordance
with the method of disposition described in paragraph (a) above, the number of
shares of Restricted Stock specified in such notice (and in all notices received
by the Company from other holders within 30 days after the giving of such notice
by the Company). The Company shall be obligated to register Restricted Stock
pursuant to this Section 2.3 on four occasions only; provided, however, that
-------- -------
such obligation shall be deemed satisfied only when a registration statement
covering all shares of Restricted Stock specified in notices received as
aforesaid for sale in accordance with the method of disposition specified by the
requesting holders, shall have become effective or if such registration
statement has been withdrawn prior to the consummation of the offering at the
request of the Investors (other than as a result of a material adverse change in
the business or financial condition of the Company) and, if such method of
disposition is a firm commitment underwritten public offering, all such shares
shall have been sold pursuant thereto.
(c) The Company (or at the option of the Company, the holders of
Common Stock) shall be entitled to include in any registration statement
referred to in this Section 2.3, for sale in accordance with the method of
disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company or such other holders for its own account, except as and to
the extent that, in the opinion of the managing underwriter (if such method of
disposition shall be an underwritten public offering), such inclusion would
adversely affect the marketing of the
<PAGE>
Third Amended and Restated Rights Agreement -- Page 7
Restricted Stock to be sold. Except for registration statements on Form S-4, S-8
or any successor thereto, the Company will not file with the Commission any
other registration statement with respect to its Common Stock, whether for its
own account or that of other stockholders, from the date of receipt of a notice
from requesting holders pursuant to this Section 2.3 until the completion of the
period of distribution of the registration contemplated thereby or the
termination or withdrawal of such offering.
(d) If in the opinion of the managing underwriter the inclusion
of all of the Restricted Stock requested to be registered under this Section
would adversely affect the marketing of such shares, after any shares to be sold
by the Company or other holders of Common Stock have been excluded, shares to be
sold by the holders of Restricted Stock shall be excluded in such manner that
the shares to be sold shall be allocated among the selling holders pro rata
based on their ownership of Restricted Stock.
2.4. Piggy-Back Registration. If the Company at any time (other than
-----------------------
pursuant to Section 2.3 or Section 2.5) proposes to register any of its
securities under the Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Restricted Stock for sale to the public), each
such time it will give written notice to all holders of outstanding Restricted
Stock of its intention so to do. Upon the written request of any such holder,
received by the Company within thirty (30) days after the giving of any such
notice by the Company, to register any of its Restricted Stock, the Company will
use its best efforts to cause the Restricted Stock as to which registration
shall have been so requested to be included in the securities to be covered by
the registration statement proposed to be filed by the Company, all to the
extent requisite to permit the sale or other disposition by the holder (in
accordance with its written request) of such Restricted Stock so registered. In
the event that any registration pursuant to this Section 2.4 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Restricted Stock to be included in such an underwriting may be reduced
(pro rata among the requesting holders based upon the number of shares of
Restricted Stock held by such requesting holders) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would adversely
affect the marketing of the securities to be sold by the Company therein;
provided, however, that such number of shares of Restricted Stock shall not be
- -------- -------
reduced if any shares are to be included in such underwriting for the account of
any person other than the Company or requesting holders of Restricted Stock;
provided, further, however, that in no event shall the number of shares of
- -------- ------- -------
Restricted Stock included in the offering be reduced below twenty percent (20%)
of the total number of shares of Common Stock included in such offering, unless
the offering is the Company's initial public offering of the Company's
securities in which case the number of shares of Restricted Stock to be included
by the holders may be reduced or eliminated entirely as set forth above.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 2.4 without thereby incurring
any liability to the holders of Restricted Stock.
2.5. Registration on Form S-3. (a) If at any time (i) a holder or holders of
------------------------
Restricted Stock then outstanding request that the Company file a registration
statement on Form S-3 or any successor thereto for a public offering of all or
any portion of the shares of Restricted Stock held
<PAGE>
Third Amended and Restated Rights Agreement -- Page 8
by such requesting holder or holders, the reasonably anticipated aggregate price
to the public of which would exceed $500,000, and (ii) the Company is a
registrant entitled to use Form S-3 or any successor thereto to register such
shares, then the Company shall use its best efforts to register under the
Securities Act on Form S-3 or any successor thereto, for public sale in
accordance with the method of disposition specified in such notice, the number
of shares of Restricted Stock specified in such notice. Whenever the Company is
required by this Section 2.5 to use its best efforts to effect the registration
of Restricted Stock, each of the procedures and requirements of Section 2.3
(including but not limited to the requirement that the Company notify all
holders of Restricted Stock from whom notice has not been received and provide
them with the opportunity to participate in the offering) shall apply to such
registration; provided, however, that there shall be no limitation on the number
-------- -------
of registrations on Form S-3 which may be requested and obtained under this
Section 2.5.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation under this Agreement to register Restricted
Stock under the Securities Act on registration statements ("Registration
Statements") may, upon the reasonable determination of the Board of Directors
made only once during any 12-month period, be suspended in the event and during
such period as unforeseen circumstances (including without limitation (i) an
underwritten primary offering by the Company (which includes no secondary
offering) if the Company is advised in writing by its underwriters that the
registration of the Restricted Stock would have a material adverse effect on the
Company's offering, or (ii) pending negotiations relating to, or consummation
of, a transaction or the occurrence of an event which would require additional
disclosure of material information by the Company in Registration Statements or
such other filings, as to which the Company has a bona fide business purpose for
preserving confidentiality or which renders the Company unable to comply with
Securities and Exchange Commission (the "SEC") requirements) exist (such
---
unforeseen circumstances being hereinafter referred to as a "Suspension Event")
which would make it impractical or unadvisable for the Company to file the
Registration Statements or such other filings or to cause such to become
effective. Such suspension shall continue only for so long as such event is
continuing but in no event for a period longer than ninety (90) days. The
Company shall notify the holders of Restricted Stock of the existence and nature
of any Suspension Event.
2.6. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Sections 2.3, 2.4 or 2.5 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 2.3,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary or appropriate to keep such registration statement
effective for the period specified in
<PAGE>
Third Amended and Restated Rights Agreement -- Page 9
paragraph (a) above and comply with the provisions of the Securities Act with
respect to the disposition of all Restricted Stock covered by such registration
statement in accordance with the sellers' intended method of disposition set
forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and each such
amendment and supplement thereto (in each case including all exhibits) and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request;
provided, however, that the Company shall not for any such purpose be required
- -------- -------
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing, and promptly prepare
and furnish to such seller a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Restricted Stock, such prospectus shall not include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters and to such seller,
to such effect as reasonably may be requested by counsel for the underwriters,
and (ii) a letter dated such date from the independent public accountants
retained by the Company, addressed to the underwriters and to such seller,
stating that they are independent public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements of the Company included in the registration statement or the
prospectus, or any amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters
(including information as to the period ending no
<PAGE>
Third Amended and Restated Rights Agreement -- Page 10
more than five business days prior to the date of such letter) with respect to
such registration as such underwriters reasonably may request;
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, reasonable access to all financial and other records, pertinent
corporate documents and properties of the Company, as such parties may
reasonably request, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(i) cooperate with the selling holders of Restricted Stock and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Restricted Stock to be sold, such certificates to
be in such denominations and registered in such names as such holders or the
managing underwriters may request at least two business days prior to any sale
of Restricted Stock; and
(j) permit any holder of Restricted Stock which holder, in the sole
and exclusive judgment, exercised in good faith, of such holder, might be deemed
to be a controlling person of the Company, to participate in good faith in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which in the
reasonable judgment of such holder and its counsel is required to be included.
For purposes of Section 2.6(a) and 2.6(b) and of Section 2.3(c), the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby and
180 days after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information
requested by the Company with respect to themselves and the proposed
distribution by them as reasonably shall be necessary in order to assure
compliance with federal and applicable state securities laws and to make the
registration statement correct, accurate and complete in all respects with
respect to such sellers; provided, however, that this requirement shall not be
-------- -------
deemed to limit any disclosure obligation arising out of any seller's
relationship to the Company if one of such seller's agents or affiliates is an
officer, director or control person of the Company. If any Registration
Statement or comparable statement under the Securities Act refers to an Investor
or any of its affiliates as the holder of any securities of the Company then,
unless counsel to the Company advises the Company that, in such counsel's
reasonable judgment, the Securities Act requires that such reference be included
in any such statement, each such holder shall have the right to require the
deletion of such reference to itself and, if applicable, its affiliates.
<PAGE>
Third Amended and Restated Rights agreement -- Page 11
In connection with each registration pursuant to Sections 2.3, 2.4 or
2.5 covering an underwritten public offering, the Company and each seller agree
to enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
2.7. Expenses. All expenses incurred by the Company in complying with
--------
Sections 2.3, 2.4 and 2.5, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees and expenses of one counsel for all of the selling holders
of Restricted Stock, collectively, in connection with the registration of
Restricted Stock, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, costs of any insurance
which might be obtained, but excluding any Selling Expenses, are called
"Registration Expenses". All underwriting discounts and selling commissions
applicable to the sale of Restricted Stock and the fees and expenses of more
than one counsel for the selling holders of Restricted Stock in connection with
the registration of Restricted Stock are called "Selling Expenses".
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 2.3, 2.4 or 2.5. All Selling Expenses in
connection with each registration statement under Sections 2.3, 2.4 or 2.5 shall
be borne by the participating sellers in proportion to the number of shares sold
by each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
2.8. Indemnification.
---------------
(a) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 2.3, 2.4 or 2.5, the Company will
indemnify and hold harmless each holder of Restricted Stock, its officers and
directors, each underwriter of such Restricted Stock thereunder and each other
person, if any, who controls such seller or underwriter within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or
several, to which such holder, officer, director, underwriter or controlling
person may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in any registration statement under which such
Restricted Stock was registered under the Securities Act pursuant to Sections
2.3, 2.4 or 2.5, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, (ii) any blue sky application
or other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Restricted Stock under the
securities laws thereof (any such application, document or information herein
called a "Blue Sky Application"), (iii) the omission or alleged omission to
--------------------
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, (iv) any violation by the Company or its
agents of the Securities Act, Exchange Act or other securities law or any rule
or regulation promulgated under the Securities Act, Exchange Act or other
<PAGE>
Third Amended and Restated Rights agreement -- Page 12
securities law applicable to the Company or its agents and relating to action or
inaction required of the Company in connection with such registration, or (v)
any failure to register or qualify the Restricted Stock in any state where the
Company or its agents has affirmatively undertaken or agreed in writing that the
Company (the undertaking of any underwriter chosen by the Company being
attributed to the Company) will undertake such registration or qualification on
the seller's behalf (provided that in such instance the Company shall not be so
liable if it has undertaken its best efforts to so register or qualify the
Restricted Stock) and will reimburse each such holder, and such officer and
director, each such underwriter and each such controlling person for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
--------
however, that the Company will not be liable in any such case if and to the
- -------
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission so made in conformity with information furnished by any such seller,
any such underwriter or any such controlling person in writing specifically for
use in such registration statement or prospectus.
(b) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Sections 2.3, 2.4 or 2.5, each seller
of such Restricted Stock thereunder, severally and not jointly, will indemnify
and hold harmless the Company, each person, if any, who controls the Company
within the meaning of the Securities Act, each officer of the Company who signs
the registration statement, each director of the Company, each other holder of
Restricted Stock, each underwriter and each person who controls any underwriter
within the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
other seller, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement under which such Restricted Stock was registered
under the Securities Act pursuant to Sections 2.3, 2.4 or 2.5, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereof, or any Blue Sky Application or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such officer, director, other seller,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that such seller will be
-------- -------
liable hereunder in any such case if and only to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus; and provided, further, however, that the
-------- ------- -------
liability of each seller hereunder shall not in any event exceed the net
proceeds received by such seller from the sale of Restricted Stock covered by
such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be
<PAGE>
Third Amended and Restated Rights agreement -- Page 13
made against the indemnifying party hereunder, notify the indemnifying party in
writing thereof, but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to such indemnified party other
than under this Section 2.8 and shall only relieve it from any liability which
it may have to such indemnified party under this Section 2.8 if and to the
extent the indemnifying party is prejudiced by such omission. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 2.8 for
any legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation and of
liaison with counsel so selected; provided, however, that, if the defendants in
-------- -------
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) The indemnities provided in this Section 2.8 shall survive
the transfer of any Restricted Stock by such holder.
(e) Any indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party.
(f) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or payable by
the indemnified party as a result of such losses, claims, damages, liabilities
or expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party on the one hand and the indemnified
party on the other (taking into consideration, among other things, the fact that
the provision of the registration rights and indemnification hereunder is or was
a material inducement to the Investors to purchase Restricted Stock) or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law
or provides a lesser sum to the indemnified party than the amount hereinafter
calculated, in such proportion as is appropriate to reflect not only the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other (taking into consideration, among other things,
the fact that the provision of the registration rights and indemnification
hereunder is or was a material inducement to the Investors to purchase
Restricted Stock) but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by or
on behalf of the
<PAGE>
Third Amended and Restated Rights agreement -- Page 14
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Notwithstanding anything to the contrary in this subparagraph
(f), no holder of Restricted Stock shall be required to contribute any amount in
excess of the net proceeds received by such indemnifying party from the sale of
shares in the offering to which the losses, claims, damages, liabilities or
expenses of the indemnified party relate.
2.9. Changes in Common Stock. If, and as often as, after the date hereof
-----------------------
there is any change in the Common Stock by way of a stock split, stock dividend,
combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue with respect to the Common Stock as so
changed.
2.10. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after ninety (90) days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.
2.11. No Third Party Registration Rights. The Company represents and
----------------------------------
warrants that, except as set forth in the Existing Agreements (all of which
rights are being superseded by the registration rights set forth in this
Agreement), there are no holders of its capital stock entitled to registration
rights, and agrees that it shall not grant to any third party any registration
rights more favorable than or inconsistent with any of those contained herein,
so long as any of the registration rights under this Agreement remain in effect.
<PAGE>
Third Amended and Restated Rights agreement -- Page 15
ARTICLE III
COVENANTS OF THE COMPANY
3.1. Affirmative Covenants of the Company Other Than Reporting
---------------------------------------------------------
Requirements. Without limiting any other covenants and provisions hereof, the
- ------------
Company covenants and agrees that until the consummation of a Qualified Public
Offering, it will perform and observe the following covenants and provisions,
and will cause each Subsidiary, if and when such Subsidiary exists, to perform
and observe such of the following covenants and provisions as are applicable to
such Subsidiary:
(a) Payment of Taxes and Trade Debt. Pay and discharge, and cause
-------------------------------
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary; provided, that neither the
--------
Company nor any Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company or any Subsidiary shall have set aside on its books
sufficient reserves, if any, with respect thereto. Pay and cause each Subsidiary
to pay, when due, or in conformity with customary trade terms, all lease
obligations, all trade debt, and all other Indebtedness incident to the
operations of the Company or its Subsidiaries, except such as are being
contested in good faith and by proper proceedings if the Company or Subsidiary
concerned shall have set aside on its books sufficient reserves, if any, with
respect thereto.
(b) Maintenance of Insurance. Maintain from responsible and
------------------------
reputable insurance companies or associations a term life insurance policy on
the life of Venkat Srinivisan in the face amount equal to $2,500,000, which
proceeds will be payable to the order of the Company. Maintain, and cause each
Subsidiary to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is
customarily carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Company or such
Subsidiary operates, but in any event in amounts sufficient to prevent the
Company or Subsidiary from becoming a co-insurer. The Company will not cause or
permit any assignment of the proceeds of the life insurance policy specified in
the first sentence of this paragraph and will not borrow against such policy.
The Company will add ICG, J.P. Morgan Investment Corporation and all of the
other Investors as notice parties to such policy and will request that the
issuer(s) of such policy provide all of such parties with at least ten (10)
days' notice before such policy is terminated (for failure to pay premiums or
otherwise) or assigned, or before any change is made in the designation of the
beneficiary thereof.
(c) Preservation of Corporate Existence. Preserve and maintain, and,
-----------------------------------
unless the Company deems it not to be in its best interests, cause each
Subsidiary to preserve and maintain, its corporate existence, rights, franchises
and privileges in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified, as a
foreign corporation in each jurisdiction in which such qualification is
necessary or
<PAGE>
Third Amended and Restated Rights agreement -- Page 16
desirable in view of its business and operations or the ownership or lease of
its properties. Secure, preserve and maintain, and cause each Subsidiary to
preserve and maintain, all licenses and other rights to use patents, processes,
licenses, permits, trademarks, trade names, inventions, intellectual property
rights or copyrights owned or possessed by it and deemed by the Company to be
necessary to the conduct of its business or the business of any Subsidiary.
(d) Compliance with Laws. Comply, and cause each Subsidiary to
--------------------
comply, with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority.
(e) Inspection. Permit, upon reasonable request and notice, each of
----------
the Investors or any agents or representatives thereof, at their own expense, to
examine and make copies of and extracts from the records and books of account
of, and visit and inspect the properties of the Company and any Subsidiary, to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, directors or Key Employees and independent
accountants, and consult with and advise the management of the Company and any
Subsidiary as to their affairs, finances and accounts, all at reasonable times.
Each Investor agrees that it will use its best efforts to maintain the
confidentiality of any information so obtained by it which is not otherwise
available from other sources, subject to the disclosure of information of a non-
technical nature, including financial information, which such Investor discloses
to its partners and/or shareholders generally.
(f) Keeping of Records and Books of Account. Keep, and cause each
---------------------------------------
Subsidiary to keep, adequate records and books of account in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company and
any Subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, returns of merchandise, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business shall be
made.
(g) Maintenance of Properties. Maintain and preserve, and cause each
-------------------------
Subsidiary to maintain and preserve, all of its properties and assets, necessary
for the proper conduct of its business, in good repair, working order and
condition, ordinary wear and tear excepted.
(h) Compliance with ERISA. Comply, and cause each Subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension,
employee benefit plans or employee contribution plans which are subject to ERISA
or to the Internal Revenue Code of 1986 (the "Code"), and comply, and cause each
Subsidiary to comply, in all other material respects with the provisions of
ERISA and the Code, and the rules and regulations thereunder, which are
applicable to any such plan. Neither the Company nor any Subsidiary will permit
any event or condition to exist which could permit any such plan to be
terminated under circumstances which would cause the lien provided for in
Section 4068 of ERISA to attach to the assets of the Company or any Subsidiary.
(i) Budgets Approval. Not later than thirty-five (35) days following
----------------
the commencement of each fiscal year, prepare and submit to, and obtain the
approval of a majority
<PAGE>
Third Amended and Restated Rights agreement -- Page 17
of the Board of Directors of, a business plan and monthly operating budgets in
detail for each fiscal year, including capital and operating expense budgets,
cash flow projections and profit and loss projections, all itemized in
reasonable detail (including itemization of provisions for officers'
compensation). The budget and business plan shall be reviewed by the Company
periodically, and all changes therein and all material deviations therefrom
shall be resubmitted to the Board of Directors. The Company shall not enter into
any activity not in the ordinary course of business and not envisioned by the
budget and business plan, unless approved by the affirmative vote of a majority
of the directors of the Board of Directors, which shall include a majority of
the directors elected by the Investors.
(j) Financings. Promptly, fully and in detail, inform the Board of
----------
Directors of any discussions, offers or contracts relating to possible
financings of any nature for the Company, whether initiated by the Company or
any other Person, except for (A) arrangements with trade creditors, and (B)
utilization by the Company or any Subsidiary of commercial lending arrangements
with financial institutions.
(k) The Board of Directors. Call and, to the extent a quorum can be
----------------------
maintained, hold meetings of the Company's Board of Directors on a basis as
determined by a majority of the Board of Directors, but in any event not less
than on a quarterly basis. Promptly pay all direct out-of-pocket expenses
reasonably incurred by each management and non-management director of the
Company in attending each meeting of the Board of Directors or any committee
thereof.
(l) Check Signing. Require the signature of at least two officers of
-------------
the Company on any single check equal to or greater than $20,000.
(m) By-laws. The Company shall at all times cause its By-laws to
-------
provide that, unless otherwise required by the laws of the State of Delaware,
(i) any two directors and (ii) any holder or holders of at least 10% of the
outstanding Common Stock, shall have the right to call a meeting of the Board of
Directors or stockholders. The Company shall at all times maintain provisions in
its By-laws or Certificate of Incorporation indemnifying all directors against
liability to the maximum extent permitted under the laws of the State of
Delaware.
3.2. Negative Covenants of the Company. Without limiting any other
---------------------------------
covenants and provisions hereof, the Company covenants and agrees that until the
consummation of a Qualified Public Offering, it will comply with and observe the
following covenants and provisions, and will cause each Subsidiary, if and when
such Subsidiary exists, to comply with and observe such of the following
covenants and provisions as are applicable to such Subsidiary, and will not,
without the consent of sixty-six and two-thirds percent (66-2/3%) in interest of
the holders of the Common Stock:
(a) Restrictions on Indebtedness. Create, incur, assume or suffer to
----------------------------
exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any
liability with respect to Indebtedness for money borrowed which exceeds the
aggregate of $5,000,000.
<PAGE>
Third Amended and Restated Rights agreement -- Page 18
(b) Merger or Sale. Except as contemplated by this Agreement merge
--------------
with or into any other entity (except a Subsidiary or merger in which the
Company is the surviving Company and the holders of Company voting stock
outstanding immediately prior to the transaction constitute a majority of the
holders of voting stock outstanding immediately following the transaction), sell
to any Person or entity any assets constituting all or substantially all of the
assets of the Company, liquidate or wind-up the Company, or agree to do or
permit any Subsidiary to do any of the foregoing.
(c) Assumptions or Guaranties of Indebtedness of Other Persons.
----------------------------------------------------------
Assume, guarantee, endorse or otherwise become directly or contingently liable
on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become
directly or contingently liable on (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) any Indebtedness of any other Person, except
for guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business, and except for the guaranties of
the permitted obligations of any wholly-owned Subsidiary.
(d) Distributions. Declare or pay any dividends, purchase, redeem,
-------------
retire, or otherwise acquire for value any of its capital stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital to its stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any Subsidiary to do any of the
foregoing (such transactions being hereinafter referred to as "Distributions"),
-------------
except that any such Subsidiary may declare and make payment of cash and stock
- ------
dividends, return capital and make distributions of assets to the Company;
provided, however, that nothing herein contained shall prevent the Company from:
- -------- -------
(i) effecting a stock split (except for a reverse stock split)
or declaring or paying any dividend consisting of shares of any class of capital
stock to the holders of shares of such class of capital stock, or
(ii) redeeming any stock of a deceased stockholder out of
insurance held by the Company on that stockholder's life, or
(iii) repurchasing the shares of Common Stock held by officers,
employees, directors or consultants of the Company which are subject to
restrictive stock purchase agreements under which the Company has the option to
repurchase such shares at their original purchase price upon the occurrence of
certain events, including the termination of employment, or
(iv) repurchasing certain shares of Common Stock held by
Shubhro Sen in accordance with the provisions of Section 1.07 of the 1998
Purchase Agreement; provided, however, that such repurchase shall not be
-------- -------
consummated without the prior consent of the Directors designated by Battery
Ventures IV, L.P. and ICG Holdings if, in the reasonable opinion of the
Company's independent public accountants, such repurchase would jeopardize the
<PAGE>
Third Amended and Restated Rights agreement -- Page 19
Company's ability to account for a future acquisition using the "pooling of
interests" method of accounting;
if in the case of any such transaction described in (i) through (iv) above, the
payment can be made in compliance with the other terms of this Agreement and the
Company's Certificate of Incorporation.
(e) Change in Nature of Business. Make or permit any Subsidiary to
----------------------------
make, any material change in the nature of its business as contemplated in the
Company's Business Plan attached as Exhibit 3.12 to the December 1999 Stock and
------------
Warrant Purchase Agreement.
(f) Ownership of Subsidiaries. Purchase or hold beneficially any
-------------------------
stock, other securities or evidences of Indebtedness in, or make any investment
in any other Person, excluding a wholly-owned subsidiary of the Company, if the
aggregate financial commitment of the Company related to all such commitments
involves more than $100,000 in any twelve-month period.
(g) Issuance of Reserved Employee Shares. Grant to any of its
------------------------------------
employees, from and after the date hereof, options or other rights to purchase
Reserved Employee Shares unless authorized by vote of the Company's Board of
Directors which shall include at least two directors who are elected solely by
the Investors, provided that at least one of the directors elected by ICG
Holdings votes in favor thereof.
(h) Dealings with Affiliates and Others. Other than as contemplated
-----------------------------------
by this Agreement, the Stockholders Agreement, the Series C Warrants, the Series
E Warrants or the ICG Holdings Warrant, and other than transactions in the
ordinary course of business involving less than $25,000, enter into any
transaction, including, without limitation, any loans or extensions of credit or
royalty agreements, with any officer (excluding payments made or to be made to
Walter Wright, III, or Rich, May, Bilodeau & Flaherty, P.C. in connection with
legal services rendered to the Company) or director of the Company or any
Subsidiary or holder of any class of capital stock of the Company, or any member
of their respective immediate families or any corporation or other entity
directly or indirectly affiliated with one or more of such officers, directors
or stockholders or members of their immediate families unless such transaction
is approved in advance by a majority of disinterested directors of the Board of
Directors, or absent such Board of Directors approval, by sixty-six and two-
thirds percent (66 2/3%) in interest of the Investors.
(i) Compensation. Increase the compensation, bonus or other benefits
------------
payable to any Key Employee of the Company, except for increases in the ordinary
course of business which shall not exceed ten percent (10%) in any calendar year
or which shall be approved by vote of the Company's Board of Directors, which
shall include a majority of the directors elected by the Investors.
3.3. Reporting Requirements. Until the consummation of a Qualified Public
----------------------
Offering the Company will furnish the following to each Investor:
<PAGE>
Third Amended and Restated Rights agreement -- Page 20
(a) Monthly Reports: as soon as available and in any event within
---------------
thirty (30) days after the end of each calendar month, consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such month and consolidated and consolidating statements of income and
retained earnings of the Company and its Subsidiaries for such month and for the
period commencing at the end of the previous fiscal year and ending with the end
of such month, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, and including
comparisons to monthly budgets, a cash flow analysis for such month, a schedule
showing each expenditure of a capital nature during such month, and a summary
discussion of the Company's principal functional areas, all in reasonable detail
and duly certified (subject to year-end audit adjustments) by the chief
financial officer of the Company (or other person acting in such capacity) as
having been prepared in accordance with generally accepted accounting principles
consistently applied;
(b) Quarterly Reports: to the extent not otherwise provided to any
-----------------
Person, as soon as available and in any event within forty-five (45) days after
the end of each of the first three quarters of each fiscal year of the Company,
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such quarter and consolidated statements of income and cash flows of the Company
and its Subsidiaries for such quarter and for the period commencing at the end
of the previous fiscal year and ending with the end of such quarter, setting
forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, and including comparisons to
quarterly budgets and a summary discussion of the Company's principal functional
areas, all in reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer of the Company as having been
prepared in accordance with generally accepted accounting principles
consistently applied;
(c) Annual Reports: as soon as available and in any event within one
--------------
hundred twenty (120) days after the end of each fiscal year of the Company, a
copy of the annual audit report for such year for the Company and its
Subsidiaries, including therein consolidated balance sheets of the Company and
its Subsidiaries as of the end of such fiscal year and consolidated statements
of income and retained earnings of the Company and its Subsidiaries for such
fiscal year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, all such consolidated statements to be
duly certified by the chief financial officer of the Company and by such
independent public accountants of recognized national standing approved by a
majority of the Board of Directors;
(d) Budgets: as soon as available after approval by the Board of
-------
Directors, a business plan and monthly operating budgets for the forthcoming
fiscal year;
(e) Notice of Adverse Changes: promptly after the occurrence thereof
-------------------------
and in any event within ten (10) days after each occurrence, notice of any
material adverse change in the operations or financial condition of the Company
or any material default in any other material agreement to which the Company is
a party;
(f) Written Reports: promptly upon receipt or publication thereof,
---------------
any written reports submitted to the Company by independent public accountants
in connection with an annual or interim audit of the books of the Company and
its Subsidiaries made by such
<PAGE>
Third Amended And Restated Rights Agreement -- Page 21
accountants or by consultants or other experts in connection with such
consultant's or other expert's review of the Company's operations or industry,
and written reports prepared by the Company to comply with other investment or
loan agreements;
(g) Notice of Proceedings: promptly after the commencement
---------------------
thereof, notice of all actions, suits and proceedings before any court or
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, affecting the Company or any Subsidiary in which the amount
in controversy exceeds $50,000;
(h) Stockholders' and SEC Reports: promptly upon sending, making
-----------------------------
available, or filing the same, such reports and financial statements as the
Company or any Subsidiary shall send or make available to the stockholders of
the Company or file with the Securities and Exchange Commission; and
(i) Other Information: such other information respecting the
-----------------
business, properties or the condition or operations, financial or other, of the
Company or any of its Subsidiaries as any such holder may from time to time
reasonably request.
3.4. Certain Additional Covenants. The Company covenants and agrees
----------------------------
with the applicable Investors as follows:
(a) Observer Rights. At any time when a designee of JPMIC is
---------------
not on the Board of Directors of the Company, the Company shall give to JPMIC
notice of each meeting of the Board of Directors of the Company at the same time
and in the same manner as notice is given to the directors of the Company. One
(1) designee of JPMIC shall be entitled to attend in person, as an observer, all
meetings held in person and to listen to telephone meetings of the Board of
Directors of the Company solely for the purpose of allowing JPMIC to have
current information with respect to the affairs of the Company. The Company
shall provide to such party in connection with each meeting its respective
observer designee is entitled to attend, whether or not present at such meeting,
copies of all notices, minutes, consents, and all other materials or information
that it provides to the directors of the Company with respect to such meeting,
at the same time such materials and information are given to the directors of
the Company (except that materials and information provided to directors of the
Company at meetings at which a designee of such party is not present shall be
provided to such party promptly after the meeting). The Company shall reimburse
the designee of such party, in accordance with the Company's reimbursement
policies and procedures, for the reasonable travel and related expenses incurred
by such designee in connection with attending meetings.
(b) Provisions Relating to SBIC Investors.
-------------------------------------
(i) Use of Proceeds. The Company will use the proceeds
---------------
from (A) the sale of the Series D Preferred Stock to JPMIC, Sixty Wall Street
SBIC Fund, L.P., ABN-AMRO Capital (USA), Inc., Draper Richards LP,
Mellon/netWorth Partners I, LLC and netWorth Enterprises IV, LLC (collectively,
the "Series D SBIC Investors") as provided in Section 3.25 of the October 1999
-----------------------
Stock Purchase Agreement and no portion of such proceeds shall be applied to any
prohibited use described in such Section, and (B) the sale of the Series E
Preferred Stock to
<PAGE>
Third Amended And Restated Rights Agreement -- Page 22
Purchasers that are licensed Small Business Investment Companies under the Small
Business Investment Act of 1958, as amended (the "Series E SBIC Investors" and,
-----------------------
together with the Series D SBIC Investors, collectively, the "SBIC Investors")
--------------
as provided in Section 3.25 of the Stock and Warrant Purchase Agreement and no
portion of such proceeds shall be applied to any prohibited use described in
such Section; and, in all cases, the Company will at all times comply with the
non-discrimination requirements of 13 C.F.R. Parts 112 and 113. The Company will
provide to the SBIC Investors and the U.S. Small Business Administration access
to its books and records for the purpose of confirming the use of the proceeds
and for all other purposes required by the U.S. Small Business Administration.
Upon the request of any SBIC Investor at any time or from time to time, the
Company will provide a certificate of its chief financial officer (or other
executive officer) (i) describing the use of the proceeds from the sale of the
Series D Preferred Stock and/or Series E Preferred Stock, as applicable, to such
SBIC Investor, and (ii) certifying compliance by the Company with this Section
3.04(b)(i) and, as applicable, Section 3.25 of the October 1999 Stock Purchase
Agreement or Section 3.25 of the December, 1999 Stock and Warrant Purchase
Agreement.
(ii) Information. Upon request, the Company promptly (and in
-----------
any event within twenty (20) days of such request) will provide to each SBIC
Investor an assessment, in form and substance satisfactory to such SBIC
Investor, of the economic impact of its financing, specifying the full-time
equivalent jobs created or retained, the impact of the financing on the
Company's business, in terms of expanded revenue and profits, and on taxes paid
by the business and its employees. Upon request, the Company promptly (and in
any event within twenty (20) days of such request) will furnish to each SBIC
Investor all information requested by it in order for it to prepare and file SBA
Form 468 and any other information requested or required by any governmental
agency asserting jurisdiction over such SBIC Investor.
(iii) Transfers by SBIC Investors to Affiliates. The Company and
-----------------------------------------
each of the Investors hereby covenant and agree that, upon the request of a SBIC
Investor in connection with a proposed transfer of shares of capital stock of
the Company from such SBIC Investor to one or more of its affiliates that is
subject to the provisions of Regulation Y of the Board of Governors of the
Federal Reserve System (12 C.F.R. Part 225) or any successor to such regulation
(a "Regulation Y Shareholder"), the Company and the Investors will take such
------------------------
actions as such SBIC Investor may reasonably request in order to permit such
Regulation Y Shareholder to comply with regulatory limitations applicable to it,
including, without limitation, taking such actions as may be required in order
to create non-voting securities that will allow such Regulation Y Shareholder to
continue to hold its economic interest in the Company.
ARTICLE IV
RIGHT OF FIRST REFUSAL WITH RESPECT TO SALES BY THE COMPANY
4.1. Right of First Refusal. Until the consummation of a Qualified Public
----------------------
Offering, the Company shall not issue, sell or exchange, agree or obligate
itself to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange, any (i) shares of Common Stock, (ii) any other equity security of the
Company, (iii) any debt security of the Company (other than debt with no equity
feature) including without limitation, any debt security which by its terms is
<PAGE>
Third Amended And Restated Rights Agreement -- Page 23
convertible into or exchangeable for any equity security of the Company, (iv)
any security of the Company that is a combination of debt and equity, or (v) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any such equity security or any such debt security of the Company, unless in
each case the Company shall have first offered to sell such securities (the
"Offered Securities") to the Investors as follows: The Company shall offer to
sell to each Investor (a) that portion of the Offered Securities as the number
of shares of Common Stock (including any shares of Common Stock deemed to be
beneficially owned by such Investor pursuant to Rule 13d-3 promulgated under the
Exchange Act ("Rule 13d-3")) then held by such Investor, as the case may be,
----------
bears to the total number of shares of Common Stock (including all shares of
Common Stock deemed to be beneficially owned by the Investors pursuant to Rule
13d-3) held on such date by all Investors (the "Basic Amount"), and (b) such
------------
additional portion of the Offered Securities as such Investor shall indicate it
will purchase should the other Investors subscribe for less than their Basic
Amounts (the "Undersubscription Amount"), at a price and on such other terms as
------------------------
shall have been specified by the Company in writing delivered to such Investor
(the "Offer"), which Offer by its terms shall remain open and irrevocable for a
period of twenty (20) days from receipt of the offer.
4.2. Notice of Acceptance. Notice of each Investor's intention to accept,
--------------------
in whole or in part, any Offer made pursuant to Section 4.01 shall be evidenced
by a writing signed by such Investor and delivered to the Company prior to the
end of the 20-day period of such offer, setting forth such of the Investor's
Basic Amount as such Investor elects to purchase and, if such Investor shall
elect to purchase all of its Basic Amount, such Undersubscription Amount as such
Investor shall elect to purchase (the "Notice of Acceptance"). If the Basic
--------------------
Amounts subscribed for by all Investors are less than the total Offered
Securities, then each Investor who has set forth Undersubscription Amounts in
its Notice of Acceptance shall be entitled to purchase, in addition to the Basic
Amounts subscribed for, all Undersubscription Amounts it has subscribed for;
provided, however, that should the Undersubscription Amounts subscribed for
- -------- -------
exceed the difference between the Offered Securities and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), each Investor who has
----------------------------------
subscribed for any Undersubscription Amount shall be entitled to purchase only
that portion of the Available Undersubscription Amount as the Undersubscription
Amount subscribed for by such Investor bears to the total Undersubscription
Amounts subscribed for by all Investors, subject to rounding by the Board of
Directors to the extent it reasonably deems necessary.
4.3. Conditions to Acceptances and Purchase.
--------------------------------------
(a) Permitted Sales of Refused Securities. In the event that
-------------------------------------
Notices of Acceptance are not given by the Investors in respect of all the
Offered Securities, the Company shall have ninety (90) days from the expiration
of the period set forth in Section 4.01 to close the sale of all or any part of
such Offered Securities as to which a Notice of Acceptance has not been given by
the Investors (the "Refused Securities") to the Person or Persons specified in
------------------
the Offer, but only for cash and otherwise in all respects upon terms and
conditions, including, without limitation, unit price and interest rates, which
are no more favorable, in the aggregate, to such other Person or Persons or less
favorable to the Company than those set forth in the Offer.
<PAGE>
Third Amended And Restated Rights Agreement -- Page 24
(b) Reduction in Amount of Offered Securities. In the event
-----------------------------------------
the Company shall propose to sell less than all the Refused Securities (any such
sale to be in the manner and on the terms specified in Section 4.03(a) above),
then each Investor may, at its sole option and in its sole discretion, reduce
the number of, or other units of the Offered Securities specified in its
respective Notices of Acceptance to an amount which shall be not less than the
amount of the Offered Securities which the Investor elected to purchase pursuant
to Section 4.02 multiplied by a fraction, (i) the numerator of which shall be
the amount of Offered Securities which the Company actually proposes to sell,
and (ii) the denominator of which shall be the amount of all Offered Securities.
In the event that any Investor so elects to reduce the number or amount of
Offered Securities specified in its respective Notices of Acceptance, the
Company may not sell or otherwise dispose of more than the reduced amount of the
Offered Securities until such securities have again been offered to the
Investors in accordance with Section 4.01.
(c) Closing. Upon the closing, which shall include full
-------
payment to the Company, of the sale to such other Person or Persons of all or
less than all the Refused Securities, the Investors shall purchase from the
Company, and the Company shall sell to the Investors, the number of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 4.03(b) if the Investors have so elected, upon the terms and conditions
specified in the Offer. The purchase by the Investors of any Offered Securities
is subject in all cases to the preparation, execution and delivery by the
Company and the Investors of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Investors and
their respective counsel.
4.4. Further Sale. In each case, any Offered Securities not purchased
------------
by the Investors or other Person or Persons in accordance with Section 4.03 may
not be sold or otherwise disposed of until they are again offered to the
Investors under the procedures specified in Sections 4.01, 4.02 and 4.03.
4.5. Exceptions. The rights of the Investors under this Article IV
----------
shall not apply to:
(a) Common Stock issued as a stock dividend to holders of Common
Stock or upon any subdivision or combination of shares of Common Stock,
(b) any Reserved Employee Shares,
(c) Common Stock issued pursuant to the acquisition of another
corporation by the Company by merger (whereby the Company owns no less than 51%
of the voting power of such corporation) or purchase of substantially all of its
stock or assets,
(d) the Warrant Shares,
(e) Common Stock issued by the Company in an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, and
(f) any warrants to purchase Common Stock issued by the Company
in connection with a commercial bank loan or lease with a financial institution
if approved by a not less than eighty percent (80%) of the Board of Directors.
<PAGE>
Third Amended And Restated Rights Agreement -- Page 25
ARTICLE V
MISCELLANEOUS
5.1. Waiver of Right of Participation; Termination of Existing Agreements;
---------------------------------------------------------------------
Additional Rights of Investors. Each of the Company and each of the Investors
- ------------------------------
who are parties to the December 1999 Rights Agreement hereby (the "Waiving
-------
Investors") (i) waive all provisions of and all rights existing under the
- ---------
December 1999 Rights Agreement, including any rights to receive notices
thereunder, on behalf of themselves and each of the other parties thereto to the
extent necessary to effectuate the provisions hereof and the transactions
contemplated under the ICG Holdings Agreement and further agrees not to exercise
or attempt to exercise any rights under the December 1999 Rights Agreement or
any prior agreement related thereto from and after the date hereof, and (ii)
terminate the December 1999 Rights Agreement or any prior agreement related
thereto, and agree that each of them be and hereby is released from its
obligations thereunder and acknowledge that this Agreement supersedes the
December 1999 Rights Agreement or any prior agreement related thereto. Each of
the Waiving Investors waives any preemptive or similar rights such Waiving
Investors would otherwise have in connection with the issuance of the Company's
equity securities to ICG Holdings (or its affiliates) pursuant to the ICG
Holdings Agreement (including pursuant to Section 7.6 thereof), including any
preemptive rights granted pursuant to the Stock Purchase Agreement (the "First
-----
Stock Purchase Agreement"), dated September 16, 1993, among the Company, V.
- ------------------------
Srinivasan, S. Sen and the Purchasers named therein, provided, however, that the
-----------------
Company and the Waiving Investors shall retain and may exercise all their rights
with respect to Shubhro Sen and any securities of the Company owned by Shubhro
Sen, including without limitation its right to repurchase shares of common stock
held by Shubhro Sen (the "Sen Shares") and any participation rights in the event
----------
of the sale of any Sen Shares. The Investors shall terminate the First Stock
Purchase Agreement effective upon the earliest of the following events: 1) the
execution of the Stockholders Agreement dated ____, 2000 by Shubhro Sen, 2)
Shubhro Sen holds fewer than ten thousand shares of common stock of the Company
or 3) the expiration of the First Stock Purchase Agreement as provided therein.
Further, the First Stock Purchase Agreement is hereby amended, as between the
parties hereto, such that the Investors are deemed to be Purchasers, as defined
in the First Stock Purchase Agreement, for all purposes, entitled to participate
pro rata with the other Purchasers in the share repurchase and sale
participation transactions provided for therein. Until such termination, the
First Stock Purchase Agreement shall remain in existence and in effect, subject
to the terms set forth above. In addition, all parties hereto hereby agree that
all Investors shall be entitled to participate pro rata as Original Stockholders
or Participating Stockholders (as each of such terms may be defined in option or
other agreements, including, without limitation, all restricted stock purchase
agreements between the Company and stockholders of the Company, entered into
under or pursuant to the Company's 1998 Stock Option and Purchase Plan, as
amended), as applicable, in the share repurchase transactions provided for in
such agreements, and the parties hereto shall take such reasonable actions as
may be necessary or desirable to effect such participation.
5.2. Termination.
-----------
<PAGE>
Third Amended And Restated Rights Agreement -- Page 26
(a) The obligations of the Company to register shares of Restricted
Stock under Sections 2.3, 2.4 or 2.5 shall terminate five years after completion
of a Qualified Public Offering. The covenants set forth in Article III of this
Agreement shall terminate in the manner set forth in said Article III. The
rights of the Investors under Article IV shall terminate immediately prior to
the consummation of a Qualified Public Offering.
(b) Unless sooner terminated in accordance with Section 5.2(a), the
rights of any Investor (other than ICG Holdings) under Article IV and rights to
enforce the benefits of Article III hereunder shall terminate when such Investor
(together with its affiliates) owns a number of shares of Common Stock that is
less than fifteen percent (15%) of the number of shares of Common Stock such
Investor (together with its affiliates) owns on the date hereof determined on a
fully diluted basis (appropriately adjusted for stock splits, stock dividends,
recapitalizations and other like changes). Unless sooner terminated in
accordance with Section 5.2(a), the rights of ICG Holdings under Article IV and
rights to enforce the benefits of Article III hereunder shall terminate when ICG
Holdings and ICG (together with ICG Affiliates) owns a number of shares of
Common Stock that is less than fifteen percent (15%) of the number of shares of
Common Stock that ICG Holdings and ICG (together with ICG Affiliates) owns on
the date hereof on a fully diluted basis (appropriately adjusted for stock
splits, stock dividends, recapitalizations and other like changes).
5.3. No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
5.4. Amendments, Waivers and Consents. Subject to applicable law,
--------------------------------
provisions of this Agreement may only be amended with the written consent of (i)
ICG Holdings and (ii) the holders of two-thirds (2/3) of the Common Stock held
by the Existing Investors. Nothwithstanding the foregoing, no amendment approved
in accordance with the first sentence of this Section 5.4 above shall be
effective if and to the extent that such amendment creates any additional
affirmative obligations to be complied with by any Investor that is different
from the affirmative obligations imposed on each Investor. Section 3.04(a) shall
not be amended or waived without the prior written consent of JPMIC; Section
3.04(b) shall not be amended or waived without the prior written consent of each
SBIC Investor.
5.5. Prior Agreements. Except as set forth in Section 5.1 above this
----------------
Agreement and the Third Amended and Restated Stockholders Agreement and the ICG
Holdings Agreement, together with all exhibits and schedules to the various
agreements, constitute the entire agreement among the parties hereto pertaining
to the subject matter hereof and subject to the terms and conditions herein,
supersede all prior agreement among the parties hereto pertaining to the subject
matter hereof and, subject to the terms and conditions herein, supersede all
prior and contemporaneous agreements and understandings (including Existing
Agreements), whether oral or written, of any of the parties hereto with respect
thereto.
<PAGE>
Third Amended And Restated Rights Agreement -- Page 27
5.6. Counterparts. This Agreement may be executed in more than one
------------
counterpart, each of which shall be deemed to be an original and which,
together, shall constitute one and the same instrument.
5.7. Severability. The provisions of this Agreement are severable, so
------------
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
5.8. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with and governed by the General Corporation Law of the State of
Delaware as to matters within the scope thereof, and as to all other matters
shall be governed by and construed in accordance with the internal law of
Commonwealth of Massachusetts.
5.9. Specific Performance. The rights of the parties under this Agreement
--------------------
are unique and, accordingly, the parties shall, in addition to such other
remedies as may be available to any of them at law or in equity, have the right
to enforce their rights hereunder by actions for specific performance to the
extent permitted by law.
5.10. Notices. All notices to be given or otherwise made to any part to
-------
this Agreement shall be deemed to be sufficient if contained in a written
instrument, delivered by hand in person, by express overnight courier service,
or by electronic facsimile transmission (with a confirming copy sent by U.S.
mail, first class, postage prepaid mail), or by registered or certified mail,
return receipt requested, postage prepaid, addressed to such party at the
address specified herein, or at such other address as may hereafter be
designated in writing by the addressee in the manner prescribed by this Section
5.10. All notices shall be considered to be delivered three (3) days after
dispatch in the event of first class or registered mail, and on the next
succeeding business day in the event of facsimile transmission (with
confirmation of receipt) or overnight courier service.
5.11. Assignment; Binding Effect. This Agreement shall be binding upon and
--------------------------
shall inure to the benefit of the parties hereto and their respective heirs,
executors, legal representatives, successors and permitted transferees, except
as may be expressly provided otherwise herein; provided, that no Investor may
--------
transfer its rights or obligations hereunder except as provided in Section 2.2
if such transferee executes a writing agreeing to be bound by the provisions of
this Agreement.
5.12. Lock-Up. Each of the Investors hereby agrees in connection with the
-------
Company's Initial Public Offering, upon the request of the principal underwriter
managing the initial public offering of the Company, not to sell publicly any
Shares now owned or hereafter acquired by such Investor and subject to this
Agreement without the prior written consent of such underwriter for a period of
time (not to exceed one hundred eighty (180) days) from the effective date of
such registration as the underwriter may specify, in all events subject to the
provisions of Section 8 of the Stockholders Agreement. Notwithstanding the
foregoing, the parties hereto hereby acknowledge and agree that any lock-up
agreement or arrangement shall not apply to sales of Shares by any Investor to
ICG Holdings or an ICG Holdings authorized affiliate.
<PAGE>
Third Amended And Restated Rights Agreement -- Page 28
5.13. Joinder. Internet Capital Group, Inc. hereby joins in this Agreement,
-------
agrees to be a party hereto with respect to the obligations of ICG Holdings, its
wholly-owned subsidiary, and agrees to cause ICG Holdings to comply with its
obligations hereunder.
5.14. Headings. Article, Section and subsection headings in this Agreement
--------
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Amended
and Restated Rights Agreement to be executed as of the date first above written.
ECREDIT.COM, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
ICG HOLDINGS, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
INTERNET CAPITAL GROUP, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
[UNNUMBERED SIGNATURE PAGES FOR
EXISTING INVESTORS FOLLOW]
____________________________
*For purposes of the joinder set forth in Section 5.13 to this Agreement.
<PAGE>
EXISTING INVESTORS:
J.P. MORGAN INVESTMENT CORPORATION
By:_______________________________
John Fullerton
Managing Director
SIXTY WALL STREET SBIC FUND, L.P.
By: Sixty Wall Street SBIC Corporation
As General Partner
By:________________________________
John Fullerton
Managing Director
<PAGE>
EXISTING INVESTORS:
ABN AMRO CAPITAL (USA), INC.
By: __________________________________
David L. Bogetz
Managing Director
I EAGLE TRUST
By: __________________________________
David L. Bogetz
Managing Director
BURNHAM CAPITAL, LLC
By: __________________________________
David L. Bogetz
Managing Director
<PAGE>
EXISTING INVESTORS:
TRIDENT CAPITAL FUND-IV, L.P.
By: ______________________________
Name:_____________________________
Its:______________________________
<PAGE>
EXISTING INVESTORS:
VORTEX PARTNERS CDT, LP
a Texas Limited Partnership
By: Vortex Partners, L.P., a Texas limited
partnership
Its: General Partner
By: Vortex Investments, Inc.
Its: General Partner
By: ___________________________
Christopher O'Neill
Chief Executive Officer
<PAGE>
EXISTING INVESTORS:
DRAPER RICHARDS COMPANY
MANAGEMENT
By:_______________________________
Name:
Title:
WILLIAM H. DRAPER REVOCABLE TRUST
By:_______________________________
Name: William Draper
Title: Trustee
By:_______________________________
Name: Phyllis C. Draper
Title: Trustee
ROBIN A. RICHARDS TRUST
By:_______________________________
Name: Robin A. Richards
Title: Trustee
DRAPER INTERNATIONAL INDIA, L.P.
By: DRAPER INTERNATIONAL
MANAGEMENT, L.P.
as General Partner
By: DRAPER INTERNATIONAL, L.L.C.,
as General Partner
By:_______________________________
William H. Draper, III
Its Manager
<PAGE>
EXISTING INVESTORS:
ARGUS CAPITAL LLC
By: ______________________________
Name: ____________________________
Title: ___________________________
<PAGE>
EXISTING INVESTORS:
BATTERY VENTURES IV, L.P.
By: Battery Partners IV, LLC
By:______________________________
Member Manager
BATTERY INVESTMENT PARTNERS IV LLC
By:______________________________
Member Manager
<PAGE>
EXISTING INVESTORS:
MAPLECREST FUND I
By: ________________________________
Walter A. Wright, III,
General Partner
<PAGE>
EXISTING INVESTORS:
INFORMATION PARTNERS CAPITAL FUND, L.P.
By: __________________________________
Mark Nunnelly,
General Partner
BCIP ASSOCIATES
By: __________________________________
Mark Nunnelly,
General Partner
BCIP TRUST ASSOCIATES, L.P.
By: __________________________________
Mark Nunnelly,
General Partner
<PAGE>
EXISTING INVESTORS:
ENTERPRISE ASSOCIATES, INC.
By: __________________________________
Venetia Kontogouris,
President
<PAGE>
EXISTING INVESTORS:
CITICORP
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
SAP AMERICA, INC.
By: _____________________________
Name: ___________________________
Its: ____________________________
<PAGE>
EXISTING INVESTORS:
FINANCIAL TECHNOLOGY VENTURES (Q),
LP
By: ______________________________
Name: ____________________________
Its: _____________________________
FINANCIAL TECHNOLOGY VENTURES, LP
By: ______________________________
Name: ____________________________
Its: _____________________________
<PAGE>
EXISTING INVESTORS:
MELLON/NETWORTH PARTNERS I, LLC
By: _____________________________
Name: ___________________________
Its: Authorized Officer
NETWORTH ENTERPRISES IV, LLC
By: ____________________________
Name: __________________________
Is: Authorized Officer
<PAGE>
EXISTING INVESTORS:
CHASE EQUITY HOLDINGS, INC.
By: _____________________________
Name: ___________________________
Its: ____________________________
<PAGE>
EXISTING INVESTORS:
_________________________
Richard Sandor
_________________________
Ellen Sandor
<PAGE>
EXISTING INVESTORS:
_________________________
Arun Oberoi
<PAGE>
EXISTING INVESTORS:
EASTMAN CHEMICAL COMPANY
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
FIRST UNION INVESTORS, INC.
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
GATEWAY COMPANIES, INC.
By: _____________________________
Name: ___________________________
Its: ____________________________
<PAGE>
EXISTING INVESTORS:
HAMBRECHT & QUIST CALIFORNIA
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
H&Q EMPLOYEE VENTURE FUND,
2000 L.P.
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
ACCESS TECHNOLOGY PARTNERS, L.P.
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
ACCESS TECHNOLOGY PARTNERS
BROKERS FUND, L.P.
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
MELLON/NETWORTH PARTNERS IV,
LLC
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
NETWORTH ENTERPRISES VI, LLC
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
WELLS FARGO SMALL BUSINESS
INVESTMENT COMPANY, INC.
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
EZEKIEL INVESTMENT GROUP I, LLC
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
MITSUI & CO. (U.S.A.), INC.
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
VORTEX PARTNERS CDT, LP
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXISTING INVESTORS:
HEWLETT-PACKARD COMPANY
By: ____________________________
Name: __________________________
Its: ___________________________
<PAGE>
EXHIBIT F
---------
FORM OF OPINION OF COUNSEL TO THE COMPANY
-----------------------------------------
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its properties and to
conduct the business in which it is engaged as presently conducted.
2. The Company has full corporate power and authority to execute and
deliver the Agreement, Warrant, Stockholders Agreement, Registration Rights
Agreement and Post IPO Agreement and each other document or instrument
contemplated by the Agreement (the "Transaction Documents") to which it is a
party, to perform its obligations thereunder, and to consummate the transactions
contemplated thereby. The execution and delivery by the Company of the
Transaction Documents to which it is a party and the consummation of the
transactions contemplated thereby, have been duly and validly authorized by all
necessary corporate action. Each of the Transaction Documents to which the
Company is a party constitutes, a legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms.
3. The execution and delivery by the Company of the Transaction
Documents to which it is a party, the performance by the Company of its
obligations thereunder and the consummation of the transactions contemplated
thereby, do not and will not: (i) violate or conflict with or result in a breach
of any provision of the Certificate of Incorporation or Bylaws of the Company,
(ii) to our knowledge, require any consent, approval or notice under, or
registration under or payment on account of, or conflict with, or result in a
violation or breach of, or constitute (with or without the giving of notice or
the lapse of time or both) a default (or give rise to any right of termination,
modification (including, in the case of leases, any change in the amount or
nature of the rent), cancellation or acceleration or result in the creation or
imposition of any Lien upon the property of the Company or any Subsidiary)
under, any of the terms, conditions or provisions of any (x) note, bond,
mortgage, indenture, license, lease, agreement or other instrument or obligation
to which the Company or any Subsidiary is a party or by which any portion of its
properties or assets may be bound, or (y) any permit, license, approval,
franchise or other governmental or regulatory authorization held or used by or
binding on the Company or any Subsidiary, (iii) violate or contravene any law,
statute, rule or regulation, or any order, writ, judgment, injunction, decree,
determination or award of any Authority currently in effect applicable to the
Company or any Subsidiary, which commonly are applicable to transactions of this
type and which is known to us or (iv) to our knowledge, require any action,
consent, approval or authorization of, or review by, or declaration,
registration or filing with, or notice to, any Authority, or any stock exchange
or similar self-regulatory organization.
<PAGE>
4. To our knowledge, except for the Subsidiaries, the Company does not
own, and has not owned, directly or indirectly, beneficially or of record, or
have or had any operational control over, or have any obligation to acquire, any
capital stock or other equity securities of any corporation, nor does the
Company have any direct or indirect equity or ownership investment, or any
obligation to incur such investment, in any other person. To our knowledge,
neither the Company nor any Subsidiary is, nor has any of them been, a
participant in any joint venture or partnership.
5. The authorized capital stock of the Company consists of ___________
shares of Common Stock, _________ shares of which are issued and outstanding,
and __________ shares of Preferred Stock, none of which are issued or
outstanding. No other class of capital stock of the Company is authorized or
outstanding. The outstanding shares of capital stock of the Company are owned of
record as set forth on SCHEDULE 2.5(d) of the Agreement or Exhibit A hereto.
--------------- ---------
All of the outstanding shares of capital stock of the Company have been
duly authorized, validly issued, fully paid and nonassessable, have not been
issued in violation of any preemptive rights, rights of first refusal or offer
or similar rights of any person, and have been offered and sold in compliance
with the Securities Act and all other applicable securities laws and the rules
and regulations thereunder. Except as set forth on SCHEDULE 2.5(d) to the
---------------
Agreement, the Company owns of record all of the outstanding shares of capital
stock of each Subsidiary free and clear of all liens, encumbrances, equities or
claims.
Except as set forth on SCHEDULE 2.5(e) of the Agreement or Exhibit A
--------------- ---------
hereto, there are no outstanding securities of the Company or any Subsidiary
convertible into or exchangeable for any shares of capital stock of the Company
or any Subsidiary or options, warrants, calls or other rights to acquire from
the Company or any Subsidiary, or other obligations or understandings or
arrangements of the Company or any Subsidiary or securities convertible into or
exchangeable for shares of capital stock of the Company or any Subsidiary.
Except pursuant to the Agreement or as set forth on SCHEDULE 2.5(e) to the
---------------
Agreement, to our knowledge, neither the Company nor any Subsidiary is not a
party to, or bound by, any arrangement, agreement, instrument or order (i)
relating to the transfer of any shares of capital stock of the Company or any
Subsidiary, (ii) relating to the dividend or voting rights of any shares of
capital stock of the Company or any Subsidiary, (iii) granting, or obligating
the Company or any Subsidiary to grant, to any person any preemptive right or
(iv) relating to rights to registration under the Securities Act or any other
securities laws of any shares of capital stock of the Company or any Subsidiary.
6. Each Stockholder is the sole record owner of the number and type of
shares of capital stock and other equity securities of the Company set forth
beside such Stockholder's name on SCHEDULE 2.5(d) to the Agreement. Such shares
---------------
or other equity securities constitute all the shares of Common Stock (or
securities convertible into or exchangeable for such capital stock, or options,
warrants or rights to purchase such capital stock or securities) owned of record
by such Stockholder. Except pursuant to the Transaction Documents to which such
Stockholder is a party or as set forth on SCHEDULE 3.2 of the Agreement or
------------
Exhibit A hereto, to our knowledge, such Stockholder is not a party to, or
- ---------
bound by, any arrangement, agreement, instrument or order (i) relating to the
transfer of any shares of capital stock of the Company, (ii) relating to the
dividend or voting rights of any shares of capital stock of the Company, (iii)
<PAGE>
granting, or obligating the Company to grant, to any person any preemptive right
or (iv) relating to rights to registration under the Securities Act or any other
securities laws of any shares of capital stock of the Company.
7. Except as set forth in SCHEDULE 2.7 to the Agreement or, Exhibit A
------------ ---------
hereto, to or knowledge, there is no pending or threatened claim, arbitration
proceeding, action, suit, investigation or other proceeding against or involving
the Company or any Subsidiary, or any of the property or rights of the Company
or any Subsidiary.
8. The Charter Amendment has been adopted by the Company's Board of
Directors and approved by the Stockholders in accordance with the provisions of
the DGCL.
9. The Warrant Shares to be issued pursuant to the Warrant Agreement
have been duly authorized and reserved for issuance by the Company and, when
issued and paid for in accordance with the terms of the Warrant, will be validly
issued, fully-paid and non-assessable.
[The foregoing opinion shall be subject to customary qualifications and
exceptions.]
<PAGE>
Exhibit G
---------
Form of Opinion of Counsel to ICG and Holdings
----------------------------------------------
1. Each of ICG and Holdings is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, with
corporate power and corporate authority to own, lease and operate its properties
and to conduct the business in which it is engaged as currently conducted.
2. Each of ICG and Holdings has corporate power and corporate authority to
execute and deliver the Agreement, the Warrant, the Stockholders Agreement, the
Registration Rights Agreement and the Post IPO Agreement and each other document
or instrument contemplated by the Agreement to which it is a party (the
"Transaction Documents"), to perform its obligations thereunder, and to
consummate the transactions contemplated thereby. The execution and delivery by
ICG and Holdings of the Transaction Documents to which it is a party, and the
consummation of the transactions contemplated thereby, have been duly authorized
by all necessary corporate action. Each of the Transaction Documents to which it
is a party constitutes, a legal, valid and binding obligation of ICG or
Holdings, as applicable, enforceable against it in accordance with its terms.
3. The execution and delivery by ICG and Holdings of the Transaction
Documents to which it is a party, the performance by the Company of its
obligations thereunder and the consummation of the transactions contemplated
thereby, do not and will not: (1) violate or conflict with or result in a breach
of any provision of the Certificate of Incorporation or Bylaws of ICG or
Holdings, (ii) require any consent, approval or notice under, or registration
under or payment on account of, or conflict with, or result in a violation or
breach of, or constitute (with or without the giving of notice or the lapse of
time or both) a default (or give rise to any right of termination, modification
(including, in the case of leases, any change in the amount or nature of the
rent), cancellation or acceleration or result in the creation or imposition of
any Lien upon the property of ICG or Holdings under, any of the terms,
conditions or provisions of any document or instrument filed as exhibits to the
Registration Statement or incorporated by reference therein, (iii) violate or
contravene any law, statute, rule or regulation, or any order, writ, judgment,
injunction, decree, determination or award of any Authority currently in effect
applicable to ICG or Holdings, which commonly are applicable to transactions of
this type and which is known to us or (iv) to our knowledge, require any action,
consent, approval or authorization of, or review by, or declaration,
registration or filing with, or notice to, any Authority, such as may be
required under the Securities Act or the Exchange Act and the rules and
regulations of the Commission thereunder and such as may be required under any
state securities or "blue sky" laws and, except with respect to clauses (ii),
(iii) and (iv) of this paragraph 3, for such consents, approvals,
<PAGE>
authorizations, orders or filings the failure to which to obtain or make would
not result in a Material Adverse Effect.
4. ICG has an authorized capitalization as set forth in the Registration
Statement, and all of the issued shares of Common Stock of ICG have been duly
authorized, validly issued, and are filly paid and non-assessable and all of the
shares of ICG Common Stock to be issued and delivered by ICG to the Company, the
Stockholders and all other stockholders of the Company who tender their shares
of the Company's capital stock as provided in the Offer in exchange for such
shares of ICG Common Stock have been duly authorized and, when issued and
delivered as provided for in the Agreement, shall be duly and validly issued,
filly paid and non-assessable; and all of the issued shares of capital stock of
Holdings have been duly authorized, validly issued and are filly paid, non-
assessable and are owned directly or indirectly by ICG free and clear of all
liens, encumbrances, equities or claims.
5. Except as set forth in Schedule 4.8 to the Agreement, or as disclosed
------------
in the prospectus or as set forth in Exhibit A hereto, to our knowledge, there
is no pending or threatened claim, arbitration proceeding, action, suit,
investigation or other proceeding against or involving ICG or any of its
subsidiaries, or any of the property or rights of ICG or any of its subsidiaries
that if determined adversely to ICG or any of its Subsidiaries would be likely
to have an ICG Material Adverse Effect.
6. The Registration Statement was declared effective under the Securities
Act as of _____ AM/PM on ___________, 2000, and to our knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceeding for that purpose is pending or, to our knowledge, threatened by
the Commission.
7. The Registration Statement and any amendments or supplements thereto
other than any information therein supplied by the Company or the Stockholders
for inclusion therein, as of their respective effective or issue date, complied
as to form in all material respects with the requirements of, as applicable, the
Securities Act, the Exchange Act and the rules and regulations promulgated under
such Acts.
8. Other than as described in the Registration Statement, there are no
contracts, agreements or understandings known to us between ICG and any person
granting such person the right (other than rights which have been waived or
satisfied) to require ICG to file a registration statement under the Securities
Act with respect to any securities of ICG owned or to be owned by such person or
to require ICG to include such securities in the securities registered pursuant
to the Registration Statement.
<PAGE>
Exhibit 2.3
CONFORMED COPY
RECAPITALIZATION AND EXCHANGE OFFER AGREEMENT
AND PLAN OF REORGANIZATION
BY AND AMONG
INTERNET CAPITAL GROUP, INC.
RAIN ACQUISITION CORP.,
RIGHTWORKS CORPORATION,
AND WITH RESPECT TO ARTICLE VII, VIII AND IX ONLY
SUHAS PATIL,
AS SHAREHOLDER REPRESENTATIVE,
AND
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION,
AS ESCROW AGENT
Dated as of March 7, 2000
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 0 THE RECAPITALIZATION AND RECLASSIFICATION ..................... 1
0.1 The Reclassification ....................................... 1
--------------------
0.2 The Recapitalization ....................................... 2
--------------------
0.3 Options .................................................... 2
-------
0.4 Warrants ................................................... 2
--------
0.5 Bylaws ..................................................... 3
------
ARTICLE 1 THE OFFER ..................................................... 3
1.1 The Offer .................................................. 3
---------
1.2 Company Actions ............................................ 6
---------------
1.3 Shareholder Lists .......................................... 7
-----------------
1.4 Closing Date ............................................... 7
------------
1.5 Lost, Stolen or Destroyed Certificates ..................... 7
--------------------------------------
1.6 Tax Consequences ........................................... 7
----------------
1.7 Lock-up .................................................... 7
-------
1.8 Performance Warrants ....................................... 8
--------------------
1.9 Definitions ................................................ 8
-----------
1.10 Taking of Necessary Action; Further Action ................. 10
------------------------------------------
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................. 10
2.1 Organization of the Company ................................ 11
---------------------------
2.2 Company Capital Structure .................................. 11
-------------------------
2.3 Authority .................................................. 12
---------
2.4 No Conflict ................................................ 12
-----------
2.5 Consents ................................................... 13
--------
2.6 Company Financial Statements ............................... 13
----------------------------
2.7 No Undisclosed Liabilities ................................. 13
--------------------------
2.8 No Changes ................................................. 13
----------
2.9 Tax Matters ................................................ 15
-----------
2.10 Restrictions on Business Activities ........................ 17
-----------------------------------
2.11 Title of Properties; Absence of Liens and Encumbrances ..... 17
------------------------------------------------------
2.12 Intellectual Property ...................................... 18
---------------------
2.13 Agreements, Contracts and Commitments ...................... 23
-------------------------------------
2.14 Interested Party Transactions .............................. 24
-----------------------------
2.15 Governmental Authorization ................................. 24
--------------------------
2.16 Litigation ................................................. 25
----------
2.17 Minute Books ............................................... 25
------------
2.18 Environmental Matters ...................................... 25
---------------------
2.19 Brokers' and Finders' Fees; Third Party Expenses ........... 25
------------------------------------------------
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
2.20 Employee Benefit Plan and Compensation ..................... 25
--------------------------------------
2.21 Insurance .................................................. 28
---------
2.22 Compliance with Laws ....................................... 29
--------------------
2.23 Representations Complete ................................... 29
------------------------
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB .............. 29
3.1 Organization, Standing and Power ........................... 29
--------------------------------
3.2 Authority .................................................. 29
---------
3.3 Consents ................................................... 30
--------
3.4 Parent Common Stock ........................................ 30
-------------------
3.5 SEC Reports; Financial Statements .......................... 30
---------------------------------
ARTICLE 4 CONDUCT PRIOR TO THE EFFECTIVE TIME ........................... 31
4.1 Conduct of Business of the Company ......................... 31
----------------------------------
4.2 No Solicitation ............................................ 33
---------------
ARTICLE 5 ADDITIONAL AGREEMENTS ......................................... 34
5.1 Information Statement; Other Filings ....................... 34
------------------------------------
5.2 Access to Information ...................................... 36
---------------------
5.3 Confidentiality ............................................ 37
---------------
5.4 Expenses ................................................... 37
--------
5.5 Public Disclosure .......................................... 37
-----------------
5.6 FIRPTA Compliance .......................................... 37
-----------------
5.7 Reasonable Efforts ......................................... 37
------------------
5.8 Notification of Certain Matters ............................ 38
-------------------------------
5.9 Additional Documents and Further Assurances ................ 38
-------------------------------------------
5.10 Nasdaq Listing ............................................. 38
--------------
5.11 Indemnification and Insurance .............................. 38
-----------------------------
5.12 Additional Shareholder Agreements .......................... 39
---------------------------------
ARTICLE 6 CONDITIONS TO THE REORGANIZATION .............................. 39
6.1 Conditions to Obligations of Each Party to Effect the Offer 39
-----------------------------------------------------------
6.2 Conditions to the Obligations of Parent and Sub ............ 40
-----------------------------------------------
6.3 Conditions to Obligations of the Company ................... 41
----------------------------------------
ARTICLE 7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW ............ 42
7.1 Survival of Representations, Warranties and Covenants ...... 42
-----------------------------------------------------
7.2 Indemnification ............................................ 42
---------------
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
----
7.3 Escrow Arrangements ........................................ 43
-------------------
7.4 Shareholder Representative ................................. 48
--------------------------
7.5 Maximum Payments; Remedy ................................... 50
------------------------
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER ............................. 50
8.1 Termination ................................................ 50
-----------
8.2 Effect of Termination ...................................... 51
---------------------
8.3 Amendment .................................................. 51
---------
8.4 Extension; Waiver .......................................... 51
-----------------
ARTICLE 9 GENERAL PROVISIONS ............................................ 52
9.1 Notices .................................................... 52
-------
9.2 Interpretation ............................................. 53
--------------
9.3 Counterparts ............................................... 53
------------
9.4 Entire Agreement; Assignment ............................... 54
----------------------------
9.5 Severability ............................................... 54
------------
9.6 Other Remedies ............................................. 54
--------------
9.7 Governing Law .............................................. 54
-------------
9.8 Rules of Construction ...................................... 54
---------------------
9.9 Alternative Structure ...................................... 54
---------------------
-iii-
<PAGE>
INDEX OF EXHIBITS
Exhibit Description
------- -----------
Exhibit A Form of Shareholder Agreement
Exhibit B Form of Amended and Restated Company Articles of Incorporation
Exhibit C Form of Legal Opinion of Counsel to the Company
Exhibit D Form of Legal Opinion of Counsel to Parent
<PAGE>
THIS RECAPITALIZATION AND EXCHANGE OFFER AGREEMENT AND AGREEMENT AND PLAN
OF REORGANIZATION (the "Agreement") is made and entered into as of March 7, 2000
---------
by and among Internet Capital Group, Inc., a Delaware corporation ("Parent"),
------
Rain Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("Sub"), RightWorks Corporation, a California corporation (the
---
"Company"), and, with respect to Article VII, Article VIII and Article IX
------- ----------- ------------- ----------
hereof, Suhas Patil (the "Shareholder Representative") and Chase Manhattan Trust
--------------------------
Company, National Association, as Escrow Agent (the "Escrow Agent").
------------
RECITALS
A. The Board of Directors of the Company believes that it is in the best
interests of the Company to consummate the Recapitalization (as hereinafter
defined).
B. The Board of Directors of Sub deems it advisable and in the best
interests of Sub and its shareholder, and the Board of Directors of the Company
deems it advisable and in the best interests of the Company and its
shareholders, for Sub to make the Offer (as defined herein).
C. A portion of the consideration otherwise payable by Parent in
connection with the Offer in respect of Series B Preferred Stock of the Company
shall be placed in escrow by Parent as security for the indemnification
obligations set forth in this Agreement.
D. Concurrent with the execution and delivery of this Agreement, as a
material inducement to Parent and Sub to enter into this Agreement, certain
shareholders of the Company are entering into shareholder agreements (the
"Shareholder Agreements"), with Parent.
- -----------------------
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
other promises set forth herein, the mutual benefits to be gained by the
performance thereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged and accepted, the parties
hereby agree as follows:
ARTICLE 0
THE RECAPITALIZATION AND
RECLASSIFICATION
0.1 The Reclassification. Prior to the Closing Date (as defined in Section
--------------------
1.2 hereof) and subject to and upon the terms and conditions of this Agreement
and the applicable processes of the
<PAGE>
California Corporation Code ("California Law"), the Company shall amend its
--------------
amended and restated articles of incorporation (as so amended, the "Articles"),
--------
in substantially the form attached hereto as Exhibit B, to provide for, among
---------
other things, two series of preferred stock, par value $.001 per share, and two
classes of common stock, par value $0.001 per share. Such classes shall be
designated "Series A Preferred Stock," "Series B Preferred Stock," "Class A
------------------------ ------------------------ -------
Common Stock" and "Class B Common Stock." The rights, privileges, restrictions
- ------------ --------------------
and preferences of the Series A Preferred Stock and the Series B Preferred Stock
shall be as set forth in the Amended and Restated Articles of Incorporation
attached hereto as Exhibit B. The relative rights, privileges, restrictions and
---------
preferences of the Class A Common Stock and the Class B Common Stock shall be
identical except that (i) each share of Class B Common Stock shall have a number
of votes per share such that the voting power of the shares of Series B
Preferred Stock to be exchanged pursuant to the Offer will represent more than
80% of the total voting power of all capital stock of the Company then
outstanding, and (ii) each share of Class B Common Stock shall be convertible
into one share of Class A Common Stock in certain circumstances, as specified in
the Articles. Prior to the Closing Date, the Company's existing shares of
outstanding common stock shall be reclassified and redesignated as shares of
Class A Common Stock.
0.2 The Recapitalization. Prior to the Closing Date and subject to and
--------------------
upon the terms and conditions of the Agreement and the applicable processes of
California Law, each outstanding share of Preferred shall be recapitalized and
converted into one share of Series B Preferred Stock (in the case of Series H,
H-1 and I) or into one-fifth of a share of Series B Preferred Stock (in the case
of Series A through G). Prior to the Closing Date, each of the Company's
existing shares of outstanding common stock shall be reclassified and
redesignated as one share of Class A Common Stock.
0.3 Options. Each of the then outstanding Company Options will by virtue of
-------
the Recapitalization, and without any further action on the part of any holder
thereof, be converted into an option to purchase the number of shares of the
class or series of Company capital stock that the holder of such Company Option
would have received in the Recapitalization in respect of the shares issuable
upon exercise of the Company Option had such holder exercised such Company
Option immediately prior to consummation of the Recapitalization. The aggregate
exercise price of the Company Option after consummation of the Recapitalization
will be the same as the aggregate exercise price that was applicable to such
Company Option prior to the Recapitalization. If the foregoing calculation
results in a post-Recapitalization Company Option being exercisable for a
fraction of a share of Company capital stock, then the number of shares of
Company capital stock subject to such option will be rounded down to the nearest
whole number of shares. The term, exercisability, vesting schedule, vesting
commencement date, status as an "incentive stock option" under Section 422 of
the Code, if applicable, and all other terms and conditions of the Company
Options will otherwise be unchanged.
0.4 Warrants. Each of the then outstanding Company Warrants will by virtue
--------
of the Recapitalization, and without any further action on the part of any
holder thereof, be converted into a
-2-
<PAGE>
warrant to purchase the number of shares of the class or series of Company
capital stock that the holder of such Company Warrant would have received in the
Recapitalization in respect of the shares issuable upon exercise of the Company
Warrant had such holder exercised such Company Warrant immediately prior to
consummation of the Recapitalization. The aggregate exercise price of the
Company Warrant after consummation of the Recapitalization will be the same as
the aggregate exercise price that was applicable to such Company Warrant prior
to the Recapitalization.
0.5 Bylaws. The Company By-laws shall be amended prior to the Closing Date
------
to provide that (i) any equity financing transaction (other than a public
offering) involving the issuance of capital stock representing more than ten
percent of the Company's outstanding shares of capital stock or (ii) any
business combination transaction involving the Company and any affiliate of
Parent not controlled by the Company shall require, in addition to any other
required approval, the approval of at least one member of the Company's Board of
Directors who is not affiliated with Parent in any manner other than such
director's relationships with the Company.
ARTICLE 1
THE OFFER
1.1 The Offer. (a) Upon the terms and subject to the conditions contained
---------
in this Agreement, as soon as practicable after the date the Registration
Statement referred to in paragraph (d) below is declared effective by the
Securities and Exchange Commission (the "SEC"), or, as soon as practicable after
---
Section 5.1(d) has become applicable, Sub shall, and Parent shall cause Sub to,
commence an offer (as amended or supplemented in accordance with this Agreement,
the "Offer") to exchange any and all shares of Common Stock, par value $.001 per
-----
share (the "Parent Common Stock"), of Parent for a number of shares of Series B
-------------------
Preferred Stock of the Company; provided, however, that Sub shall be under no
-------- -------
obligation (and Parent shall be under no obligation to cause Sub to) commence
the Offer in any jurisdiction where the making of such Offer would violate
applicable law. The initial expiration date of the Offer shall be the 20th
business day following the commencement of the Offer. The obligation of Sub to
consummate the Offer, to accept for exchange and to exchange any shares of
Series B Preferred Stock tendered pursuant to the Offer shall be subject to the
Minimum Condition (as defined below) and the other conditions set forth in this
Agreement.
As used herein, the "Minimum Condition" means the condition that not
-----------------
less than a number of shares of Series B Preferred Stock shall have been validly
tendered and not withdrawn prior to the expiration of the Offer that (i)
constitutes not less than 80% of the total voting power of the Company and (ii)
when added to any number of shares of capital stock of the Company that may then
be owned by Sub constitutes not less than 50% of the shares of Common Stock that
are issued and outstanding on the date of expiration of the Offer, calculated on
a fully-diluted basis (as defined below).
-3-
<PAGE>
The number of shares of Common Stock that are issued and outstanding
on any date "calculated on a fully-diluted basis" means (i) the number of shares
-----------------------------------
of Common Stock that are issued and outstanding on such date, whether vested or
unvested, plus (ii) the number of shares of Common Stock issuable pursuant to
any outstanding securities that are convertible into or exchangeable for shares
of Common Stock or any options, warrants or rights to purchase shares of Common
Stock or such securities, whether vested or unvested, that are issued and
outstanding on such date, plus (iii) the aggregate number of additional shares
of Common Stock that are authorized or reserved for issuance for grants of
options or restricted shares pursuant to any benefit or incentive plans
sponsored by the Company.
(b) The terms of the Offer will provide that all outstanding shares of
Series B Preferred Stock may be tendered by the holder thereof and, subject to
the terms and conditions of the Offer, will entitle the tendering shareholder to
receive for each share of Series B Preferred Stock validly tendered and not
withdrawn a number of shares of Parent Common Stock equal to the Exchange Ratio
(as defined in Section 1.9). No fraction of a share of Parent Common Stock will
be issued, but in lieu thereof, each holders of shares of Series B Preferred
Stock who would otherwise be entitled to a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall be entitled to receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction multiplied by (ii) $111.48 (the "Trading Price").
-------------
(c) Sub expressly reserves the right, in its sole discretion, to
modify and make changes to the terms and conditions of the Offer, provided that
--------
without the prior consent of the Company, no modification or change may be made
which (i) decreases the consideration payable in the Offer (except as permitted
by this Agreement), (ii) changes the form of consideration payable in the Offer
(other than by adding consideration), (iii) changes the Minimum Condition, (iv)
imposes additional material conditions to the Offer or (iv) is otherwise
inconsistent with the terms of this Agreement. Notwithstanding the foregoing,
Sub may (but shall not be required under this Agreement or otherwise to),
without the consent of the Company, (i) extend the Offer on one or more
occasions for such period as may be determined by Sub in its sole discretion
(each such extension period not to exceed 10 business days at a time), if at the
then scheduled expiration date of the Offer any of the conditions to Sub's
obligations to accept for exchange and exchange shares of Series B Preferred
Stock shall not be satisfied or waived, and (ii) extend the Offer for any period
required by any rule, regulation, interpretation or position of the SEC or the
staff thereof applicable to the Offer (including any extension necessary to
permit the Registration Statement to become effective). It is agreed that the
conditions to the Offer are for the benefit of Sub and may be asserted by Sub
regardless of the circumstances giving rise to any such condition (including any
action or inaction by Sub) or may be waived by Sub, in whole or in part at any
time and from time to time, in its sole discretion. On the terms and subject to
the conditions of the Offer and this Agreement, promptly after expiration of the
Offer, Sub shall accept for exchange and exchange, and Parent shall cause Sub to
accept for exchange and exchange, all shares of Series B Preferred Stock that
have been validly tendered and not withdrawn pursuant to the Offer that Sub
becomes obligated to exchange
-4-
<PAGE>
pursuant to the Offer. Neither Sub nor Parent will have any obligation to pay
interest on the purchase price for any shares of Series B Preferred Stock that
are tendered pursuant to the Offer.
(d) This paragraph shall be applicable unless Section 5.1(d) has
become applicable pursuant to the term hereof. As promptly as practicable
following the filing of Parent's Annual Report on Form 10-K for the year ended
December 31, 1999 with the SEC, but subject to the terms and conditions hereof,
Parent shall file with the SEC with respect to the Offer a Registration
Statement on Form S-4 (or, if Parent so elects, a post-effective amendment to a
previously filed Registration Statement on Form S-4) (together with all
amendments and supplements thereto and including the exhibits thereto, the
"Registration Statement" (it being understood that if Parent elects to file a
- -----------------------
post-effective amendment to an existing Registration Statement with respect to
the Offer, the term "Registration Statement" as used herein shall include only
such post-effective amendment and any amendments or supplements and exhibits
thereto)) with respect to the Offer, which shall include a Prospectus (or
Prospectus Supplement)/Offer to Exchange (together with the related letters of
transmittal and exhibits thereto, the "Offer Documents"). Parent will provide
---------------
the Company and the Company's counsel with a copy of the Registration Statement
for comment by the Company and its counsel not less than five days prior to the
initial filing thereof with the SEC and will provide the Company and the
Company's counsel with a copy of any amendment thereto a reasonable time prior
to the filing thereof with the SEC (taking into account the specific
circumstances of the filing of any such amendment and the need to complete such
filing on an expedited basis). Parent will use reasonable efforts to cause the
Registration Statement to become effective as soon as practicable following the
filing thereof with the SEC. Parent shall promptly provide the Company with a
true and complete copy of the Registration Statement filed with the SEC and all
supplements and amendments thereto. Subject to compliance by the Company and
any Shareholders with their obligations under this Agreement, Parent will cause
the Registration Statement to comply in all material respects with all
requirements of law and the rules and regulations of the SEC. Each of the
Company and each Shareholder agrees to provide Parent promptly upon request by
Parent with any information relating to the Company or such Shareholder that is
necessary or appropriate for inclusion in the Registration Statement under
applicable law or the rules and regulations of the SEC. The Company will cause
its independent auditors to provide Parent with a manually signed consent to
inclusion of the audit report of such auditors in the Registration Statement,
and will cause its independent auditors otherwise to reasonably cooperate in
providing information for inclusion in the Registration Statement. Parent
agrees to provide the Company and its counsel in writing any comments that
Parent or its counsel may receive from the SEC or its staff with respect to the
Registration Statement promptly after the receipt thereof. Each of the Company,
Parent and each Shareholder shall promptly correct any information provided by
it (or its legal counsel or other authorized representatives) for use in the
Registration Statement that shall have become false or misleading in any
material respect, and Parent further agrees to take all steps necessary to cause
such Registration Statement as so corrected to be filed with the SEC as and to
the extent required by applicable federal securities laws.
-5-
<PAGE>
(e) Sufficient Reserved Shares. Parent will reserve sufficient
--------------------------
shares of Parent Common Stock for issuance under this Section 1.1.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock or Preferred),
reorganization, recapitalization, reclassification or other like change with
respect to Parent Common Stock or Company Common Stock or Preferred occurring on
or after the date hereof and prior to the Closing Date, other than the
Recapitalization.
1.2 Company Actions.
---------------
(a) The Company hereby consents to the Offer and represents and
warrants that its Board of Directors, at a meeting duly called and held, has
duly adopted resolutions approving the Offer, this Agreement and the other
transactions contemplated hereby, determining that the terms of the Offer are
fair to, and in the best interests of, the Company's shareholders and
recommending acceptance of the Offer by the shareholders of the Company (as well
as, to the extent legally permissible, the Position Statement referred to in
paragraph (b) below). The Company hereby consents to the inclusion in the
Registration Statement and the Offer Documents of the recommendations of the
Company's Board of Directors described in this Section 1.2.
(b) No later than the date the Offer is commenced, the Company shall
publish, send or give, within the meaning of Rule 14e-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), a statement which shall
------------
comply in all material respects with the provisions of applicable federal
securities laws and will contain the above recommendations of the Board in favor
of the Offer, together with the reasons therefor (the "Position Statement"). The
-------------------
Company will use its reasonable efforts to provide Parent with a copy of the
Position Statement prior to the filing of the Registration Statement with the
SEC (if applicable) so that Parent can include the Position Statement as part of
the Offer Documents. The Company shall deliver the proposed form of the Position
Statement to Parent within a reasonable time prior to the filing of the
Registration Statement (if applicable) for review and comment by Parent and its
counsel. Parent and its counsel shall be given a reasonable opportunity to
review any amendments and supplements to the Position Statement prior to
dissemination to shareholders of the Company. The Company agrees to provide
Parent and its counsel in writing any comments that the Company or its counsel
may receive from the SEC or its staff with respect to the Position Statement
promptly after receipt thereof. Each of the Company, Parent and each Shareholder
shall promptly correct any information provided by it for use in the Position
Statement that shall have become false or misleading in any material respect and
the Company further agrees to take all steps necessary to cause such Position
Statement as so corrected to be disseminated to the shareholders of the Company,
as and to the extent required by applicable federal securities laws.
-6-
<PAGE>
1.3 Shareholder Lists. In connection with the Offer, the Company shall
-----------------
promptly furnish to, or cause to be furnished to, Parent and Sub any available
listing or computer file containing the names and addresses of the record
holders of shares of Series B Preferred Stock (and any other capital stock of
the Company and any securities convertible into or exchangeable for capital
stock of the Company and any options, warrants or rights to purchase such stock
or securities) as of a recent date and of those persons becoming record holders
subsequent to such date (to the extent available), together with all other
information in the Company's possession or control regarding the number of
shares owned by the shareholders of the Company and shall furnish Parent and Sub
with such information and assistance as Parent, Sub or their respective agents
may reasonably request in communicating the Offer to the record and beneficial
holders of shares of Series B Preferred Stock. Subject to the requirements of
law, and except for such steps as are necessary to disseminate the Offer
Documents and any other documents necessary to consummate the Offer, Parent and
Sub shall, and shall cause each of their affiliates to, hold the information
contained in any of such labels and lists in confidence, use such information
only in connection with the Offer, and, if this Agreement is terminated, deliver
to the Company all copies of such information or extracts therefrom then in
their possession or under their control.
1.4 Closing Date. Unless this Agreement is earlier terminated pursuant to
------------
Section 8.1 hereof, the closing for the transactions contemplated hereby (the
- -----------
"Closing") shall take place on not less than two business days prior written
-------
notice to the Company on the day after the date that the Offer expires and the
shares of Common Stock validly tendered and not withdrawn pursuant to the Offer
are accepted for exchange by Sub at the offices of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Spear Street Tower, One Market, San Francisco,
California, 94105, unless another time and/or place is mutually agreed upon in
writing by Parent and the Company. The date upon which the Closing actually
occurs shall be referred to herein as the "Closing Date."
------------
1.5 Lost, Stolen or Destroyed Certificates. The Offer Documents will
--------------------------------------
provide that holders of shares of Series B Preferred Stock that are represented
by certificates that have been lost, stolen or destroyed will be permitted to
tender their shares pursuant to the Offer upon the making of an affidavit of
that fact by the holder thereof and the delivery of a customary indemnification
agreement executed by such holder indemnifying Sub, Parent and the Company
against any claim that may be made against any of such parties with respect to
the certificates alleged to have been lost, stolen or destroyed.
1.6 Tax Consequences. It is intended by the parties hereto that the Offer
----------------
shall constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
----
1.7 Lock-up. Notwithstanding Parent's agreement to register the shares of
-------
Parent Common Stock pursuant to Section 5.1 hereof, each share of Parent Common
-----------
Stock issued to the Series B Shareholders hereunder may not be sold,
transferred, hypothecated, pledged, be the subject of an equity swap or similar
agreement or otherwise transferred (collectively, a "Disposition") without the
-----------
-7-
<PAGE>
prior written consent of Parent, prior to the expiration of 180 days after the
Closing Date; provided, however, that a Series B Shareholder may dispose of
-------- -------
one-half (50%) of the shares of Parent Common Stock received in the Offer after
the expiration of ninety days after the Closing Date. Parent may, in its sole
discretion, legend the certificates representing such shares of Parent Common
Stock to give effect to this Section 1.7 and place stop transfer instructions
with Parent's stock transfer agent to enforce this Section 1.7.
1.8 Performance Warrants. Upon each Lapse Event:
--------------------
(a) The Company will issue to Parent a number of shares of Series B
Preferred Stock equal to the FD Amount in exchange for an amount of cash equal
to the per share par value of the Series B Preferred Stock multiplied by the
number of shares to be so issued; and
(b) Parent will issue to each shareholder of record of the Company
immediately prior to the Closing Date such Shareholder's Pro Rata Portion of a
number of shares of Parent Common Stock equal to the RV Amount. No fraction of a
share of Parent Common Stock will be issued, but in lieu thereof, each Person
who would otherwise be entitled to a fraction of a share of Parent Common Stock
(after aggregating all fractional shares of Parent Common Stock to be received
by such holder) shall be entitled to receive from Parent an amount of cash
(rounded to the nearest whole cent) equal to the product of (i) such fraction,
multiplied by (ii) the Trading Price.
1.9 Definitions. For all purposes of this Agreement, the following terms
-----------
shall have the following respective meanings:
"Company Common Stock" shall mean shares of common stock, $.01
--------------------
par value, of the Company, outstanding prior to the Recapitalization.
"Company Material Adverse Effect" shall mean, for purposes of
-------------------------------
this Agreement, any change, event or effect that is materially adverse to the
business, assets (including intangible assets), financial condition or results
of operations of the Company and its subsidiaries, taken as a whole; provided,
however, that no change, event or effect relating to (i) the economy or
securities markets of the United States or the Company's industry in general (so
long as it does not affect the Company in a disproportionate manner), (ii) an
adverse effect on the Company directly attributable to the announcement or
pendency of the transactions contemplated hereby or (iii) the failure to obtain
applicable regulatory or other third party consents that are required under the
Agreement shall in and of itself constitute a Company Material Adverse Effect.
"Company Options" shall mean all issued and outstanding
---------------
options to purchase or otherwise acquire Preferred or Company Common Stock
(whether or not vested) held by any person or entity.
"Company Warrants" shall mean all issued and outstanding
----------------
warrants to purchase Preferred or Company Common Stock (whether or not vested)
held by any person or entity.
-8-
<PAGE>
"Escrow Amount" shall mean an amount of Parent Common Stock
-------------
equal to 10% of the shares of Parent Common Stock issued pursuant to Section
1.1.
"Exchange Ratio" shall mean the quotient of (a) the Per Share
--------------
Value divided by (b) the Trading Price.
"FD Amount" means, with respect to each Lapse Event, the
---------
number of shares of the Series B Preferred stock of the Company that have become
unexercisable (or that can no longer become exercisable) under the Performance
Warrants as a result of such Lapse Event.
"GAAP" shall mean United States generally accepted accounting
----
principles consistently applied.
"Lapse Event" shall mean the lapse, cancellation or
-----------
termination after the Closing Date of all or a portion of a Performance Warrant
without exercise thereof or any event or circumstance that renders all or any
portion of a Performance Warrant unexercisable (or no longer able to become
exercisable).
"Parent Common Stock" shall mean shares of common stock, par
-------------------
value $0.001 per share, of Parent.
"Parent Material Adverse Effect" shall mean, for purposes of
------------------------------
this Agreement, any change, event or effect that is materially adverse to the
business, assets (including intangible assets), financial condition or results
of operations of the Parent and its subsidiaries, taken as a whole, provided,
however, that neither (A) a change, event or effect relating to (i) the economy
or securities markets of the United States or Parent's industry in general (so
long as it does not affect Parent in a disproportionate manner), (ii) an adverse
effect on Parent directly attributable to the announcement or pendency of the
transactions contemplated hereby or (iii) the failure to obtain applicable
regulatory or other third party consents that are required under the Agreement
or (B) a decline in Parent's common stock price or Parent's failure to meet Wall
Street research analyst expectations shall in and of itself constitute a Parent
Material Adverse Effect.
"Performance Warrants" shall mean the warrants to purchase
--------------------
Preferred presently held by: Aspect Development Corporation (800,000 shares of
Series I Preferred Stock); Computer Sciences Corporation (200,000 shares of
Series I Preferred Stock); i2 Technologies, Inc. (1,350,536 shares of Series H
Preferred Stock); and Wells Fargo & Company (50,000 shares of Series I
Preferred Stock).
"Per Share Value" shall mean the quotient of (A) $1.25 billion
---------------
divided by (B) the sum of (x) the number of shares of Company Common Stock that
are issued and outstanding immediately prior to the Closing Date plus (y) the
number of shares of Company Common Stock issuable upon conversion or exercise
in full of all convertible securities or options (vested and
-9-
<PAGE>
unvested), warrants or other rights to acquire Company Common Stock that are
outstanding immediately prior to the Closing Date.
"Preferred" shall mean the Company's Series A Preferred
---------
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock, Series F Preferred Stock, Series G Preferred
Stock, Series H Preferred Stock, Series H-1 Preferred Stock and Series I
Preferred Stock.
"Pro Rata Portion" shall mean with respect to each Company
----------------
shareholder an amount equal to the quotient obtained by dividing (x) the sum of
the number of shares of Company Common Stock owned by such shareholder as of
the Closing Date, whether or not vested, and the number of shares of Company
Common Stock issuable pursuant to any securities owned by such shareholder that
are convertible into or exercisable for shares of Company Common Stock (but not
the Company Options or Company Warrants) by (y) the sum of the aggregate number
of shares of Company Common Stock owned by all Company shareholders as of the
Closing Date, whether or not vested, and the number of shares of Company Common
Stock issuable pursuant to any securities owned by all Company shareholders that
are convertible into or exercisable for shares of Company Common Stock (but not
the Company Options or Company Warrants).
"Recapitalization" as used herein, the term "Recapitalization"
---------------- ----------------
means the reclassification, recapitalization and other actions specified in
this Article 0.
---------
"RV Amount" means, with respect to each Lapse Event, the
---------
related FD Amount multiplied by the Exchange Ratio.
"Series B Shareholder" shall mean each holder of any Company
--------------------
Series B Preferred Stock immediately prior to the Closing Date who exchanges
any of such Series B Preferred Stock pursuant to the Offer.
1.10 Taking of Necessary Action; Further Action. If at any time after the
------------------------------------------
Closing Date, any further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Company with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the Company, Parent, Sub, and the officers and directors of the Company, Parent
and Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company hereby represents and warrants to Parent and Sub, subject to
such exceptions as are specifically disclosed in the disclosure letter
(referencing the appropriate section and
-10-
<PAGE>
paragraph numbers or the relevance of which exceptions to other sections of this
Agreement is otherwise reasonably apparent on the face of such exceptions)
supplied by the Company to Parent (the "Company Disclosure Schedule") and dated
---------------------------
as of the date hereof, that on the date hereof as follows.
2.1 Organization of the Company. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as currently conducted and as currently contemplated to be
conducted. The Company is duly qualified or licensed to do business and in good
standing as a foreign corporation in each jurisdiction in which it conducts
business except where the failure to so qualify would not have a Company
Material Adverse Effect. The Company has delivered a true and correct copy of
its articles of incorporation and bylaws, each as amended to date and in full
force and effect on the date hereof, to Parent. The operations now being
conducted by the Company are not now and have never been conducted by the
Company under any other name.
2.2 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists of
100,000,000 shares of Common Stock, of which 7,249,020 shares are issued and
outstanding as of the date hereof, and 87,276,219 shares of Preferred, of which
3,000,000 shares have been designated Series A Preferred Stock, 4,946,000 shares
have been designated Series B Preferred Stock, 9,139,485 shares have been
designated Series C Preferred Stock, 7,838,085 shares have been designated
Series D Preferred Stock, 14,417,093 shares have been designated Series E
Preferred Stock, 35,000,000 shares have been designated Series F Preferred
Stock, 1,000,000 shares have been designated Series G Preferred Stock, 8,428,935
shares have been designated Series H Preferred Stock, 6,621 shares have been
designated Series H-1 Preferred Stock, and 3,500,000 shares have been designated
Series I Preferred Stock, of which 3,000,000, 4,946,000, 9,139,485, 7,838,085,
12,700,370, 34,681,280, 935,616, 5,845,938, no and 2,449,407 shares are issued
and outstanding as of the date hereof, respectively. The Company Common Stock
and Preferred is held by the persons and in the amounts set forth in Section
-------
2.2(a) of the Company Disclosure Schedule. All outstanding shares of Company
- ------
Common Stock and Preferred are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
articles of incorporation or bylaws of the Company, and were issued free of any
similar rights under any agreement to which the Company is a party or by which
it is bound, and have been issued in compliance with federal and state
securities laws. There are no declared or accrued but unpaid dividends with
respect to any shares of Company Common Stock or Preferred. The Company has no
other capital stock authorized, issued or outstanding.
(b) Except for the Plan, the Company has never adopted or maintained
any stock option plan or other plan providing for equity compensation of any
person. The Company currently has reserved 2,943,787 shares of Company Common
Stock for future issuance to employees, contract workers and directors of, and
consultants to, the Company upon the exercise of options,
-11-
<PAGE>
including 2,432,146 shares subject to options outstanding as of the date hereof.
Section 2.2(b) of the Company Disclosure Schedule sets forth for each
- --------------
outstanding Company Option and each outstanding Warrant, the name of the holder
of such Company Option or Warrant and the number of shares and class of Company
Common Stock issuable upon the exercise of such Company Option or Warrant.
Except for the Company Options and Warrants, there are no options, warrants,
calls, rights, commitments or agreements of any character, written or oral, to
which the Company is a party or by which it is bound obligating the Company to
issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights with
respect to the Company. Except as contemplated hereby, there are no voting
trusts, proxies, or other agreements or understandings with respect to the
voting stock of the Company.
2.3 Authority. The Company has all requisite corporate power and authority
---------
to enter into this Agreement and any Related Agreements (as hereinafter defined
in this Section 2.3) to which it is a party and to consummate the transactions
-----------
contemplated hereby and thereby, subject to approval of this Agreement, the
Recapitalization and the Offer by its shareholders. The execution and delivery
of this Agreement and any Related Agreements to which the Company is a party and
the consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of the Company,
and no further action is required on the part of the Company to authorize this
Agreement and any Related Agreements to which it is a party and the transactions
contemplated hereby and thereby, subject only to the approval of this Agreement
and the Offer by its shareholders. This Agreement, the Recapitalization and the
Offer have been unanimously approved by the Board of Directors of the Company.
This Agreement and each of the Related Agreements to which the Company is a
party has been duly executed and delivered by the Company and assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as such
enforceability may be subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. For all
purposes of this Agreement, the term "Related Agreements" shall mean the
------------------
Shareholder Agreements, agreements necessary effectuate the Recapitalization.
2.4 No Conflict. The execution and delivery by the Company of this
-----------
Agreement and any Related Agreement to which the Company is, or will be, a
party, and the consummation of the transactions contemplated hereby and thereby,
will not conflict with or result in any violation of or default under (with or
without notice or lapse of time, or both) or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
--------
the articles of organization or bylaws of the Company, (ii) any mortgage,
indenture, lease, contract, covenant or other agreement, instrument or
commitment, permit, concession, franchise or license to which the Company or any
of its properties
-12-
<PAGE>
or assets (including intangible assets), is subject, or (iii) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its properties (tangible and intangible) or assets except with
respect to such conflicts, violations or defaults, in the case of clause (ii),
that would not in the aggregate have a Company Material Adverse Effect.
2.5 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission (each, a "Governmental Entity")
-------------------
is required by or with respect to the Company in connection with the execution
and delivery of this Agreement and any Related Agreement to which the Company
is, or will be, a party or the consummation of the transactions contemplated
hereby and thereby, except for (i) orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws,
(ii) the filing of the Amended and Restated Articles with the Secretary of State
of the State of California, (iii) the expiration or early termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR
---
Act") and (iv) such other consents, waivers, approvals, orders, authorizations,
- ---
registrations, declarations or filings which if not obtained or made would not
have a Company Material Adverse Effect or otherwise have a material adverse
effect on the ability of the parties to consummate the Offer.
2.6 Company Financial Statements. The Company has provided to Parent its
----------------------------
unaudited balance sheet as of December 31, 1999 (the "Current Balance Sheet"),
---------------------
and the related unaudited statements of income, cash flow and stockholders'
equity for the twelve-month period ended December 31, 1999 (collectively,
including the Current Balance Sheet, the "Financials"). The Financials have been
----------
prepared in accordance with GAAP consistently applied. The Financials present
fairly the financial condition, operating results and cash flows of the Company
as of the date and during the periods indicated therein.
2.7 No Undisclosed Liabilities. The Company has no liability, indebtedness,
--------------------------
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other, that are
required to be reflected in financial statements in accordance with GAAP, except
for liabilities (i) reflected and specifically quantified on the Current Balance
Sheet or (ii) liabilities that have arisen in the ordinary course of business
consistent with past practices since December 31, 1999, none of which involves
indebtedness for borrowed money.
2.8 No Changes. Between December 31, 1999 and the date of this Agreement,
----------
there has not been, occurred or arisen any:
(a) amendments or changes to the articles of organization or bylaws
of the Company (except as required hereby);
(b) capital expenditure or commitment by the Company exceeding
$100,000 individually or $500,000 in the aggregate;
-13-
<PAGE>
(c) payment, discharge or satisfaction, in any amount in excess of
$100,000 in any one case, or $300,000 in the aggregate, of any claim, liability
or obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than payment, discharge or satisfaction in the ordinary course
of business of liabilities reflected or reserved against in the Current Balance
Sheet;
(d) destruction of or loss of any material assets of the Company
(whether or not covered by insurance);
(e) claim of wrongful discharge or other unlawful labor practice or
action or any attempt to unionize employees;
(f) change in accounting methods or practices (including any change
in depreciation or amortization policies or rates) by the Company other than as
required by GAAP;
(g) change in any material election in respect of Taxes (as defined
below), adoption or change in any material accounting method in respect of
Taxes, agreement or settlement of any material claim or assessment in respect of
Taxes, or extension or waiver of the limitation period applicable to any claim
or assessment in respect of Taxes;
(h) material revaluation by the Company of any of its assets;
(i) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any Company
Common Stock or Preferred, or any split, combination or reclassification in
respect of any shares of Company Common Stock or Preferred, or any issuance or
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for shares of Company Common Stock or Preferred, or any
direct or indirect repurchase, redemption, or other acquisition by the Company
of any shares of Company Common Stock or Preferred (or options, warrants or
other rights convertible into, exercisable or exchangeable therefor), except for
the issuance of Company Options or other securities of the Company set forth in
Section 2.2 of the Company Disclosure Schedule or issuance of shares of Company
- -----------
Common Stock in accordance with the agreements evidencing Company Options;
(j) increase in the salary or other compensation payable or to
become payable by the Company to any of its officers, directors, employees,
contract workers or advisors, or the declaration, payment or commitment or
obligation of any kind for the payment by the Company of a severance payment,
termination payment, bonus or other additional salary or compensation to any
such person;
(k) sale, lease, license (outside of the ordinary course of
business) or other disposition of any of the material assets or material
properties of the Company or any creation of any security interest in such
material assets or material properties;
(l) loan by the Company to any person or entity (other than pursuant
to the terms of the Plan in connection with the exercise of any Company
Options), incurring by the Company of any
-14-
<PAGE>
indebtedness, guaranteeing by the Company of any indebtedness, issuance or sale
of any debt securities of the Company or guaranteeing of any debt securities of
others, except for advances to employees or contract workers for travel and
business expenses in the ordinary course of business consistent with past
practices;
(m) waiver or release of any material right or claim of the Company,
including any write-off of any account receivable of the Company in excess of
$50,000;
(n) commencement, settlement, receipt of written notice of, or to
the knowledge of the Company overt threat of, any lawsuit or proceeding or other
investigation against the Company or its affairs;
(o) agreement or modification to any agreement pursuant to which any
other party was granted marketing, distribution or similar rights of any type or
scope with respect to any products or technology of the Company outside of the
ordinary course of business;
(p) any Company Material Adverse Effect; or
(q) agreement by the Company or any officer or employee on behalf of
the Company to do any of the things described in the preceding clauses (a)
through (o) of this Section 2.8 (other as required by this Agreement).
-----------
2.9 Tax Matters.
-----------
(a) Definition of Taxes. For the purposes of this Agreement, the
-------------------
term "Tax" or, collectively, "Taxes" shall mean (i) any and all federal, state,
--- -----
local and foreign taxes and other assessments, governmental charges, duties,
impositions and liabilities in the nature of a tax, including taxes based upon
or measured by gross receipts, income, profits, sales, use and occupation, and
value added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts, (ii) any liability for the
payment of any amounts of the type described in clause (i) of this Section
-------
2.9(a) as a result of being a member of an affiliated, consolidated, combined or
- ------
unitary group for any period, and (iii) any liability for the payment of any
amounts of the type described in clauses (i) or (ii) of this Section 2.9(a) as a
--------------
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) As of the Closing Date, the Company will have timely
filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all Taxes
-------
concerning or attributable to the Company or its operations
-15-
<PAGE>
and such Returns are true and correct in all material respects and have been
completed in all material respects in accordance with applicable law.
(ii) As of the Closing Date, the Company (A) will have timely
paid or accrued on its books all Taxes it is required to pay and will have
withheld with respect to its employees and contract workers all federal and
state income taxes, Federal Insurance Contribution Act ("FICA"), Federal
----
Unemployment Tax Act ("FUTA") and other Taxes required to be withheld and will
----
have, within the time and manner prescribed by law, withheld and paid over to
the proper governmental authorities all amounts required to be withheld and paid
over under all applicable laws, and (B) will have accrued on the Current Balance
Sheet all unpaid Taxes attributable to the periods preceding the date of the
Current Balance Sheet and will not have incurred any liability for Taxes for the
period commencing on the date of the Current Balance Sheet and ending
immediately prior to the Closing Date, other than in the ordinary course of
business.
(iii) There is no Tax deficiency outstanding, assessed or
proposed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax, which waiver remains in effect.
(iv) No audit or other examination of any Return of the Company
is presently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company has made available to Parent or its legal
counsel, copies of all foreign, federal, state and local income and all state
and local sales and use Returns for the Company filed for all periods since the
taxable year ended December 31, 1996.
(vi) There are (and immediately following the Closing Date there
will be) no material liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort (collectively,
"Liens") on the assets of the Company relating to or attributable to Taxes other
-----
than Liens for Taxes not yet due and payable.
(vii) Neither the Company nor any Principal Stockholder has
knowledge of any assertion of any claim relating or attributable to Taxes which,
if adversely determined, would result in any material Lien on the assets of the
Company.
(viii) None of the Company's assets is treated as "tax-exempt use
property," within the meaning of Section 168(h) of the Code.
(ix) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
-16-
<PAGE>
(x) The Company (i) has never been a member of an affiliated
group filing a consolidated federal income Tax Return (other than a consolidated
group the common parent of which is the Company), (ii) is not a party to any Tax
sharing or Tax allocation agreement, arrangement, or understanding, (iii) is not
liable for the Taxes of any other person under Treasury Regulation 1.1502-6 (or
any similar provision of state, local or foreign law), as a transferee or
successor, by contract or otherwise, and (iv) is not a party to any joint
venture, partnership or other arrangement that could be treated as a partnership
for income Tax purposes.
(xi) The Company is not, and has not been at any time during the
period specified in Section 897(c)(1)(A)(ii), a "United States Real Property
Holding Corporation" within the meaning of Section 897(c)(2) of the Code.
(xii) No adjustment relating to any Return filed by the Company
has been proposed formally or, to the knowledge of the Company, informally by
any Tax authority to the Company or any representative thereof.
(xiii) Neither the Company nor any of its subsidiaries has
constituted either a "distributing corporation" or a "controlled corporation" in
a distribution of stock qualifying for tax-free treatment under Section 355 of
the Code (i) in the two years prior to the date of this Agreement or (ii) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Offer.
(c) Executive Compensation Tax. There is no contract, agreement, plan
--------------------------
or arrangement to which the Company is a party, including, without limitation,
the provisions of this Agreement, covering any employee, former employee or
contract worker of the Company, which, individually or collectively, could give
rise to the payment of any amount that would not be deductible pursuant to
Sections 280G, 404 or 162(m) of the Code.
2.10 Restrictions on Business Activities. There is no agreement
-----------------------------------
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
may reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of the Company or the conduct of business by the
Company. Without limiting the generality of the foregoing, the Company has not
entered into any agreement under which the Company is restricted from selling,
licensing or otherwise distributing any of its technology or products to or
providing services to, customers or potential customers or any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.11 Title of Properties; Absence of Liens and Encumbrances. The Company
------------------------------------------------------
owns no real property, nor has it ever owned any real property. The Company has
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets, real,
personal and mixed, used or held for use in its business, free and clear of any
Liens, except (i) as reflected in the Current Balance Sheet, (ii) Liens for
Taxes not yet due and payable, (iii)
-17-
<PAGE>
security interests incurred in connection with the purchase of property or
assets after the date of the Current Balance Sheet in compliance with this
Agreement, with respect to which no default exists, and (iv) such imperfections
of title and encumbrances, if any, which do not materially detract from the
value or interfere with the present use of the property subject thereto or
affected thereby.
2.12 Intellectual Property.
---------------------
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
(i) "Technology" shall mean any or all of the following: (A)
----------
works of authorship including, without limitation, computer programs, source
code and executable code, whether embodied in software, firmware or otherwise,
documentation, designs, files, net lists, records, data and mask works; (B)
inventions (whether or not patentable), improvements, and technology; (C)
proprietary and confidential information, including technical data and customer
and supplier lists, trade secret and know how; (D) databases, data compilations
and collections and technical data; (E) logos, trade names, trade dress,
trademarks, service marks; (F) World Wide Web addresses, domain names and sites;
(G) tools, methods and processes; and (H) all instantiations of the foregoing in
any form and embodied in any media.
(ii) "Intellectual Property Rights" shall mean any or all of the
----------------------------
following and all rights in, arising out of, or associated therewith: (A) all
United States and foreign patents and utility models and applications therefor
and all reissues, divisions, re-examination, renewals, extensions, provisionals,
continuations and continuations-in-part thereof, and equivalent or similar
rights anywhere in the world in inventions and discoveries including without
limitation invention disclosures ("Patents"); (B) all trade secrets and other
-------
rights in know-how and confidential or proprietary information; (C) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world ("Copyrights"); (D) all mask
----------
works, mask work registrations and applications therefor, and any equivalent or
similar rights in semiconductor masks, layouts, architectures or topology
("Maskworks"), (E) all industrial designs and any registrations and applications
---------
therefor throughout the world; (F) all rights in World Wide Web addresses and
domain names and applications and registrations thereof; and (G) all trade
names, logos, common law trademarks and service marks, trademark and service
mark registrations and applications therefor and all goodwill associated
therewith throughout the world ("Trademarks").
----------
(iii) "Company Intellectual Property" shall mean any Technology
-----------------------------
and Intellectual Property Rights including the Company Registered Intellectual
Property Rights (as defined below) that are owned (in whole or in part) by or
exclusively licensed to the Company.
(iv) "Registered Intellectual Property Rights" shall mean all
---------------------------------------
United States, international and foreign: (A) Patents, including filed
applications therefor; (B) registered Trademarks, filed applications to register
Trademarks, including intent-to-use applications, or other registrations or
applications related to Trademarks; (C) Copyrights registrations and filed
-18-
<PAGE>
applications to register Copyrights; (D) Maskwork registrations and filed
applications to register Maskworks; and (E) any other Technology that is the
subject of a filed application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or other
public or private legal authority at any time in order to obtain, maintain or
otherwise protect the Intellectual Property Rights therein.
(v) For all purposes in this Section 2.12, the term "Company"
-------
shall be deemed to refer to both Company and its subsidiaries.
(b) Section 2.12 (b) of the Disclosure Schedule lists all Registered
----------------
Intellectual Property Rights owned by, filed in the name of, or applied for, by
the Company (the "Company Registered Intellectual Property Rights") and lists
-----------------------------------------------
any proceedings or actions before any court, tribunal (including the United
States Patent and Trademark Office (the "PTO") or equivalent authority anywhere
---
in the world) of which the Company has knowledge that are related to any of the
Company Registered Intellectual Property Rights or Company Intellectual
Property.
(c) Each item of Company Registered Intellectual Property Rights is
valid and subsisting, and all necessary registration, maintenance and renewal
fees in connection with such Company Registered Intellectual Property Rights
have been paid and all necessary documents and certificates in connection with
such Company Registered Intellectual Property Rights have been filed with the
relevant patent, copyright, trademark or other authorities in the United States
or foreign jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property Rights. Except as set forth on Section
-------
2.12(c) of the Disclosure Schedule, there are no actions that must be taken by
- -------
the Company within one hundred twenty (120) days of the Closing Date, including
the payment of any registration, maintenance or renewal fees or the filing of
any responses to PTO office actions, documents, applications or certificates for
the purposes of obtaining, maintaining, perfecting or preserving or renewing any
Registered Intellectual Property Rights. In each case in which the Company has
purchased (as opposed to licensed) any Technology or Intellectual Property Right
from any person, the Company or such Subsidiary has obtained a valid and
enforceable assignment sufficient to irrevocably transfer all rights in such
Technology and the associated Intellectual Property Rights (including the right
to seek future damages with respect thereto) to the Company. To the maximum
extent provided for by, and in accordance with, applicable laws and regulations,
the Company has recorded each such assignment of a Registered Intellectual
Property Right assigned to the Company with the relevant Governmental Entity,
including the PTO, the U.S. Copyright Office, or their respective equivalents in
any relevant foreign jurisdiction, as the case may be. Except as set forth on
Section 2.12(c) of the Disclosure Schedule, the Company has not claimed a
- ---------------
particular status, including "Small Business Status," in the application for any
Intellectual Property Rights, which claim of status was not at the time made, or
which has since become, inaccurate or false or that will no longer be true and
accurate as a result of the Closing.
-19-
<PAGE>
(d) The Company has no knowledge of any facts or circumstances that
would render any Company Intellectual Property invalid or unenforceable. Without
limiting the foregoing, Company knows of no information, materials, facts, or
circumstances, including any information or fact that would constitute prior
art, that would render any of the Company Registered Intellectual Property
Rights invalid or unenforceable, or would have a material adverse effect on any
pending application for any Company Registered Intellectual Property Right and
the Company has not misrepresented, or failed to disclose, and has no knowledge
of any misrepresentation or failure to disclose, any fact or circumstances in
any application for any Company Registered Intellectual Property Right that
would constitute fraud or a misrepresentation with respect to such application
or that would otherwise affect the validity or enforceability of any Company
Registered Intellectual Property Right.
(e) Each item of Company Intellectual Property is free and clear of
any Liens except for non-exclusive licenses granted to end-user customers in the
ordinary course of business. The Company is the exclusive owner or exclusive
licensee of all Company Intellectual Property. Without limiting the foregoing:
(i) the Company is the exclusive owner of all Trademarks used in connection with
the operation or conduct of the business of the Company, including the sale,
licensing, distribution or provision of any products or services by the Company;
and (ii) the Company either owns exclusively, and has good title to, or has
valid and subsisting license rights to, all Copyrights that are products of the
Company or which the Company otherwise purports to own.
(f) At the Closing Date, all Company Intellectual Property will be
fully transferable, alienable or licensable by Company without restriction and
without payment of any kind to any third party.
(g) To the extent that any Company Technology has been developed or
created by a third party for the Company, the Company has a written agreement
with such third party with respect thereto and the Company thereby either (i)
has obtained ownership of, and is the exclusive owner of, or (ii) has obtained a
license (sufficient for the conduct of its business as currently conducted) to
all such third party's Intellectual Property Rights in such Technology by
operation of law or by valid assignment, to the fullest extent it is legally
possible to do so.
(h) Except as set forth on Section 2.12(h) of the Disclosure Schedule
---------------
and with exception of "shrink-wrap" or similar widely-available commercial
end-user licenses, all Technology used in or necessary to the conduct of
Company's business as presently conducted by the Company has been licensed or
purchased by the Company or was written and created solely by either (i)
employees of the Company acting within the scope of their employment or (ii) by
third parties who have validly and irrevocably assigned all of their rights,
including Intellectual Property Rights therein, to the Company, and no third
party owns or has any rights to any of the Company Intellectual Property (other
than licenses of Company Intellectual Property exclusively licensed to the
Company), except for those rights, such as "moral" rights that under the laws of
any applicable jurisdiction may not be assigned.
-20-
<PAGE>
(i) All employees of the Company have entered into a valid and binding
written agreement with the Company sufficient to vest title in the Company of
all Technology, including all accompanying Intellectual Property Rights, created
by such employee in the scope of his or her employment with the Company.
(j) The Company has taken reasonable precautions to protect the
Company's rights in confidential information and trade secrets of the Company or
provided by any other person to the Company. Without limiting the foregoing, the
Company has, and enforces, a policy requiring each employee, consultant and
contractor of the Company to execute a proprietary information, confidentiality
and assignment agreement, substantially in the form attached hereto as Section
-------
2.12(j) of the Disclosure Schedule, and all current and former employees,
- -------
consultants and contractors of the Company have executed such an agreement.
(k) Except as set forth on Section 2.12(k) of the Disclosure Schedule,
---------------
no person who has licensed Technology or Intellectual Property Rights to the
Company has ownership rights or license rights to improvements made by the
Company in such Technology or Intellectual Property Rights.
(l) The Company has not transferred ownership of, or granted any
exclusive license to or exclusive right to use, or authorized the retention of
any exclusive rights to use or joint ownership of, any Technology or
Intellectual Property Right that is Company Intellectual Property, to any other
person.
(m) Other than inbound "shrink-wrap" and similar publicly available
commercial end-user licenses and outbound licenses granted in the ordinary
course of business, Section 2.12(m) of the Disclosure Schedule lists all current
---------------
contracts, licenses and agreements to which the Company is a party with respect
to any Technology or Intellectual Property Rights sufficient for the conduct of
its business as currently conducted or proposed to be conducted. The Company is
not in material breach of nor has the Company failed to perform in any material
respect under, any of the foregoing contracts, licenses or agreements and, to
the Company's knowledge, no other party to any such contract, license or
agreement is in breach thereof or has failed to perform thereunder.
(n) Section 2.12(n) of the Disclosure Schedule lists all material
---------------
contracts, licenses and agreements between the Company and any other person
wherein or whereby the Company has agreed to, or assumed, any obligation or duty
to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or
incur any obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property Rights of any person other than the Company.
(o) To the knowledge of the Company, there are no contracts, licenses
or agreements between the Company and any other person with respect to Company
Intellectual Property under which there is any dispute regarding the scope of
such agreement, or performance under such
-21-
<PAGE>
agreement, including with respect to any payments to be made or received by the
Company thereunder.
(p) The operation of the business of the Company as it currently is
conducted or is contemplated to be conducted by the Company, including but not
limited to the design, development, use, import, branding, advertising,
promotion, marketing, manufacture and sale of the products, technology or
services (including products, technology or services currently under
development) of the Company does not and will not and will not when conducted by
the Company in substantially the same manner following the Closing, infringe or
misappropriate any presently existing Intellectual Property Right of any person,
violate any presently existing right of any person (including any right to
privacy or publicity) or constitute unfair competition or trade practices under
the presently existing laws of any jurisdiction, and the Company has not
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company infringes or misappropriates any
Intellectual Property Right of any person or constitutes unfair competition or
trade practices under the laws of any jurisdiction (nor does the Company have
knowledge of any basis therefor).
(q) To the Company's knowledge, no person is infringing or
misappropriating any Company Intellectual Property Right.
(r) No Company Intellectual Property or service of the Company is
subject to any proceeding or outstanding decree, order, judgment or settlement
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(s) No (i) product, technology, service or publication of the Company,
(ii) material published or distributed by the Company, or (iii) conduct or
statement of the Company constitutes obscene material, a defamatory statement or
material, false advertising or otherwise violates in any material respect any
law or regulation.
(t) Neither this Agreement nor the transactions contemplated by this
Agreement, will result in (i) either Parent's or the Company's granting to any
third party any right to or with respect to any Technology or Intellectual
Property Right owned by, or licensed to, either of them, (ii) either the
Parent's or the Company's being bound by, or subject to, any non-compete or
other restriction on the operation or scope of their respective businesses, or
(iii) either the Parent's or the Company's being obligated to pay any royalties
or other amounts to any third party in excess of those payable by Parent or
Company, respectively, prior to the Closing.
(u) All of the Company's products (including products currently under
development): (i) record, store, process, calculate and present calendar dates
falling on and after (and if applicable, spans of time including) January 1,
2000, and calculate any information dependent on or relating to such dates in
the same manner, and with the same functionality, data integrity and
performance, as the products record, store, process, calculate and present
calendar dates on or before December 31,
-22-
<PAGE>
1999, or calculate any information dependent on or relating to such dates
(collectively, "Year 2000 Compliant"); (ii) lost no functionality with respect
-------------------
to the introduction of records containing dates falling on or after January 1,
2000; and (iii) are interoperable with other products used and distributed by
Parent that may reasonably deliver records to the Company's products or receive
records from the Company's products, or interact with the Company's products,
including but not limited to back-up and archived data. All of the Company's
Information Technology (as defined below) is Year 2000 Compliant, and did not
cause an interruption in the ongoing operations of the Company's business on or
after January 1, 2000. For purposes of the foregoing, the term "Information
-----------
Technology" shall mean and include all software, hardware, firmware,
- ----------
telecommunications systems, network systems, embedded systems and other systems,
components and/or services (other than general utility services including gas,
electric, telephone and postal) that are owned or used by the Company in the
conduct of its business, or purchased by the Company from third party suppliers.
2.13 Agreements, Contracts and Commitments. Set forth on Section 2.13 of
-------------------------------------
the Company Disclosure Schedule is a list or description of each of the
following to which the Company is a party (each, a "Company Contract" and
----------------
collectively the "Company Contracts"):
-----------------
(i) any employment or consulting agreement, contract or binding
commitment with an employee, contract worker or individual consultant or
salesperson;
(ii) any agreement or plan, including, without limitation, any
stock option plan, stock appreciation rights plan or stock purchase plan (other
than the Plan), any of the benefits of which will be increased, or the vesting
of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property having a value in excess of
$100,000 individually or $300,000 in the aggregate;
(v) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $100,000 individually or
$500,000 in the aggregate;
(vi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(vii) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or
-23-
<PAGE>
extension of credit (other than in connection with the exercise of
Company Options pursuant to a promissory note as specifically contemplated by
the Plan);
(viii) any purchase order or contract for the purchase of
materials involving in excess of $75,000 individually or $300,000 in the
aggregate;
(ix) any dealer, distribution, joint marketing or development
agreement;
(x) any sales representative, original equipment manufacturer,
value added, remarketer, reseller or independent software vendor or other
agreement for use or distribution of the Company's products, technology or
services; or
(xi) any other agreement, contract or commitment that involves
$100,000 individually or $1,000,000 in the aggregate or more and is not
cancelable without penalty within thirty (30) days.
Each Company Contract is in full force and effect. Neither the Company nor
to the Company's knowledge, any other party to a Company Contract, is in breach,
violation or default under, and the Company has not received notice that it has
breached, violated or defaulted under, any of the material terms or conditions
of any Company Contract in such a manner as would permit any other party to
cancel or terminate any such Company Contract, or would permit any other party
to seek damages, which would be reasonably likely to exceed $50,000 (for any or
all of such breaches, violations or defaults, in the aggregate).
2.14 Interested Party Transactions. No officer, director or, to the
-----------------------------
knowledge of the Company, 5% shareholder of the Company (nor, to the knowledge
of the Company, any ancestor, sibling, descendant or spouse of any of such
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services,
products or technology that the Company furnishes or sells, or proposes to
furnish or sell, or (ii) any interest in any entity that purchases from or sells
or furnishes to the Company, any goods or services, or (iii) a beneficial
interest in any Contract to which the Company is a party; provided, however,
that ownership of no more than one percent (1%) of the outstanding voting stock
of a publicly traded corporation shall not be deemed to be an "interest in any
entity" for purposes of this Section 2.14.
------------
2.15 Governmental Authorization. Each consent, license, permit, grant or
--------------------------
other authorization from any Governmental Authority (i) pursuant to which the
Company currently operates or holds any interest in any of its properties, or
(ii) which is required for the operation of the Company's business as currently
conducted or the holding of any such interest (collectively, "Company
-------
Authorizations") has been issued or granted to the Company. The Company
- --------------
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company to operate or conduct its business
or hold any interest in its properties or assets, except for those the failure
of which to hold would not have a Company Material Adverse Effect.
-24-
<PAGE>
2.16 Litigation. There is no action, suit, claim or proceeding of any
----------
nature pending, or to the knowledge of the Company threatened, against the
Company, its properties (tangible or intangible) or any of its officers or
directors. There is no investigation or other proceeding pending or to the
knowledge of the Company threatened, against the Company, any of its properties
(tangible or intangible) or any of their officers or directors by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to develop or distribute any of its
products.
2.17 Minute Books. The minutes of the Company made available to counsel for
------------
Parent are the only minutes of the Company and contain materially complete
summaries of all meetings of the Board of Directors (or committees thereof) of
the Company and its shareholders or actions by written consent since the time of
incorporation of the Company.
2.18 Environmental Matters. Except as would not reasonably be expected to
---------------------
have, individually or in the aggregate, a Company Material Adverse Effect, (i)
the Company is in compliance with all applicable Environmental Laws and all
Company Permits required by Environmental Laws; (ii) all past noncompliance of
the Company with Environmental Laws or Environmental Permits has been resolved
without any pending, ongoing or future obligation, cost or liability; and (iii)
the Company has not released a Hazardous Material at, or transported a Hazardous
Material to or from, any real property currently or formerly owned, leased or
occupied by the Company, in violation of any Environmental Law. For purposes of
this Agreement, "Environmental Law" shall mean any Law and any enforceable
-----------------
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect as
of the date hereof. "Environmental Permit" shall mean any permit, approval,
--------------------
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law. "Hazardous Material" shall mean
------------------
(i) any petroleum, petroleum products, byproducts or breakdown products,
radioactive materials, asbestos-containing materials or polychlorinated
biphenyls or (ii) any chemical, material or substance defined or regulated as
toxic or hazardous or as a pollutant or contaminant or waste under any
applicable Environmental Law.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Except for fees
------------------------------------------------
payable to Broadview Associates LLC, the Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with the Agreement or
any transaction contemplated hereby. Section 2.19 of the Company Disclosure
------------
Schedule sets forth the Company's current estimate of all third party expenses
("Third Party Expenses") expected to be incurred by the Company in connection
--------------------
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.20 Employee Benefit Plan and Compensation.
--------------------------------------
-25-
<PAGE>
(a) Definitions. For all purposes of this Agreement, the following
-----------
terms shall have the following respective meanings:
"Affiliate" shall mean any other person or entity under common control with
---------
the Company within the meaning of Section 414(b), (c), (m) or (o) of the Code,
and the regulations issued thereunder.
"Company Employee Plan" shall mean any material plan, program, policy,
---------------------
practice, contract, agreement or other material arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation each "employee benefit plan"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation but shall exclude
any Employee Agreement.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
-----
1985, as amended.
"DOL" shall mean the United States Department of Labor.
---
"Employee" shall mean any current or former employee, contract worker,
--------
consultant or director of the Company or any Affiliate.
"Employee Agreement" shall mean each management, employment, severance,
------------------
consulting, relocation, repatriation, expatriation, visas, work permit or other
agreement, or contract between the Company or any Affiliate and any Employee
other than a Company Employee Plan.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended.
"FMLA" shall mean the Family Medical Leave Act of 1993, as amended.
----
"IRS" shall mean the United States Internal Revenue Service.
---
"PBGC" shall mean the United States Pension Benefit Guaranty Corporation.
----
"Pension Plan" shall mean each Company Employee Plan which is an "employee
------------
pension benefit plan," within the meaning of Section 3(2) of ERISA.
(b) Schedule. Section 2.20(b) of the Company Disclosure Schedule
-------- ---------------
contains an accurate and complete list of each Company Employee Plan and each
Employee Agreement. The Company has no plan or commitment to establish any new
Company Employee Plan or Employee Agreement, to modify any Company Employee Plan
or Employee Agreement (except to the extent
26
<PAGE>
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement.
(c) Documents. The Company has made available to Parent (i) correct
---------
and complete copies of all documents embodying each Company Employee Plan and
each Employee Agreement including, without limitation, all amendments thereto
and all related trust documents, (ii) the three (3) most recent annual reports
(Form Series 5500 and all schedules and financial statements attached thereto),
if any, required under ERISA or the Code in connection with each Company
Employee Plan, (iii) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets, (iv) the most
recent summary plan description together with any summary of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan, (v) all material written agreements and contracts relating to
each Company Employee Plan, including, without limitation, administrative
service agreements and group insurance contracts, (vi) all communications
material to any Employee or Employees relating to any Company Employee Plan and
any proposed Company Employee Plan, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company, (vii) all correspondence to or from any
governmental agency relating to any Company Employee Plan, (viii) all COBRA
forms and related notices, (ix) all policies pertaining to fiduciary liability
insurance covering the fiduciaries for each Company Employee Plan, (x) all
discrimination tests for each Company Employee Plan for the most recently
completed plan year, and (xi) all registration statements, annual reports (Form
11-K and all attachments thereto) and prospectuses prepared in connection with
each Company Employee Plan.
(d) Employee Plan Compliance. The Company has performed in all
------------------------
material respects all obligations required to be performed by it under, is not
in material default or violation of, and has no knowledge of any default or
violation by any other party to each Company Employee Plan, and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code.
No "prohibited transaction," within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of
ERISA, has occurred with respect to any Company Employee Plan which would result
in material liability to the Company. There are no actions, suits or claims
pending, or to the knowledge of the Company threatened or reasonably anticipated
(other than routine claims for benefits) against any Company Employee Plan or
against the assets of any Company Employee Plan that could reasonably be
expected to result in material liability. Each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Closing Date in
accordance with its terms, without liability to Parent, the Company or any
Affiliate (other than ordinary administration expenses and already accrued
benefits). There are no audits, inquiries or proceedings pending or, to the
knowledge of the Company or any Affiliates, threatened by the IRS or DOL with
respect to any Company Employee Plan. Neither the Company nor any Affiliate is
subject to any material penalty
27
<PAGE>
or tax with respect to any Company Employee Plan under Section 502(i) of ERISA
or Sections 4975 through 4980 of the Code.
(e) No Pension Plan. Neither the Company nor any other Affiliate has
---------------
ever maintained, established, sponsored, participated in, or contributed to, any
(i) Pension Plan subject to Title IV of ERISA, or (ii) "multiemployer plan"
within the meaning of Section (3)(37) of ERISA.
(f) No Post-Employment Obligations. No Company Employee Plan provides,
------------------------------
or reflects or represents any liability to provide, retiree life insurance,
retiree health or other retiree employee welfare benefits to any person for any
reason, except as may be required by COBRA or other applicable statute, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided with
retiree life insurance, retiree health or other retiree employee welfare
benefit, except to the extent required by statute.
(g) COBRA. The Company and each Affiliate has, prior to the Closing
-----
Date, complied in all material respects with the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Employees.
(h) Effect of Transaction. The execution of this Agreement and the
---------------------
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an event
under any Company Employee Plan or Employee Agreement that will or may result in
any payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any Employee, except as expressly required by this
Agreement.
(i) Employment Matters. The Company: (i) with respect to Employees, is
------------------
in compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, including all
applicable laws of foreign jurisdictions where the Company has Employees; (ii)
has withheld and reported all amounts required by law or by agreement to be
withheld and reported with respect to wages, salaries and other payments to
Employees, (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing, and (iv) is not liable
for any payment to any trust or other fund governed by or maintained by or on
behalf of any governmental authority, with respect to unemployment compensation
benefits, social security or other benefits or obligations for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice). There are no pending, or to the knowledge of the Company
threatened, claims or actions against the Company under any worker's
compensation policy or long-term disability policy.
2.21 Insurance. The Company maintains insurance policies covering the
---------
assets, business, equipment, properties, operations, employees, contract
workers, officers and directors of the Company or any Affiliate. There is no
claim by the Company or any Affiliate pending under any of
28
<PAGE>
such policies as to which coverage has been questioned, denied or disputed by
the underwriters of such policies. All premiums due and payable under all such
policies have been paid, and the Company and its Affiliates are otherwise in
material compliance with the terms of such policies and bonds (or other policies
providing substantially similar insurance coverage). The Company has no
Knowledge of threatened termination of, or premium increase with respect to, any
of such policies.
2.22 Compliance with Laws. The Company has complied with and is not in
--------------------
violation of any foreign, federal, state or local statute, law or regulation
except when the failure to comply would not have a Company Material Adverse
Effect. The Company has not received any notices of violation with respect to
any such statute, law or regulation.
2.23 Representations Complete. The representations and warranties made by
------------------------
the Company (as modified by the Company Disclosure Schedule) in this Agreement,
in the aggregate, do not contain and will not contain at the Closing Date any
untrue statement of a material fact, and do not omit and will not omit at the
Closing Date to state any material fact necessary in order to make the
statements contained herein, in the light of the circumstances under which made,
not misleading. The information furnished by the Company for inclusion in any
documents mailed, delivered or otherwise furnished to shareholders of the
Company in connection with the solicitation of their consent to this Agreement
and the Offer, will not contain, at or prior to the Closing Date, any untrue
statement of a material fact and will not omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which made, not misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUB
Parent and Sub hereby represent and warrant to the Company, subject to such
exceptions as are specifically disclosed in the disclosure letter (referencing
the appropriate section and paragraph numbers or the relevance of which
exceptions to other sections of this Agreement is otherwise reasonably apparent
on the fact of such exceptions) supplied by the Parent and Sub to the Company
(the "Parent Disclosure Schedule") and dated as of the date hereof, that on the
--------------------------
date hereof:
3.1 Organization, Standing and Power. Parent is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware Sub is a corporation duly organized, validly existing and in good
standing under the laws of Delaware Each of Parent and Sub has the corporate
power to own its properties and to carry on its business as now being conducted
and is duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Parent Material Adverse Effect.
3.2 Authority. Each of Parent and Sub has all requisite corporate power and
---------
authority to enter into this Agreement and any Related Agreements to which it is
a party and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and
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<PAGE>
any Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Sub. No vote of Parent's
stockholders is needed to approve the issuance of Parent Common Stock pursuant
to the Offer. This Agreement and any Related Agreements to which Parent and Sub
are parties have been duly executed and delivered by Parent and Sub and
constitute the valid and binding obligations of Parent and Sub, enforceable in
accordance with their terms, except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
3.3 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement and any Related Agreements to which
Parent or Sub is a party or the consummation of the transactions contemplated
hereby and thereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable securities laws, (ii) the expiration or early termination of the
waiting period under the HSR Act and (iii) such consents, waivers, approvals,
orders, authorizations, registrations, declarations and filings which, if not
obtained or made, would not have a Parent Material Adverse Effect.
3.4 Parent Common Stock. The Parent Common Stock to be issued pursuant
-------------------
hereto has been duly authorized, and upon consummation of the transactions
contemplated by this Agreement, will be validly issued, fully paid and
nonassessable.
3.5 SEC Reports; Financial Statements. Parent has made available to Company
---------------------------------
a correct and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Parent with the SEC on or after December 31,
1999 (the "SEC Reports"). The Parent SEC Reports (A) were prepared in accordance
-----------
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and (B) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(a) Each set of consolidated financial statements (including, in each
case, any related notes thereto) contained in the Parent SEC Reports was
prepared in accordance with U.S. GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited statements, do not contain footnotes as permitted by Form 10-Q
of the Exchange Act) and each fairly presents the consolidated financial
position of Parent and its subsidiaries at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal adjustments which are not material in the aggregate.
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<PAGE>
ARTICLE 4
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
----------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing Date, the Company agrees, except as otherwise
specifically allowed or required by this Agreement or to the extent that Parent
shall otherwise consent in writing, to carry on the Company's business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of the Company when due, to pay
or perform other obligations when due, and, to the extent consistent with such
business, use its reasonable efforts consistent with past practice and policies
to preserve intact the Company's present business organizations, keep available
the services of the Company's present officers and key employees and preserve
the Company's relationships with customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, all with the goal of
preserving unimpaired the Company's goodwill and ongoing businesses at the
Closing Date. The Company shall promptly notify Parent of any event or
occurrence or emergency not in the ordinary course of business of the Company
and any material event involving the Company. Except as expressly required by
this Agreement or as set forth in Section 4.1 of the Company Disclosure
Schedule, the Company shall not, without the prior written consent of Parent:
(a) make any expenditures or enter into any commitment or transaction
exceeding $100,000 individually;
(b) (i) except for licenses granted in the ordinary course of
business, sell, license or transfer to any person or entity any rights to any
Company Intellectual Property except for non-exclusive license agreements
entered into in the ordinary course of business or enter into any agreement with
respect to any intellectual property of any person or entity, except for
licenses or commercially available software, (ii) enter into any agreement with
respect to the development of any intellectual property with a third party
except for consulting agreements entered into in the ordinary course of
business which provide for exclusive ownership by the Company of any
Intellectual Property developed thereunder or (iii) change pricing or
royalties charged by the Company to its customers or licensees, or the pricing
or royalties set or charged by persons who have licensed intellectual property
to the Company except as required by the terms of agreements currently in
effect;
(c) enter into or amend any Contract pursuant to which any other party
is granted marketing, distribution, development or similar rights of any type or
scope with respect to any products or technology of the Company;
(d) amend or otherwise modify (or agree to do so), or violate the
terms of, any Company Contracts;
(e) commence or settle any litigation;
31
<PAGE>
(f) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Common Stock or Preferred, or split, combine or reclassify any Company Common
Stock or Preferred or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of Company Common Stock or
Preferred, or repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of Company Common Stock or Preferred (or options, warrants or other
rights exercisable therefor) except in accordance with the agreements evidencing
Company Options or restricted stock awards except as otherwise specifically
contemplated by this Agreement;
(g) issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of capital stock of the Company or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities, except for (i) shares of Company Common Stock
issued upon exercise of Company Options outstanding on the date hereof or
Warrants outstanding on the date hereof and (ii) granting under the Plan options
to purchase up to 2,840,000 shares of Company Common Stock (which number will
increase by 62,000 shares for each week beyond April 30, 2000);
(h) cause or permit any amendments to its articles of organization,
bylaws or other organizational documents of the Company or as otherwise
specifically contemplated by this Agreement;
(i) acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company's
business;
(j) except as allowed pursuant to Section 4.1(b) hereof, sell, lease,
--------------
license or otherwise dispose of any of its properties or assets, except
properties or assets which are not Company Intellectual Property and only in the
ordinary course of business and consistent with past practices;
(k) incur any indebtedness or guarantee any indebtedness or issue or
sell any debt securities or guarantee any debt securities of others;
(l) grant any loans to others (except pursuant to the terms of the
Plan in connection with the exercise of any Company Options) or purchase debt
securities of others or amend the terms of any outstanding loan agreement;
(m) grant any severance or termination pay (i) to any director or
officer, or (ii) to any other employee or contract worker except payments made
pursuant to standard written agreements outstanding on the date hereof and
disclosed in the Company Disclosure Schedule;
32
<PAGE>
(n) adopt or amend any employee benefit plan, or enter into any
employment contract, pay or agree to pay any special bonus or special
remuneration to any director, employee or contract worker, or increase the
salaries or wage rates of its employees or contract workers except payments made
pursuant to standard written agreements in place on the date hereof and
disclosed in the Company Disclosure Schedule or as otherwise specifically
contemplated hereby;
(o) revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business;
(p) pay, discharge or satisfy, in an amount in excess of $100,000 in
any one case, any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than such payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against in the Current Balance Sheet or arising in the ordinary course
of business after the date of the Current Balance Sheet;
(q) make or change any material election in respect of Taxes, adopt or
change any material accounting method in respect of Taxes, enter into any
material closing agreement, settle any material claim or assessment in respect
of Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(r) enter into any strategic alliance or joint marketing arrangement
or agreement;
(s) take any action to accelerate the vesting schedule of any of the
outstanding Company Options or Company Common Stock (other than as disclosed in
the Company Disclosure Schedule); or
(t) engage in any action that could reasonably be expected to cause
the Offer to fail to qualify as a "reorganization" under Section 368(a) of the
Code whether or not otherwise permitted by the provisions of this Article 4;
(u) take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through 4.1(t) hereof, or any other action that
--------------- ------
would (x) prevent the Company from performing covenants hereunder or (y) cause
or result in any representations and warranties contained in Article II herein
being materially untrue or incorrect.
4.2 No Solicitation. Until the earlier of (i) the Closing Date, or (ii) the
---------------
date of termination of this Agreement pursuant to the provisions of Section 8.1
-----------
hereof, the Company shall not (nor shall the Company permit, authorize or
encourage, as applicable, any of the Company's officers, directors, employees,
contract workers, shareholders, agents, representatives or affiliates to),
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, encourage, initiate or participate
in any inquiry, negotiations or discussions, or enter into any agreement, with
respect to any offer or proposal to acquire all or any material part of the
Company's business, properties or technologies, or any amount of the Company
Common Stock or Preferred
33
<PAGE>
(whether or not outstanding), whether by merger, purchase of assets, tender
offer, license or otherwise, or effect any such transaction, (b) disclose any
information not customarily disclosed to any person concerning the Company's
business, technologies or properties, or afford to any person or entity access
to its properties, technologies, books or records, not customarily afforded such
access, (c) assist or cooperate with any person to make any proposal to purchase
all or any material part of the Company Common Stock or Preferred or assets of
the Company, other than inventory in the ordinary course of business, or (d)
enter into any agreement with any person providing for the acquisition of the
Company, whether by merger, purchase of assets, license, tender offer or
otherwise. In the event that the Company, any of the Company's controlled
affiliates or, to the Company's knowledge, any of the Company's non- controlled
affiliates, shall receive, prior to the Closing Date or the termination of this
Agreement, any offer, proposal, or request, directly or indirectly, of the type
referenced in clause (a) or (c) above, or any request for disclosure or access
pursuant to clause (b) above, the Company shall promptly, and in no event later
than within 24 hours, notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Parent may reasonably request. The parties hereto
agree that irreparable damage would occur in the event that the provisions of
this Section 4.2 were not performed in accordance with their specific terms or
-----------
were otherwise breached. It is accordingly agreed by the parties hereto that
Parent shall be entitled to seek an injunction or injunctions to prevent
breaches of the provisions of this Section 4.2 and to enforce specifically the
-----------
terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which Parent
may be entitled at law or in equity.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Information Statement; Other Filings.
------------------------------------
(a) As promptly as practicable, Company will prepare an information
statement relating to the approval of the Recapitalization by the Company's
shareholders (the "Information Statement"). In the event the S-4 is not declared
---------------------
effective by the SEC by July 15, 2000, then the provisions of this Section 5.1
regarding the S-4 will not be applicable and instead the provisions of Section
5.1(d) will be applicable. Each of Parent and Company shall provide promptly to
the other such information concerning its business and financial statements and
affairs as, in the reasonable judgment of the providing party or its counsel,
may be required or appropriate for inclusion in the Information Statement, or in
any amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Information Statement. Company will cause the Information Statement to be mailed
to its shareholders at the earliest practicable time. As promptly as practicable
after the date of this Agreement, each of Company and Parent will prepare and
file any other filings required to be filed by it under the Exchange Act, the
Securities Act or any other Federal, foreign or Blue Sky or related laws
relating to
34
<PAGE>
the Offer and the transactions contemplated by this Agreement (the "Other
-----
Filings"). Each of Company and Parent will notify the other promptly upon
- -------
the receipt of any comments from the SEC or its staff or any other government
officials and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the S-4, or any Other Filing or for
additional information and will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC or its staff or any other government officials, on the other
hand, with respect to the S-4, the Offer, the Recapitalization or any Other
Filing. Each of Company and Parent will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 5.1(a) to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Information Statement, the S-4 or any Other Filing, Company or
Parent, as the case may be, will promptly inform the other of such occurrence
and cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to shareholders of Company, such amendment or
supplement.
(b) The Information Statement will include the unanimous
recommendation of the Board of Directors of Company in favor of approval of the
Recapitalization.
(c) Promptly after the date hereof, Company will take all action
necessary in accordance with California Law to convene a Company shareholders'
meeting ("Company Shareholders' Meeting") to be held as promptly as practicable
------- ---------------------
for the purpose of voting upon the Recapitalization. The Company will use its
commercially reasonable efforts to solicit from its shareholders proxies in
favor of adoption and approval of the Recapitalization and will take all other
action necessary or advisable to secure the vote or consent of its shareholders
required California Law to obtain such approvals. The Company shall ensure that
the Company Shareholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by the Company in connection with the
Company Shareholders' Meeting are solicited, in compliance with California Law
and all other applicable legal requirements.
(d) In the event this Section 5.1(d) is applicable pursuant to Section
1.1(d), then the following provisions shall be applicable:
(i) The Parent Common Stock to be issued pursuant to this
Agreement initially will not be registered under the Securities Act in reliance
on the exemptions from the registration requirements of Section 5 of the
Securities Act set forth in Section 4(2) thereof.
(ii) In addition to any legend imposed by applicable state
securities laws or by any contract which continues in effect after the Closing
Date, the certificates representing the shares of Parent Common Stock issued
pursuant to this Agreement shall bear a restrictive legend (and stop transfer
orders shall be placed against the transfer thereof with Parent's transfer
agent), stating substantially as follows:
35
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THEY MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR
HYPOTHECATED EXCEPT IN COMPLIANCE WITH RULE 144 IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, OR AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT, OR A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION.
(iii) Each holder of Series B Preferred Stock, by virtue of the
Offer and the exchange of Parent Common Stock for the Series B Preferred Stock
held by such shareholder, shall be bound by the following provisions:
(A) Such shareholder will not offer, sell, or otherwise
dispose of any shares of Parent Common Stock except in compliance with the
Securities Act and the rules and regulations thereunder.
(B) Such shareholder will not sell, transfer or otherwise
dispose of any shares of Parent Common Stock unless (x) such sale, transfer or
other disposition is within the limitations of and in compliance with Rule 144
promulgated by the SEC under the Securities Act and the shareholder furnishes
Parent with reasonable proof of compliance with such Rule, (y) in the opinion of
counsel, reasonably satisfactory to Parent and its counsel, some other exemption
from registration under the Securities Act is available with respect to any such
proposed sale, transfer, or other disposition of Parent Common Stock or (z) the
offer and sale of Parent Common Stock is registered under the Securities Act.
(iv) Parent agrees that the shareholders of the Company receiving
Parent Common Stock in the Offer shall be entitled to reasonable and customary
mutually acceptable registration rights set forth in a declaration of
registration rights to be delivered by Parent at Closing (the "Declaration of
--------------
Registration Rights").
- -------------------
(e) Prior to the Closing Date, each of the Company's shareholders to
receive Parent Common Stock in the Offer shall have provided Parent such
representations, warranties, certifications and additional information as Parent
may reasonably request to ensure the ability to issue shares pursuant to the
Registration Statement without updating the Registration Statement prior to
effecting the Offer or the availability of the exemptions from the registration
requirements of the Securities Act described in Section 5.1(d), as applicable.
5.2 Access to Information. The Company shall afford to Parent and its
---------------------
accountants, counsel and other representatives, reasonable access during the
period prior to the Closing Date to (i) all of
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<PAGE>
its properties, books, contracts, commitments and records, (ii) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as Parent may reasonably request, and
(iii) all employees and contract workers of the Company. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
-----------
affect or be deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the Offer in
accordance with the terms and provisions hereof.
5.3 Confidentiality. Each of the parties hereto hereby agrees that the
---------------
information obtained in any investigation pursuant to Section 5.3 hereof, or
-----------
pursuant to the negotiation and execution of this Agreement or the effectuation
of the transactions contemplated hereby, shall be governed by the terms of the
Confidential Disclosure Agreement effective as of February 1, 2000 (the
"Confidential Disclosure Agreement") among the Company and Parent.
- ----------------------------------
5.4 Expenses. Whether or not the Offer is consummated, all fees and
--------
expenses incurred in connection with the Offer including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("Third Party Expenses") incurred by a party in
--------------------
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
5.5 Public Disclosure. Neither party shall issue any statement or
-----------------
communication to any third party (other than their respective agents) regarding
the subject matter of this Agreement or the transactions contemplated hereby,
including, if applicable, the termination of this Agreement and the reasons
therefor, without the consent of the other party, which consent shall not be
unreasonably withheld, except that this restriction shall be subject to Parent's
obligation to comply with applicable securities laws in which event, to the
extent practicable, the Company shall be provided with the opportunity to review
and comment upon such disclosure prior to such disclosure being made.
5.6 FIRPTA Compliance. At the Closing Date, the Company shall deliver to
-----------------
Parent a properly executed statement (a "FIRPTA Compliance Certificate") in a
-----------------------------
form reasonably acceptable to Parent for purposes of satisfying Parent's
obligations under Treasury Regulation Section 1.1445-2(c)(3).
5.7 Reasonable Efforts. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement.
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<PAGE>
5.8 Notification of Certain Matters. Each of the Company and Parent shall
-------------------------------
give prompt notice to the other of: (i) the occurrence or non-occurrence of any
event, the occurrence or non- occurrence of which is likely to cause any
representation or warranty made by it in this Agreement to be materially untrue
or inaccurate at or prior to the Closing Date, and (ii) any failure by it to
materially comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 5.8 shall not (a) limit or otherwise
-----------
affect any remedies available to the party receiving such notice or (b)
constitute an acknowledgment or admission of a breach of this Agreement. No
disclosure by either party pursuant to this Section 5.8, however, shall be
-----------
deemed to amend or supplement the Company Disclosure Schedule or prevent or cure
any misrepresentations, breach of warranty or breach of covenant.
5.9 Additional Documents and Further Assurances. Each party hereto, at the
-------------------------------------------
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the Offer and the
transactions contemplated hereby.
5.10 Nasdaq Listing. Parent agrees (i) to have the shares of Parent Common
--------------
Stock issuable, and those required to be reserved for issuance, in connection
with the Offer, approved for quotation on the Nasdaq National Market System
subject only to official notice of issuance and (ii) to continue the inclusion
of the Parent Common Stock on the Nasdaq National Market until the Closing Date.
5.11 Indemnification and Insurance
-----------------------------
(a) From and after the Closing Date, Parent will use reasonable
efforts to cause the Company to fulfill and honor in all respects the
obligations of the Company pursuant to its articles of incorporation and bylaws
and any indemnification agreements between the Company and each of its
respective directors and officers existing prior to the Closing Date. The
articles of incorporation and bylaws of the Company will contain the provisions
with respect to indemnification set forth in the articles of organization and
bylaws of the Company prior to the Closing Date, which provisions will not be
amended, repealed or otherwise modified for a period of four years from the
Closing Date in any manner that would adversely affect the rights thereunder of
individuals who, immediately prior to the Closing Date, were directors or
officers of the Company, unless such modification is required by law.
(b) From and after the Closing Date, Parent will use reasonable
efforts to cause the Company, to the fullest extent permitted under applicable
law or under the Company's organizational documents and bylaws, to indemnify and
hold harmless, each director or officer of the Company (collectively, the
"Indemnified Parties") against any costs or expenses (including attorneys'
-------------------
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal,
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<PAGE>
administrative or investigative, to the extent arising out of or pertaining to
any action or omission in his or her capacity as a director or officer of the
Company in connection with the negotiation, approval or consummation of this
Agreement or the Offer for a period of six years after the date hereof. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Closing Date), (i) any counsel retained by the
Indemnified Parties for any period after the Closing Date must be reasonably
satisfactory to the Company, (ii) after the Closing Date, the Company will pay
the reasonable fees and expenses of such counsel, promptly after statements
therefor are received and (iii) the Company will cooperate in the defense of any
such matter; provided, however, that the Company will not be liable for any
settlement effected without its written consent (which consent will not be
unreasonably withheld); and provided, further, that, in the event that any claim
or claims for indemnification are asserted or made within such six-year period,
all rights to indemnification in respect of any such claim or claims will
continue until the disposition of any and all such claims; provided, further,
that any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under
California Law, the Company's organizational documents or bylaws or such
agreements, as the case may be, shall be made by independent legal counsel
selected by the Indemnified Party and reasonably acceptable to the Company; and
provided, further, that nothing in this Section 5.13 shall impair any rights or
obligations of any present or former employees, agents, directors or officers of
the Company. The Indemnified Parties as a group may retain only one law firm (in
addition to local counsel) to represent them with respect to any single action
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
5.12 Additional Shareholder Agreements. The Company shall use commercially
---------------------------------
reasonable efforts to cause i2 Technologies, Inc., Aspect Development
Corporation, Computer Sciences Corporation, Vertical Net and Wells Fargo &
Company to sign Shareholder Agreements in the form attached hereto as Exhibit A.
---------
ARTICLE 6
CONDITIONS TO THE REORGANIZATION
6.1 Conditions to Obligations of Each Party to Effect the Offer. The
-----------------------------------------------------------
respective obligations of the Company and Parent to effect the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of the following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
--------
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Offer illegal or
otherwise prohibiting consummation of the Offer.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
----------------------------------------
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or
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<PAGE>
other legal restraint or prohibition preventing the consummation of the Offer
shall be in effect, nor shall any proceeding brought by an administrative agency
or commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending.
(c) Registration Statement Effective; Registration Rights. If Section
-----------------------------------------------------
1.1(d) is applicable, the SEC shall have declared the S-4 effective, no stop
order suspending the effectiveness of the S-4 or any part thereof shall have
been issued and no proceeding for that purpose shall have been initiated or
threatened in writing by the SEC.
(d) Tax Opinions. Parent and Company shall each have received written
------------
opinions from their respective tax counsel (Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and Cooley Godward LLP respectively), in form and
substance reasonably satisfactory to them, to the effect that the Offer should
constitute a reorganization within the meaning of Section 368(a) of the Code and
such opinions shall not have been withdrawn; provided, however, that if the
-----------------
counsel to either Parent or Company does not render such opinion, this condition
shall nonetheless be deemed to be satisfied with respect to such party if
counsel to the other party renders such opinion to such party. The parties to
this Agreement agree to make such reasonable representations as requested by
such counsel for the purpose of rendering such opinions.
(e) Governmental Approval. All applicable waiting periods under the
---------------------
HSR Act relating to the transactions contemplated hereby will have expired or
terminated early. Approvals from any court, administrative agency or commission
or other federal, state, county, local or other foreign governmental authority,
instrumentality, agency or commission that are required shall have been timely
obtained.
(f) Listing. The shares of Parent Common Stock to be issued hereunder
-------
shall have been approved for listing (subject to notice of issuance) on the
Nasdaq National Market.
6.2 Conditions to the Obligations of Parent and Sub. The obligation of
-----------------------------------------------
Parent and Sub to effect the transactions contemplated hereby, including Sub's
obligation to accept for exchange and exchange shares of Common Stock pursuant
to the Offer, shall be subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Parent and Sub:
(a) Representations and Warranties. The representations and warranties
------------------------------
of the Company contained in this Agreement shall have been true and correct as
of the date of this Agreement and as of the Closing Date except for those
representations and warranties which address matters only as of the date of this
Agreement or any other particular date (which shall have been true and correct
as of such particular date) except for such inaccuracies that do not constitute
(ignoring for the purposes of this analysis all "materiality", "Material Adverse
Effect" and like concepts in such representations and warranties) in the
aggregate, a Company Material Adverse Effect. Parent shall have received a
certificate with respect to the foregoing signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer of the Company.
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<PAGE>
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and Parent shall have received a certificate to such effect signed on
behalf of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company.
(c) Legal Opinion. Parent shall have received a legal opinion from
-------------
legal counsel to the Company, in substantially the form attached hereto as
Exhibit C.
- ---------
(d) Recapitalization. The Company shall have effected the
----------------
Recapitalization.
(e) Third Party Consents. All third party consents required as a
--------------------
result of the transactions contemplated hereby, the absence of which are
reasonably likely to have a Company Material Adverse Effect, shall have been
obtained.
(f) Minimum Condition and Other Offer Conditions. The Offer shall have
--------------------------------------------
expired and the Minimum Condition shall have been satisfied. In addition, this
Agreement shall not have been terminated in accordance with its terms.
(g) Board of Directors. The directors and/or shareholders of the
------------------
Company shall have taken action such that the Company's Board of Directors shall
consist of only the following five persons, effective as of the Closing Date:
Vani Kola, Douglas Leone and three other persons designated by Parent.
(h) Employee Matters. The Company shall have obtained and delivered to
----------------
Parent a confirmation letter from each employee reasonably requested by Parent,
acknowledging and agreeing that the change in control resulting from the
transactions contemplated hereby, whether or not followed by a change in or
termination of such employee's employment relationship with the Company, will
not cause an acceleration of vesting of any Company Options or Company Common
Stock held by such employee.
6.3 Conditions to Obligations of the Company. The obligations of the Company
----------------------------------------
to consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
the Company:
(a) Representations and Warranties. The representations and warranties
------------------------------
of Parent and Sub contained in this Agreement shall have been true and correct
as of the date of this Agreement and as of the Closing Date except for those
representations and warranties which address matters only as of the date of this
Agreement or any other particular date (which shall have been true and correct
as of such particular date) except for such inaccuracies that do not constitute
(ignoring for the purpose of this analysis all "materiality," "Material Adverse
Effect" and like concepts in such representations and warranties), in the
aggregate, a Parent Material Adverse Effect. The Company
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<PAGE>
shall have received a certificate with respect to the foregoing signed on behalf
of Parent by the Chief Executive Officer and the Chief Financial Officer of
Parent.
(b) Agreements and Covenants. Parent and Sub shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, and the Company shall have received a certificate to such effect
signed on behalf of Parent by an authorized officer of Parent.
(c) Registration Rights. If Section 5.1(d) is applicable, Parent shall have
-------------------
delivered to each of the Series B Shareholders receiving Parent Common
Stock an executed copy of the Declaration of Registration Rights.
(d) Legal Opinion. The Company shall have received a legal opinion from legal
-------------
counsel to Parent, in substantially the form attached hereto as Exhibit D.
---------
ARTICLE 7
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; ESCROW
7.1 Survival of Representations, Warranties and Covenants The representations
-----------------------------------------------------
and warranties of the Company contained in this Agreement, or in any certificate
or other instrument delivered pursuant to this Agreement, shall terminate one
year following the Closing Date.
7.2 Indemnification. The Series B Shareholders shall, by virtue of their
---------------
acceptance of shares of Parent Common Stock pursuant to the Offer, severally and
not jointly agree to indemnify and hold Parent and its officers, directors and
affiliates, including the Company after the Closing (the "Indemnified Parties"),
-------------------
harmless against all claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses of investigation
and defense relating to such claim, loss, liability, damage, deficiency, cost or
expense (hereinafter individually a "Loss" and collectively "Losses") incurred
---- ------
or suffered by the Indemnified Parties, or any of them (including the Company
after the Closing), directly or indirectly, as a result of (i) any breach or
inaccuracy of a representation or warranty of the Company contained in this
Agreement (or in any certificate, schedule or other instrument delivered
pursuant to this Agreement), (ii) any failure by the Company to perform or
comply with any covenant applicable to it contained in this Agreement or (iii)
actual Third Party Expenses exceeding the amount specified on Section 2.19 of
------------
the Company Disclosure Schedule. For the avoidance of doubt and for purposes of
clarification only, any claim, loss, liability, damage, deficiency cost or
expense incurred or suffered by the Company shall only constitute a Loss to the
Company or to Parent (as applicable) to the extent of Parent's pro rata interest
(calculated on an as converted to Class A Common basis) in the Company. The
Series B Shareholders shall not have any right of contribution from the Company
with respect to any Loss claimed by an Indemnified Party after the Closing Date.
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<PAGE>
7.3 Escrow Arrangements
-------------------
(a) Escrow Fund. As partial security for the indemnity provided for in
-----------
Section 7.2 hereof and by virtue of this Agreement, the Series B
-----------
Shareholders will be deemed to have received and deposited with the Escrow
Agent the Escrow Amount without any act of any Series B Shareholder. The
Escrow Fund shall be available to compensate the Indemnified Parties, or
any of them, for any claims by such Indemnified Parties for any Losses
suffered or incurred by them; provided, however, that if the Escrow Period
(as defined below) has terminated, and a claim for Losses is made with
respect to fraud, the claim shall be made directly against the Series B
Shareholders. Within three days after the Closing, the Escrow Amount,
without any act of the Series B Shareholders, will be deposited with Chase
Manhattan Trust Company, National Association, as Escrow Agent hereunder,
or another institution acceptable to Parent and the Shareholder
Representative (as defined in Section 7.4 hereof), such deposit of the
-----------
Escrow Amount to constitute an escrow fund (the "Escrow Fund") to be
-----------
governed by the terms set forth herein. The Escrow Agent may execute this
Agreement following the date hereof and prior to the Closing, and such
later execution, if so executed after the date hereof, shall not affect the
binding nature of this Agreement as of the date hereof between the other
signatories hereto. Parent may not receive any proceeds from the Escrow
Fund unless and until one or more Officer's Certificates (as defined in
Section 7.3(d) hereof) identifying Losses in excess of $4,000,000 in the
--------------
aggregate (the "Basket Amount") has or have been delivered to the Escrow
-------------
Agent as provided in Section 7.3(d) hereof and are no longer being
--------------
contested pursuant to the provisions of this Article 7, in which case
Parent shall be entitled to recover all Losses so identified in excess of
the Basket Amount.
(b) Escrow Period; Distribution upon Termination of Escrow Periods. Subject to
--------------------------------------------------------------
the following requirements, the Escrow Fund shall be in existence
immediately following the Closing Date and shall terminate at the earlier
of (a) the closing of the first sale by the Company of shares of Company
Common Stock in a firm commitment underwritten offering pursuant to a
registration statement under the Securities Act or (b) 5:00 p.m., Pacific
Time, on the one year anniversary of the Closing Date (the "Escrow
------
Period"); provided, however, that the Escrow Period shall not terminate
------
with respect to any amount which, in the reasonable good faith judgment of
Parent, subject to the objection of the Shareholder Representative and the
subsequent arbitration of the matter in the manner provided in Section
-------
7.3(f) hereof, is necessary to satisfy any then pending and unsatisfied
------
claims specified in any Officer's Certificate delivered to the Escrow Agent
prior to the termination of the Escrow Period with respect to facts and
circumstances existing prior to the termination of such Escrow Period.
Promptly after the expiration of the Escrow Period, Parent and the
Shareholder Representative shall jointly notify the Escrow Agent in writing
that the Escrow Period has expired, and the Escrow Agent shall deliver to
the Series B Shareholders the portion of the Escrow Fund, if any, not
required to satisfy such claims (the "Remaining Portion"). Thereafter,
-----------------
promptly after the resolution of any pending claim, the Escrow Agent shall
deliver to the Series B Shareholders the additional portion of the Escrow
Fund, if any, not required to satisfy any then remaining claims. Deliveries
of the Escrow Amount out of the Escrow Fund to the Series B Shareholders
pursuant to this Section 7.3(b) shall be made in proportion to their
--------------
respective Pro Rata Portions of the Escrow
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<PAGE>
Fund. At or prior to the Closing Date, the Company shall provide a
certified list of the Series B Shareholders and their respective Pro Rata
Portions of the Escrow Fund.
(c) Protection of Escrow Fund; Distribution of Interest from Escrow Fund;
---------------------------------------------------------------------
Substitution of Cash.
--------------------
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during
the Escrow Period, shall treat such fund as a trust fund in accordance with
the terms of this Agreement and not as the property of Parent and shall
hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Stock or other equity securities
issued or distributed by Parent (including shares issued upon a stock
split) ("New Shares") in respect of Parent Common Stock in the Escrow Fund
--- ------
which have not been released from the Escrow Fund shall be added to the
Escrow Fund and become a part thereof. New Shares issued in respect of
shares of Parent Common Stock which have been released from the Escrow Fund
shall not be added to the Escrow Fund but shall be distributed to the
record holders thereof. Cash dividends on Parent Common Stock shall not be
added to the Escrow Fund but shall be distributed to the record holders
thereof.
(iii) Each Series B Shareholder shall have voting rights with respect
to the shares of Parent Common Stock contributed to the Escrow Fund by such
Series B Shareholder (and on any voting securities added to the Escrow Fund
in respect of such shares of Parent Common Stock).
(d) Claims for Indemnification.
--------------------------
(i) Upon receipt by the Escrow Agent at any time on or before the last
day of the Escrow Period of an Officer's Certificate (as defined below)
and, subject to the provisions of Section 7.3(e) and Section 7.5 hereof,
-------------- -----------
the Escrow Agent shall deliver to Parent out of the Escrow Fund, as
promptly as practicable, Parent Common Stock (or cash in lieu thereof) held
in the Escrow Fund equal to Losses specified in the Officer's Certificate.
For purposes hereof, "Officer's Certificate" shall mean a certificate
---------------------
signed by any officer of Parent: (a) stating that Parent has paid or
incurred or properly accrued Losses, and (b) specifying in reasonable
detail the individual items of Losses included in the amount so stated, the
date each such item was paid, incurred or properly accrued, and the nature
of the misrepresentation, breach of warranty or covenant to which such item
is related.
(ii) For the purposes of determining the number of shares of Parent
Common Stock or cash in lieu of such shares to be delivered to Parent out
of the Escrow Fund as indemnity pursuant to Section 7.2 hereof, the shares
-----------
of Parent Common Stock shall be valued at the Trading Price and any cash
paid in lieu of such shares shall be calculated accordingly.
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<PAGE>
(e) Objections to Claims. At the time of delivery of any Officer's
--------------------
Certificate to the Escrow Agent, a duplicate copy of such certificate shall
be delivered by Parent to the Shareholder Representative, and for a period
of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to Parent of any Escrow Amounts pursuant to Section 7.3(d) hereof
--------------
unless and until the Escrow Agent shall have received written authorization
from the Shareholder Representative to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make
delivery of the Parent Common Stock (or cash in lieu thereof) from the
Escrow Fund in accordance with Section 7.3(d) hereof; provided, however,
--------------
that no such payment or delivery may be made if the Shareholder
Representative shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
------------------------------------
(i) In case the Shareholder Representative shall object in writing to any
claim or claims made in any Officer's Certificate to recover Losses from
the Escrow Fund within thirty (30) days after delivery of such Officer's
Certificate, the Shareholder Representative and Parent shall attempt in
good faith to agree upon the rights of the respective parties with respect
to each of such claims. If the Shareholder Representative and Parent should
so agree, a memorandum setting forth such agreement shall be prepared and
signed by both parties and, in the case of a claim against the Escrow Fund,
shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled
to rely on any such memorandum and distribute amounts from the Escrow Fund
in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Shareholder Representative may demand arbitration of
the matter unless the amount of the Loss is at issue in pending litigation
with a third party, in which event arbitration shall not be commenced until
such amount is ascertained or both parties agree to arbitration, and in
either such event the matter shall be settled by arbitration conducted by
one arbitrator mutually agreeable to Parent and the Shareholder
Representative. In the event that within forty-five (45) days after
submission of any dispute to arbitration, Parent and the Shareholder
Representative cannot mutually agree on one arbitrator, Parent and the
Shareholder Representative shall each select one arbitrator, and the two
arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and
establish procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the sole judgment of
the arbitrator or majority of the three arbitrators, as the case may be, to
discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrator or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose sanctions, including
attorneys' fees and costs, to the extent as a competent court of law or
equity, should the arbitrators or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without
substantial justification. The decision of the arbitrator or a
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<PAGE>
majority of the three arbitrators, as the case may be, as to the validity and
amount of any claim in such Officer's Certificate shall be binding and
conclusive upon the parties to this Agreement. Such decision shall be written
and shall be supported by written findings of fact and conclusions which shall
set forth the award, judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. Any such arbitration shall be held in
San Francisco County, California, under the rules then in effect of the American
Arbitration Association (subject to paragraph (ii) above). The arbitrator(s)
shall determine how all expenses relating to the arbitration shall be paid,
including without limitation, the respective expenses of each party, the fees of
each arbitrator and the administrative fee of the American Arbitration
Association.
(g) Third-Party Claims. In the event Parent becomes aware of a third-party
------------------
claim which Parent reasonably believes may result in a demand against the Escrow
Fund, Parent shall notify the Shareholder Representative of such claim, and the
Shareholder Representative shall be entitled on behalf of the Series B
Shareholders, at its expense, to participate in, but not to determine or
conduct, the defense of such claim. Parent shall have the right in its sole
discretion to conduct the defense of and settle any such claim; provided,
however, that except with the consent of the Shareholder Representative, no
settlement of any such claim with third-party claimants shall be determinative
of the amount of Losses relating to such matter. In the event that the
Shareholder Representative has consented in writing to any such settlement, the
Series B Shareholders shall have no power or authority to object under any
provision of this Article 7 to the amount of any claim by Parent against
---------
the Escrow Fund with respect to such settlement.
(h) Escrow Agent's Duties.
---------------------
(i) The Escrow Agent shall be obligated only for the performance of
such duties as are specifically set forth herein, and as set forth in any
additional written escrow instructions which the Escrow Agent may receive after
the date of this Agreement which are signed by an officer of Parent and the
Shareholder Representative, and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed to be genuine and
to have been signed or presented by the proper party or parties. The Escrow
Agent shall not be liable for any action taken or omitted by it in good faith
unless a court of competent jurisdiction determines that the Escrow Agent's
gross negligence or willful misconduct was the primary cause of any loss to the
Parent or any Series B Shareholder. In the administration of the escrow account
hereunder, the Escrow Agent may execute any of its powers and perform its duties
hereunder directly or through agents or attorneys and may consult with counsel,
accountants and other skilled persons to be selected and retained by it. The
Escrow Agent shall not be liable for anything done, suffered or omitted in good
faith by it in accordance with the advice or opinion of any such counsel,
accountants or other skilled persons.
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<PAGE>
(ii) The Escrow Agent is hereby expressly authorized to disregard any
and all warnings given by any of the parties hereto or by any other person,
excepting only orders or process of courts of law, and is hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case the Escrow Agent obeys or complies with any such order, judgment or decree
of any court, the Escrow Agent shall not be liable to any of the parties hereto
or to any other person by reason of such compliance, notwithstanding any such
order, judgment or decree being subsequently reversed, modified, annulled, set
aside, vacated or found to have been entered without jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on account of
the identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any
rights under any statute of limitations with respect to this Agreement or any
documents deposited with the Escrow Agent.
(v) The Escrow Agent is not responsible for determining and verifying
the authority of any person acting or purporting to act on behalf of any party
to this Agreement.
(vi) If any controversy arises between the parties to this Agreement,
or with any other party, concerning the subject matter of this Agreement, its
terms or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and the Escrow Amount and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, may be required, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be liable
for damages. Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and the Escrow Amounts held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader action and which the parties jointly and severally agree to
pay. Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
(vii) Parent hereby agrees to (i) pay the Escrow Agent upon execution
of this Agreement reasonable compensation for the services to be rendered
hereunder, as described in Schedule I attached hereto, and (ii) pay or reimburse
the Escrow Agent upon request for all expenses, disbursement and advances,
including reasonable attorney's fees, incurred or made by it in connection with
the preparation, execution, performance, delivery, modification and termination
of this Agreement.
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<PAGE>
(viii) The Escrow Agent may resign at any time upon giving at least
thirty (30) days written notice to the Parent and the Shareholder
Representative; provided, however, that no such resignation shall become
effective until the appointment of a successor escrow agent which shall be
accomplished as follows: Parent and the Shareholder Representative shall use
their best efforts to mutually agree on a successor escrow agent within thirty
(30) days after receiving such notice. If the parties fail to agree upon a
successor escrow agent within such time, the Escrow Agent shall have the right
to appoint a successor escrow agent. The successor escrow agent shall execute
and deliver an instrument accepting such appointment and it shall, without
further acts, be vested with all the estates, properties, rights, powers, and
duties of the predecessor escrow agent as if originally named as escrow agent.
Upon appointment of a successor escrow agent, the Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
(i) Indemnity. The parties and their successors and assigns jointly and
---------
severally agree to indemnify and hold the Escrow Agent and its directors,
officers, agents and employees (collectively, the "Indemnitees") harmless
-----------
from and against any and all claims, liabilities, losses, damages, fines,
penalties, and expenses, including out-of-pocket and incidental expenses and
legal fees and expenses ("Losses") that may be imposed on, incurred by,
------
or asserted against, the Indemnitees or any of them for following any
instructions or other directions upon which Escrow Agent is authorized to rely
pursuant to the terms of this Agreement.
In addition to and not in limitation of the immediately preceding
sentence, the parties and their successors and assigns, jointly and severally,
also agree to indemnify and hold the Indemnitees and each of them harmless from
and against any and all Losses that may be imposed on, incurred by, or asserted
against, the Indemnitees or any of them in connection with or arising out of the
Escrow Agent's performance under this Agreement, provided the Indemnitees have
not acted with gross negligence or engaged in willful misconduct.
(j) Consequential Damages. In no event shall the Escrow Agent be liable for
---------------------
special, indirect or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow Agent has been
advised of the likelihood of such loss or damage and regardless of the form of
action.
(k) Successor Escrow Agents. Any corporation into which the Escrow Agent in
-----------------------
its individual capacity may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Escrow Agreement without further act.
7.4 Shareholder Representative.
--------------------------
(a) Each of the Series B Shareholders shall, by virtue of their acceptance
of Parent Common Stock pursuant to the Offer, appoint Suhas Patil its agent and
attorney-in-fact, as the
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<PAGE>
Shareholder Representative for and on behalf of the Series B Shareholders, to
give and receive notices and communications, to authorize payment to Parent of
shares of Parent Common Stock or cash from the Escrow Fund in satisfaction of
claims by Parent, to object to such payments, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
other actions that are either (i) necessary or appropriate in the judgment of
the Shareholder Representative for the accomplishment of the foregoing or (ii)
specifically mandated by the terms of this Agreement. Such agency may be changed
by the Series B Shareholders from time to time upon not less than thirty (30)
days prior written notice to Parent; provided, however, that the Shareholder
Representative may not be removed unless holders of a two-thirds interest of the
Escrow Fund agree to such removal and to the identity of the substituted agent.
Any vacancy in the position of Shareholder Representative may be filled by the
holders of a majority in interest of the Escrow Fund. No bond shall be required
of the Shareholder Representative, and the Shareholder Representative shall not
receive compensation for its services. Notices or communications to or from the
Shareholder Representative shall constitute notice to or from the Series B
Shareholders.
(b) The Shareholder Representative shall not be liable for any act done or
omitted hereunder as the Shareholder Representative while acting in good faith
and in the exercise of reasonable judgment. The Series B Shareholders on whose
behalf the Escrow Amount was contributed to the Escrow Fund shall, by virtue of
their acceptance of Parent Common Stock pursuant to the Offer, agree to
indemnify the Shareholder Representative and hold the Shareholder Representative
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Shareholder Representative and arising out of or in
connection with the acceptance or administration of the Shareholder
Representative's duties hereunder, including the reasonable fees and expenses of
any legal counsel retained by the Shareholder Representative. The Shareholder
Representative, with the consent of the record holders of a majority of the
Parent Common Stock in the Escrow Fund, and after written notice to Parent may
recover from the Escrow Fund payments for any reasonable expenses incurred in
connection with the Shareholder Representative's representation hereby. The
Shareholder Representative may direct the Escrow Agent (which shall follow such
directions) to deliver to the Shareholder Representative shares of Parent Common
Stock in the Escrow Fund in order to permit the payment of such expenses).
(c) A decision, act, consent or instruction of the Shareholder
Representative, including but not limited to an amendment, extension or waiver
of this Agreement pursuant to Section 8.3 and Section 8.4 hereof, shall
----------- -----------
constitute a decision of the Series B Shareholders and shall be final, binding
and conclusive upon the Series B Shareholders; and the Escrow Agent and Parent
may rely upon any such decision, act, consent or instruction of the Shareholder
Representative as being the decision, act, consent or instruction of the Series
B Shareholders. The Escrow Agent and Parent are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Series B Shareholder
Representative.
-49-
<PAGE>
(d) Subject to Parent's prior claims for indemnification against the
Escrow Fund, the Shareholder Representative shall be entitled to receive payment
for its reasonable and documented expenses therefrom, prior to any payments to
the Series B Shareholders. The Shareholder Representative may direct the Escrow
Agent (which shall follow such directions) to deliver to the Shareholder
Representative shares of Parent Common Stock in the Escrow Fund in order to
permit the payment of such expenses.
7.5 Maximum Payments; Remedy. Notwithstanding anything to the contrary set
------------------------
forth in this Article 7 or elsewhere in this Agreement, the maximum
---------
amount the Indemnified Parties may recover from any Series B Shareholder
pursuant to the indemnity obligations set forth in Section 7.2 hereof or
-----------
otherwise under this Agreement shall be limited to an amount (the "Cap
---
Amount") equal to each such Series B Shareholder's Pro Rata Portion
- ------
(assuming for the purpose of such calculation that the shares of Series B
Preferred Stock exchanged in the Offer are the only securities of the Company)
of twice the value of the initial Escrow Fund based on the Trading Price;
provided however, that neither the Cap Amount nor, in the case of clauses (i)
and (ii) below, the Basket Amount shall apply with respect to (i) fraud, willful
misconduct or knowing misrepresentations made with scienter, (ii) failures by
the Company to perform or comply with any covenant applicable to it contained in
this Agreement or (iii) any breach or inaccuracy of the representation set forth
in Sections 2.1 (first two sentences), 2.2, 2.3, 2.4 (clause (i) only), 2.5 and
2.8 (clause (i) only) of this Agreement.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 hereof, this Agreement may
----------- -----------
be terminated and the Offer abandoned at any time prior to the Closing:
(a) by mutual agreement of the Company and Parent;
(b) by Parent or the Company if the Closing Date shall not have occurred by
August 31, 2000; provided, however, that the right to terminate this Agreement
under this Section 8.1(b) shall not be available to any party whose action or
--------------
failure to act has been a principal cause of or resulted in the failure of the
Offer to occur on or before such date and such action or failure to act
constitutes breach of this Agreement;
(c) by Parent or the Company if: (i) there shall be a final non-appealable
order of a federal or state court in effect preventing consummation of the
Offer, or (ii) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Closing by any Governmental
Entity that would make consummation of the Closing illegal;
(d) by Parent if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Offer by any Governmental Entity, which would: (i) prohibit Parent's ownership
or operation of any portion of the business of the
-50-
<PAGE>
Company or (ii) compel Parent or the Company to dispose of or hold separate all
or any portion of the business or assets of the Company or Parent as a result of
the Offer;
(e) by Parent if there has been a breach of any representation, warranty,
covenant or agreement of the Company contained in this Agreement such that the
conditions set forth in Section 6.2(a) would not be satisfied and such breach
has not been cured within thirty (30) calendar days after written notice thereof
to the Company; provided, however, that no cure period shall be required for a
breach which by its nature cannot be cured; or
(f) by the Company if there has been a breach of any representation,
warranty, covenant or agreement contained in this Agreement such that the
conditions set forth in Section 6.3(a) would not be satisfied and such breach
has not been cured within thirty (30) calendar days after written notice thereof
to Parent; provided, however, that no cure period shall be required for a breach
which by its nature cannot be cured.
8.2 Effect of Termination. In the event of termination of this Agreement as
---------------------
provided in Section 8.1 hereof, this Agreement shall forthwith become void and
-----------
there shall be no liability or obligation on the part of Parent or the Company,
or their respective officers, directors or shareholders, if applicable;
provided, however, that each party hereto shall remain liable for actual damages
resulting from any breaches of this Agreement prior to its termination; and
provided further, however, that, the provisions of Sections 5.3, 5.4, 5.5 and
------------ --- ---
7.3(h) hereof, Article 9 hereof and this Section 8.2 shall remain in full force
- ------ ---------
and effect and survive any termination of this Agreement pursuant to the terms
of this Article 8.
---------
8.3 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of the Company,
Parent and Sub; provided, however that an amendment altering the rights or
responsibilities of the Shareholder Representative shall also be signed by the
Shareholder Representative and provided further however that an amendment
altering the rights or responsibilities of the Escrow Agent shall also be signed
by the Escrow Agent. For purposes of this Section 8.3, by virtue of their
-----------
approval of the Offer or their acceptance of Parent Common Stock hereunder, the
shareholders of the Company (including without limitation the Series B
Shareholders) agree that any amendment of this Agreement signed as provided
above shall be binding upon and effective against the shareholders of the
Company whether or not they have signed such amendment.
8.4 Extension; Waiver. At any time prior to the Closing, Parent, on the one
-----------------
hand, and the Company, on the other hand, may, to the extent legally allowed,
(i) extend the time for the performance of any of the obligations of the other
party hereto, (ii) waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, and (iii) waive compliance with any of the agreements or conditions for
the benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. For
-51-
<PAGE>
purposes of this Section 8.4, the shareholders of the Company (including the
-----------
Series B Shareholders) agree that any extension or waiver signed by the Company
shall be binding upon and effective against all shareholders whether or not they
have signed such extension or waiver.
ARTICLE 9
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Parent or Sub, to:
Internet Capital Group, Inc.
435 Devon Park Drive
Building 800
Wayne, PA 19087
Attention: Henry N. Nassau
Facsimile No.: (610) 989-0112
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, CA 94105
Attention: Michael J. Kennedy/Steve L. Camahort
Facsimile No.: (415) 947-2099
(b) if to the Company to:
RightWorks Corporation
31 North Second Street
Suite 400
San Jose, CA 95113
Attention: Vani Kola
Facsimile No.: (408) 280-7002
-52-
<PAGE>
with a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: Kenneth L. Guernsey/Isobel A. Jones
Facsimile No.: (415) 951-3699
(c) If to the Shareholder Representative to:
Suhas Patil
21647 Rainbow Drive
Cupertino, CA 95014
Facsimile No.: (408) 255-6443
with a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: Kenneth L. Guernsey/Isobel A. Jones
Facsimile No.: (415) 951-3699
(d) If to the Escrow Agent, to:
Chase Manhattan Trust Company, National Association
One Liberty Place
1650 Market Street
Suite 5210, 52nd Floor
Philadelphia, PA 19103
Attention: Escrow Administration
Facsimile No.: (215) 972-1685
9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more
-53-
<PAGE>
counterparts have been signed by each of the parties and delivered to the other
party, it being understood that all parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the exhibits hereto, the
----------------------------
Company Disclosure Schedule, the Confidential Disclosure Agreement, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings both written and oral, among the parties with respect to the
subject matter hereof, (ii) are not intended to confer upon any other person any
rights or remedies hereunder, and (iii) shall not be assigned by operation of
law or otherwise, except that Parent may assign its rights and delegate its
obligations hereunder to its affiliates as long as Parent remains ultimately
liable for all of Parent's obligations hereunder.
9.5 Severability. In the event that any provision of this Agreement or the
------------
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto (other than the Escrow Agent) irrevocably consents to
the exclusive jurisdiction and venue of any court within the State of
California, in connection with any matter based upon or arising out of this
Agreement or the matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of California for
such persons and waives and covenants not to assert or plead any objection which
they might otherwise have to such jurisdiction, venue and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.9 Alternative Structure. In the event that Parent or the Company
---------------------
reasonably determines that one ore more of the conditions to closing specified
Article 6 hereof would not be capable of satisfaction, but would be capable of
satisfaction is this Agreement or the transactions contemplated
-54-
<PAGE>
hereby, were restructured to involve a merger or other alternative transaction,
and, such restructuring would not adversely impact the anticipated tax treatment
of the transactions contemplated hereby or the anticipated economic interests of
the Company or its shareholders (an "Alternative Structure"), then, without
---------------------
affecting either party's right to terminate under Article 8, the parties agree
to use their best efforts to implement such Alternative Structure, and this
Agreement shall be appropriately modified or supplemented to reflect the
adoption of such Alternative Structure.
[Remainder of Page Intentionally Left Blank]
-55-
<PAGE>
IN WITNESS WHEREOF, Parent, Sub, the Company, the Escrow Agent and the
Shareholder Representative have caused this Agreement to be signed, all as of
the date first written above.
INTERNET CAPITAL GROUP, INC. RAIN ACQUISITION CORP.
By: /s/ Henry M. Nassau By: /s/ Henry M. Nassau
---------------------- -------------------
Name: Henry M. Nassau Name: Henry M. Nassau
--------------- -------------------
Title: Managing Director and General Title: Managing Director
----------------------------- -------------------
Counsel
-------
RIGHTWORKS CORPORATION
By: /s/ Vani Kola
-------------
Name: Vani Kola
---------
Title: Chief Executive
---------------
Officer
-------
SHAREHOLDERS' REPRESENTATIVE:
By: /s/ Suhas Patil
---------------
Suhas Patil
[SIGNATURE PAGE TO RECAPITALIZATION AND EXCHANGE OFFER AGREEMENT AND PLAN OF
REORGANIZATION]
<PAGE>
ESCROW AGENT:
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION
By: /s/ Karen Vera
--------------
Name: Karen Vera
-------------
Title: Assistant Vice President
-------------------------
[SIGNATURE PAGE TO RECAPITALIZATION AND EXCHANGE OFFER AGREEMENT AND PLAN OF
REORGANIZATION]
<PAGE>
EXHIBIT A
---------
SHAREHOLDER AGREEMENT
(Strategic Partner)
THIS SHAREHOLDER AGREEMENT (this "Agreement") is made and entered into as
---------
of March __, 2000 between Internet Capital Group, Inc., a Delaware corporation
("ICG"), and the undersigned shareholder and/or option or warrant holder (the
---
"Shareholder") of RightWorks Corporation, a California corporation (the
- ------------
"Company").
-------
RECITALS
--------
A. The Company and ICG have entered into a Recapitalization and Exchange
Offer Agreement and Plan of Reorganization (the "Reorganization Agreement").
------------------------
Capitalized terms not otherwise defined herein are used herein with the meanings
ascribed thereto in the Reorganization Agreement.
B. Pursuant to the Reorganization Agreement, the Company has agreed to
consummate the Recapitalization and, thereafter, the Offer.
C. Shareholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
------------
number of shares of the outstanding capital stock of the Company and shares
subject to outstanding options and warrants as is indicated on the signature
page of this Agreement.
D. In consideration of the execution of the Reorganization Agreement by
ICG, Shareholder (in Shareholder's capacity as such) agrees to (i) vote the
Shares (as defined below) and other such shares of capital stock of the Company
over which Shareholder has voting power so as to facilitate consummation of the
Recapitalization, the Offer and other transactions contemplated by the
Reorganization Agreement, (ii) either convert into shares of Series A Preferred
Stock or tender to ICG or any party designated by ICG pursuant to the Offer any
shares of Series B Preferred Stock owned by the Shareholder after the
Recapitalization, (iii) exchange for a warrant exercisable for shares of Series
A Preferred Stock any warrant exercisable for shares of Series B Preferred Stock
that may be owned by Shareholder after consummation of the Reorganization, and
(iv) take or refrain from taking certain other actions set forth herein.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have the
-------------------
meanings ascribed to them in the Reorganization Agreement. For purposes of this
Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such date
---------------
and time as the Reorganization Agreement shall have been terminated pursuant to
Article 8 thereof, or (ii) such date and time as the Offer shall be effected in
accordance with the terms and provisions of the Reorganization Agreement.
1
<PAGE>
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
------
liability company, partnership or other entity, or (iii) governmental authority.
(c) "Shares" shall mean: (i) all securities of the Company (including
------
all shares of Company Common Stock, Preferred and all options, warrants and
other rights to acquire shares of Company Common Stock or Preferred) owned by
Shareholder as of the date of this Agreement; and (ii) all additional securities
of the Company (including all additional shares of Company Common Stock or
Preferred and all additional options, warrants and other rights to acquire
shares of Company Common Stock or Preferred and shares of Class A Common Stock,
Class B Common Stock, Series A Preferred Stock and Series B Preferred Stock) of
which Shareholder acquires ownership during the period from the date of this
Agreement through the Expiration Date, and for the purposes of Section 6(d),
after the Expiration Date.
(d) Transfer. A Person shall be deemed to have effected a "Transfer"
--------
of a security if such person directly or indirectly: (i) sells, pledges,
encumbers, grants an option with respect to, transfers or disposes of such
security or any interest in such security; or (ii) enters into an agreement or
commitment providing for the sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
2. Transfer of Shares.
------------------
(a) Transferee of Shares to be Bound by this Agreement. Shareholder
--------------------------------------------------
agrees that, during the period from the date of this Agreement through the
Expiration Date, Shareholder shall not cause or permit any Transfer of any of
the Shares to be effected without ICG's written consent unless each Person to
which any of such Shares or any interest in any of such Shares is or may be
transferred shall have (i) executed a counterpart of this Shareholder Agreement
and a proxy in the form attached hereto as Exhibit A and (ii) agreed to hold
such Shares or interest in such Shares subject to all of the terms and
provisions of this Agreement.
(b) Transfer of Voting Rights. Shareholder agrees that, during the
-------------------------
period from the date of this Agreement through the Expiration Date, Shareholder
shall not deposit (or permit the deposit of) any Shares in a voting trust or
grant any proxy or enter into any voting agreement or similar agreement in
contravention of the obligations of Shareholder under this Agreement with
respect to any of the Shares.
(c) Company Action. The Company will, and Shareholder acknowledges and
--------------
agrees that the Company will, take all actions reasonably under its control,
including by notifying its transfer agent of a stop transfer order, to prevent
the Transfer of Shares by Shareholder in violation of this Section 2.
3. Agreement to Vote and to Tender or Convert Shares.
-------------------------------------------------
(a) Agreement to Vote. At every meeting of the shareholders of the
-----------------
Company called, and at every adjournment thereof, and on every action or
approval by written consent of the shareholders of the Company, Shareholder (in
Shareholder's capacity as such) shall cause the Shares to be voted in favor of
the Recapitalization any matter or action contemplated by the Reorganization
Agreement, and against any matter the approval of which might reasonably be
expected to delay or hinder the Recapitalization or the Offer. Shareholder
hereby agrees not to
2
<PAGE>
demand dissenters' rights under California Law for any Shares for any Shares in
the event ICG and the Company agree to modify the structure of the transactions
contemplated hereby to involve a transaction or transactions pursuant to which
Shareholder is entitled to dissenters' rights under applicable law.
(b) Agreement to Tender. Shareholder hereby agrees to validly tender
-------------------
and not withdraw pursuant to the Offer, no later than expiration date of the
Offer, all of the shares of Series B Preferred Stock then owned by Shareholder.
Shareholder shall not be required to tender any shares of Series A Preferred
Stock received upon conversion of Series B Preferred Stock pursuant to Section
6(b)(iii).
4. Irrevocable Proxy. Shareholder agrees to deliver to ICG a proxy in the
-----------------
form attached hereto as Exhibit A (the "Proxy"), which shall be irrevocable to
-----
the fullest extent permissible by law, with respect to the Shares.
5. Representations and Warranties of the Shareholder. Shareholder (a) is
-------------------------------------------------
the beneficial owner of the shares of Company Common Stock and/or Preferred and
the options and/or warrants to purchase shares of Company Common Stock or
Preferred indicated on the final page of this Agreement, free and clear of any
liens, claims, options, rights of first refusal, co-sale rights, charges or
other encumbrances; (b) does not beneficially own any securities of the Company
other than the shares of Company Common Stock, Preferred and options and
warrants indicated on the final page of this Agreement; and (c) has full power
and authority to make, enter into and carry out the terms of this Agreement and
the Proxy.
6. Additional Documents/Actions
----------------------------
(a) Further Assurances. Shareholder (in Shareholder's capacity as
------------------
such) hereby covenants and agrees to execute and deliver any additional
documents necessary or desirable, in the reasonable opinion of ICG, to carry out
the intent of this Agreement.
(b) Agreement Regarding Conversion/Exchange. In connection with the
---------------------------------------
Recapitalization and the Offer, Shareholder agrees that:
(i) immediately after the consummation of the Recapitalization,
any option or warrant held by Shareholder that would otherwise be exercisable
for shares of Series B Preferred Stock of the Company will automatically be
deemed exchanged for an option or warrant, as the case may be, exercisable for
an equal number of shares of Series A Preferred Stock and otherwise having the
same terms as the option or warrant for which it was exchanged;
(ii) notwithstanding the provisions of any warrant held by
Shareholder, the consummation of the Offer will not change or otherwise affect
the class or series of securities that are issuable upon exercise of such
warrant immediately prior to such consummation; and
(iii) with respect to any shares of Series B Preferred Stock
received by Shareholder in the Recapitalization that Shareholder does not desire
to tender pursuant to the Offer, after consummation of the Recapitalization and
prior to the expiration of the Offer, Shareholder will surrender such shares to
the Company in exchange for an equal number of
3
<PAGE>
shares of Series A Preferred Stock (the "Retained Shares"). Shareholder has
indicated on the signature page to this Agreement the presently anticipated
number of Retained Shares.
(c) First Refusal. During the period from the Closing Date until
-------------
such time as the Company has conducted its initial underwritten public offering
of its equity securities (the "Offer Period"), Shareholder will not sell or
otherwise dispose of any Shares held by it unless Shareholder has given ICG at
least 15 business days prior notice of its intention to so dispose of such
shares together with a summary of the price and other material terms (the "Sale
Terms") upon which Shareholder wishes to dispose of such Shares. During such 15
business days, ICG shall have the exclusive right to purchase such Shares, under
the Sale Terms, and if ICG agrees to such Sale Terms, Shareholder will sell the
Shares to ICG. If ICG declines to purchase Shares pursuant to the Sale Terms,
Shareholder may sell and dispose the Shares during the 60-day period following
the expiration of the 15 business day period, but only pursuant an agreement
whereby Shareholder receives the Sale Terms or more favorable terms. After
expiration of such 60-day period, the Shares shall again be subject to the
procedures specific in this Section 6(c).
(d) Lock-Up. Shareholder agrees that each share of ICG Common
-------
Stock issued to Shareholder pursuant to the Offer may not be Transferred without
the prior written consent of ICG prior to the expiration of 180 days after the
Closing Date; provided, however, that Shareholder may, subject to the other
terms and conditions of this Agreement, Transfer one-half (50%) of the shares of
ICG Common Stock received pursuant to the Offer after the expiration of ninety
days after the Closing Date. ICG may, in its sole discretion, legend the
certificates representing such shares of ICG Common Stock to give effect to this
Section 6(d) and place stop transfer instructions with ICG's stock transfer
agent to enforce this Section 6(d).
7. Consent and Waiver. Shareholder (not in Shareholder's capacity, if any,
------------------
as a director or officer of the Company) hereby gives any consents or waivers
that are reasonably required for the consummation of the Recapitalization, the
Offer and the other transactions contemplated by the Reorganization Agreement
under the terms of any agreements to which Shareholder is a party or pursuant to
any rights Shareholder may have.
8. Legending of Shares. If so requested by ICG, Shareholder agrees that the
-------------------
Shares shall bear a legend stating that they are subject to this Agreement and
to an irrevocable proxy. Subject to the terms of Sections 2 and 6(d) hereof,
Shareholder agrees that Shareholder shall not Transfer the Shares without first
having the aforementioned legend affixed to the certificates representing the
Shares.
9. Termination. This Agreement shall terminate and shall have no further
-----------
force or effect as of the Expiration Date, except for Sections 6(c) and 6(d)
which shall remain in effect after the Expiration Date.
10. Miscellaneous.
-------------
(a) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
4
<PAGE>
(b) Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
---------------------------
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that ICG shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to ICG upon any such violation, ICG shall
have the right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to ICG at law or in equity.
(e) Notices. All notices and other communications pursuant to this
-------
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to ICG: Internet Capital Group, Inc.
435 Devon Park Drive
Building 890
Wayne, PA 19087
Attention: Henry N. Nassau
Telecopy No.: (610) 989-0112
With a copy to: Wilson Sonsini Goodrich & Rosati
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Michael J. Kennedy/Steve L. Camahort
Telecopy No.: (415) 947-2099
If to Shareholder: To the address for notice set forth on the
signature page hereof.
With a copy to: Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, California 94111
Attention: Kenneth L. Guernsey/Isobel A. Jones
Telecopy No.: (415) 951-3699
5
<PAGE>
(f) Governing Law. This Agreement shall be governed by the laws of the
-------------
State of California, without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the entire
----------------
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Effect of Headings. The section headings are for convenience only
------------------
and shall not affect the construction or interpretation of this Agreement.
(i) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
[The remainder of this page has been intentionally left blank]
6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
INTERNET CAPITAL GROUP, INC. SHAREHOLDER
__________________________________
By: __________________________________ By: __________________________________
Signature of Authorized Signatory Signature
Name: ________________________________ Name: ________________________________
Title: _______________________________ Title: _______________________________
Print Address:
______________________________________
______________________________________
______________________________________
Telephone
______________________________________
Facsimile No.
Shares beneficially owned:
______________ shares of Company
Common Stock
______________ shares of Company Common
Stock issuable upon exercise of
outstanding options
______________ shares of Preferred
______________ shares of Preferred
issuable upon exercise of outstanding
warrants, of which __________ shares are
presently anticipated to be Retained
Shares (as defined in Section 6(b))
[Signature Page to Shareholder Agreement]
7
<PAGE>
Exhibit A
IRREVOCABLE PROXY
The undersigned shareholder of RightWorks Corporation, a California
corporation (the "Company"), hereby irrevocably (to the fullest extent permitted
-------
by law) appoints the directors on the Board of Directors of Internet Capital
Group, Inc., a Delaware corporation ("ICG"), and each of them, as the sole and
---
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
------
of this Proxy. The Shares beneficially owned by the undersigned shareholder of
the Company as of the date of this Proxy are listed on the final page of this
Proxy. Upon the undersigned's execution of this Proxy, any and all prior
proxies given by the undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Shareholder
Agreement of even date herewith by and between ICG and the undersigned
shareholder (the "Shareholder Agreement"), and is granted in consideration of
---------------------
ICG entering into that certain Recapitalization and Exchange Offer Agreement and
Agreement and Plan of Reorganization (the "Reorganization Agreement"), between
------------------------
ICG and the Company. The Reorganization Agreement provides for the
Recapitalization and an exchange offer by ICG to holders of shares of Series B
Preferred Stock of the Company (the "Offer"). As used herein, the term
-----
"Expiration Date" shall mean the earlier to occur of (i) such date and time as
- ----------------
the Reorganization Agreement shall have been validly terminated pursuant to
Article 8 thereof or (ii) such date and time as the Offer shall be effected in
accordance with the terms and provisions of the Reorganization Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of shareholders
of the Company and in every written consent in lieu of such meeting in favor of
approval of the Recapitalization and in favor of each of the other actions
contemplated by the Reorganization Agreement, and against any matter the
approval of which might reasonably be expected to delay or hinder the
Recapitalization or the Offer.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned shareholder may vote the
Shares on all other matters.
1
<PAGE>
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated: March __, 2000
SHAREHOLDER
____________________________________
By: __________________________________
Signature
Name: ________________________________
Shares beneficially owned:
______________ shares of Company
Common Stock
______________ shares of Company Common
Stock issuable upon exercise of
outstanding options
______________ shares of Preferred
______________ shares of Preferred
issuable upon exercise of outstanding
warrants
[Signature Page to Irrevocable Proxy]
2
<PAGE>
EXHIBIT B
---------
FORM OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
RIGHTWORKS CORPORATION
ARTICLE I
The name of this corporation is RightWorks Corporation.
ARTICLE II
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) Classes of Stock; Conversion of Stock
-------------------------------------
1. Classes of Stock. This corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock,"
each of which shall have $.001 par value. The total number of shares which this
corporation is authorized to issue is ____________, of which ____________ shares
shall be Common Stock, of which ______ shares of Common Stock will be designated
"Class A Common Stock" and ________ shares of Common Stock will be designated
"Class B Common Stock," and ____________ shares shall be Preferred Stock, of
which _______ shares of Preferred Stock will be designated "Series A Preferred
Stock" and _____ shares of Preferred Stock will be designated "Series B
Preferred Stock."
2. Conversion of Stock. Upon the effectiveness of these amended and
-------------------
restated Articles of Incorporation, each outstanding share of Common Stock of
the corporation will automatically be converted, without any further action on
the part of the holder thereof, into one share of Class A Common Stock. Upon the
effectiveness of these amended and restated Articles of Incorporation, each
outstanding share of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series F
Preferred Stock, and Series G Preferred Stock of the corporation will
automatically be converted, without any further action on the part of the holder
thereof, into one-fifth (1/5) of one share of Series B Preferred Stock. Upon
effectiveness of these Amended and Restated Articles of Incorporation, each
outstanding share of Series H Preferred Stock, Series H-1 Preferred Stock and
Series I Preferred Stock of the corporation will automatically be converted,
without any further action on the part of the holder thereof, into one (1) share
of Series B Preferred Stock.
<PAGE>
(B) Common Stock. The Board of Directors of the corporation may authorize
------------
the issuance of shares of Class A Common Stock and shares of Class B Common
Stock from time to time. Shares of Common Stock that are redeemed, purchased or
otherwise acquired by the corporation may be reissued except as otherwise
provided by law. The Board of Directors shall have no power to alter the rights
with respect to Class A Common Stock or Class B Common Stock.
1. Dividend Rights. Subject to the preferences applicable to Preferred
---------------
Stock outstanding at any time, the holders of shares of Class A Common Stock and
the holders of shares of Class B Common Stock shall be entitled to receive such
dividends, payable in cash or otherwise, as may be declared thereon by the Board
of Directors from time to time out of assets or funds of the corporation legally
available therefor, provided that the holders of shares of Class A Common Stock
and shares of Class B Common Stock shall be entitled to share equally, on a per
share basis, in such dividends, subject to the limitations described below. If
dividends or other distributions are declared that are payable in shares of
Class A Common Stock or shares of Class B Common Stock, including distributions
pursuant to stock subdivisions or combinations of Class A Common Stock or Class
B Common Stock which occur after the first date upon which the corporation has
issued shares of both Class A Common Stock and Class B Common Stock, only shares
of Class A Common Stock shall be distributed with respect to Class A Common
Stock and only shares of Class B Common Stock shall be distributed with respect
to Class B Common Stock. If the corporation shall in any manner subdivide or
combine the outstanding shares of Class A Common Stock or Class B Common Stock,
the outstanding shares of the other such series of Common Stock shall be
proportionately subdivided or combined in the same manner and on the same basis
as the outstanding shares of Class A Common Stock or Class B Common Stock,
whichever have been subdivided or combined.
2. Voting Rights. The holders of shares of Class A Common Stock and of
-------------
Class B Common Stock shall have the following voting rights:
(a) Each share of Class A Common Stock shall entitle the holder
thereof to one (1) vote on all matters submitted to a vote of the shareholders
of the corporation.
(b) Each share of Class B Common Stock shall entitle the holder
thereof to _____ (__) votes on all matters submitted to a vote of the
shareholders of the corporation.
(c) The holders of shares of Class A Common Stock and the holders of
shares of Class B Common Stock shall vote together as one class on all matters
submitted to a vote of shareholders of the corporation, except as otherwise
required by applicable law.
3. Conversion of Class B Common Stock.
----------------------------------
(a) At any time after the fifth (5th) anniversary of the
effectiveness of these amended and restated Articles of Incorporation (the
"Class B Convertibility Date"), each share of Class B Common Stock, at the
option of its holder, may at any time be converted into one (1) fully paid and
nonassessable share of Class A Common Stock. Such right shall be exercised by
the surrender of the certificate representing such share of Class B Common Stock
to be converted to the corporation at any time during normal business hours at
the principal executive offices of the corporation or at the office of the
Transfer Agent, accompanied by a written notice of the election by
-2-
<PAGE>
the holder thereof to convert and (if so required by the corporation or the
Transfer Agent) by instruments of transfer, in form satisfactory to the
corporation and to the Transfer Agent, duly executed by such holder or such
holder's duly authorized attorney, and transfer tax stamps or funds therefor, if
required pursuant to Section 3(d).
(b) If the beneficial ownership (as determined under Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) of any share of Class B Common Stock is
initially or changes, voluntarily or involuntarily, such that at any time after
the Class B Convertibility Date, Rain, or an affiliate of Rain, is not the
beneficial owner of such share, then such share of Class B Common Stock shall
thereupon be converted automatically into one (1) fully paid and nonassessable
share of Class A Common Stock. A determination by the Secretary of the
corporation that a share's beneficial ownership requires conversion under this
paragraph shall be conclusive. Upon making such determination, the Secretary of
the corporation shall promptly request of the holder of record of such share
that such holder promptly deliver, and such holder shall promptly deliver, the
certificate representing such share to the corporation for documentation of such
conversion, together with instruments of transfer, in form satisfactory to the
corporation and Transfer Agent, duly executed by such holder or such holder's
duly authorized attorney, and together with transfer tax stamps or funds
therefor, if required pursuant to Section 3(d) of this Article.
(c) As promptly as practicable following the surrender for conversion
of a certificate representing shares of Class B Common Stock in the manner
provided in paragraph (a) of this Section 3 and the payment in cash of any
amount required by the provisions of Section 3(d) of this Article III(B), the
corporation will deliver or cause to be delivered at the office of the Transfer
Agent to or upon the written order of the holder of such certificate, a
certificate or certificates representing the number of full shares of Class A
Common Stock issuable upon such conversion, issued in such name or names as such
holder may direct. In the case of a conversion under Section 3(a) of this
Article III(B), such conversion shall be deemed to have been made immediately
prior to the close of business on the date of the surrender of the certificate
representing shares of Class B Common Stock. Upon the date any conversion under
Section 3(a) is made, all rights of the holder of such shares as such holder
shall cease, and the person or persons in whose name or names the certificate or
certificates representing the shares of Class A Common Stock are to be issued
shall be treated for all purposes as having become the record holder or holders
of such shares of Class A Common Stock; provided, however, that any such
surrender and payment on any date when the stock transfer books of the
corporation shall be closed shall constitute the person or persons in whose name
or names the certificate or certificates representing shares of Class A Common
Stock are to be issued as the record holder or holders thereof for all purposes
immediately prior to the close of business on the next succeeding day on which
stock transfer books are open.
(d) The corporation covenants that it will at all times reserve and
keep available, solely for the purpose of issue upon conversion of the
outstanding shares of Class B Common Stock, such number of shares of Class A
Common Stock as shall be issuable upon the conversion of all such outstanding
shares of Class B Common Stock, provided that nothing contained herein shall be
construed to preclude the corporation from satisfying its obligations in respect
of the conversion of the outstanding shares of Class B Common Stock by delivery
of purchased shares of Class A Common Stock that are held in the treasury of the
corporation. The corporation covenants that if
-3-
<PAGE>
any shares of Class A Common Stock required to be reserved for purposes of
conversion hereunder require registration with or approval of any governmental
authority under any federal or state law before such shares of Class A Common
Stock may be issued upon conversion, the corporation will cause such shares to
be duly registered or approved, as the case may be. The corporation will
endeavor to list the shares of Class A Common Stock required to be delivered
upon conversion prior to such delivery upon each national securities exchange or
automated quotation system upon which the outstanding Class A Common Stock is
listed at the time of such delivery. The corporation covenants that all shares
of Class A Common Stock that shall be issued upon conversion of the shares of
fully paid and nonassessable Class B Common Stock will, upon issue, be fully
paid and nonassessable.
(e) The issuance of certificates for shares of Class A Common Stock
upon conversion of shares of Class B Common Stock shall be made without charge
for any stamp or other similar tax in respect of such issuance. However, if any
such certificate is to be issued in a name other than that of the holder of the
share or shares of Class B Common Stock converted, then the person or persons
requesting the issuance thereof shall pay to the corporation the amount of any
tax that may be payable in respect of any transfer involved in such issuance or
shall establish to the satisfaction of the corporation that such tax has been
paid.
4. Liquidation Rights. Upon the liquidation, dissolution or winding up of
------------------
the corporation, the assets of the corporation shall be distributed as provided
in Section 3 of Article III(C).
5. Redemption. The Common Stock is not redeemable.
----------
6. Residual Rights. All rights accruing to the outstanding shares of the
---------------
corporation not expressly provided for to the contrary herein or by law shall be
vested in the Common Stock.
(C) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by these Articles of Incorporation may be issued from time to
time in one or more series. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock and Series B
Preferred Stock are as set forth below in this Article III(C). The Board of
Directors is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon additional series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or of any of them. Subject to compliance with applicable
protective voting rights which have been or may be granted to the Preferred
Stock or series thereof in Certificates of Determination or the corporation's
Articles of Incorporation ("Protective Provisions"), but notwithstanding any
other rights of the Preferred Stock or any series thereof, the rights,
privileges, preferences and restrictions of any such additional series may be
subordinated to, pari passu with (including, without limitation, inclusion in
provisions with respect to liquidation and acquisition preferences, redemption
or approval of matters by vote or written consent), or senior to any of those of
any present or future class or series of Preferred or Common Stock (other than
the Series B Preferred Stock). Subject to compliance with applicable Protective
Provisions, the Board of Directors is also authorized to increase or decrease
the number of shares of any series (other than the Series B Preferred Stock),
prior or subsequent to the issue of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of
-4-
<PAGE>
any series shall be so decreased, the shares constituting such decrease shall
resume the status that they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
1. Definitions. As used herein, the following terms shall have the
-----------
following definitions:
(a) "Series A Stock" means the Series A Preferred Stock of this
--------------
corporation.
(b) "Series B Stock" means the Series B Preferred Stock of this
--------------
corporation.
(c) "Liquidation Preference" means $______ per share for each share
----------------------
of Series A Stock, plus all declared and unpaid dividends thereon and $______
per share for each share of Series B Stock, plus all declared and unpaid
dividends thereon.
(d) "Original Issue Price" means $______ per share for the Series A
--------------------
Stock and $_____ per share for the Series B Stock.
2. Dividend Provisions.
-------------------
(a) Series A Stock and Series B Stock. In each calendar year the
---------------------------------
holders of Series A Stock and the holders of Series B Stock shall be entitled to
receive dividends at the rate of $_____ per share of Series A Stock and
$________ per share of Series B Stock, payable when, as and if declared by the
Board of Directors, out of any assets of this corporation legally available
therefore, pari passu with one another and prior and in preference to any
declaration or payment of any dividend (other than a dividend payable in Common
Stock or other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock of
this corporation) on the Common Stock of this corporation in such calendar year.
Such dividends shall not be cumulative. If the funds thus distributed by
dividend among the holders of the Series A Stock and Series B Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
dividend amounts, then the entire dividend amount thus distributed shall be
distributed ratably among the holders of the Series A Stock and Series B Stock
in proportion to the full aforesaid dividend amounts to which each such holder
is entitled.
(b) Series A Stock, Series B Stock and Common Stock. After payment in
-----------------------------------------------
any calendar year of a dividend to the holders of Series A Stock in an amount
equal to $______ per share and to holders of Series B Stock in an amount equal
to $_____ per share, the holders of shares of Series A Stock, Series B Stock and
Common Stock shall participate on a pro rata basis, based on the number of
shares of Common Stock held by each (assuming conversion of all such Series A
Stock and Series B Stock into Common Stock on the terms set forth herein), in
the receipt of any additional dividends declared or paid in such calendar year
(other than a dividend payable in Common Stock or other securities or rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation).
3. Liquidation Preference.
----------------------
(a) Series A Stock and Series B Stock. In the event of any
---------------------------------
liquidation, dissolution or winding up of this corporation, either voluntary or
involuntary, the holders of the Series A Stock and the holders of Series B Stock
shall be entitled to receive, pari passu with one another and prior
-5-
<PAGE>
and in preference to any distribution in such liquidation, dissolution or
winding up of any of the assets of this corporation to the holders of the Common
Stock by reason of their ownership thereof, an amount per share equal to the
Liquidation Preference of the Series A Stock for each outstanding share of
Series A Stock and an amount per share equal to the Liquidation Preference of
the Series B Stock for each outstanding share of Series B Stock. If upon the
occurrence of any such distribution, the assets and funds of this corporation
thus distributed among the holders of the Series A Stock and Series B Stock
shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then the entire assets and funds of this
corporation legally available for distribution shall be distributed among the
holders of the Series A Stock and Series B Stock in proportion to the full
aforesaid preferential amounts to which each such holder of Series A Stock and
each such holder of Series B Stock is entitled.
(b) Common Stock. After the distribution described in Article
------------
III(C)3(a) hereof has been paid, then the remaining assets of this corporation
available for distribution to shareholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.
(c) Consolidation, Merger, Etc. A consolidation or merger of this
--------------------------
corporation with or into any other corporation or corporations, or a sale,
conveyance or disposition of all or substantially all of the assets of this
corporation, or the effectuation by this corporation of a transaction or series
of related transactions in which more than 50% of the voting power of this
corporation is disposed of, shall each be deemed to be a liquidation,
dissolution or winding up within the meaning of this Article III(C)3.
(i) The corporation shall give each holder of record of Series A
Stock and each holder of record of Series B Stock written notice of any such
impending transaction not later than ten (10) days prior to the shareholder
meeting called to approve such transaction, or twenty (20) days prior to the
closing of such transaction whichever notice date is earlier, and shall also
notify such holders in writing of the final approval of such transaction.
4. Conversion. The holders of the Series A Stock and Series B Stock
----------
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert; Automatic Conversion.
--------------------------------------
(i) Series A Stock. Subject to Article III(C)4(c) hereof,
--------------
each share of Series A Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
this corporation or any transfer agent for the Series A Stock, into such number
of fully paid and nonassessable shares of Class A Common Stock as is determined
by dividing the Original Issue Price for the Series A Stock by the then-
effective Conversion Price for the Series A Stock (the "Series A Conversion
Rate"). The Conversion Price per share for shares of Series A Stock shall be
$_____.
Each share of Series A Stock shall automatically be
converted into shares of Class A Common Stock at the then effective Series A
Conversion Rate (a) immediately prior to the closing of the first sale by this
corporation of shares of its Common Stock in a firm commitment
-6-
<PAGE>
underwriting pursuant to a registration statement under the Securities Act of
1933, as amended, at a public offering price (before deduction of underwriters'
discounts and commissions) of at least $_____ per share (as adjusted to reflect
subsequent stock dividends, stock splits or recapitalization) and at least
$____________ in the aggregate or (b) upon the written consent of holders of
66.67% of the then outstanding Series A Stock voting together as a separate
class.
(ii) Series B Stock. Subject to Article III(C)4(c) hereof, each
--------------
share of Series B Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
this corporation or any transfer agent for the Series B Stock, into such number
of fully paid and nonassessable shares of Class B Common Stock as is determined
by dividing the Original Issue Price for the Series B Stock by the
then-effective Conversion Price for the Series B Stock (the "Series B Conversion
Rate") or, at the option of the holder thereof, on a one-to-one basis into fully
paid and nonassessable shares of Series A Stock. The Conversion Price per share
for shares of Series B Stock shall be $_____.
Each share of Series B Stock shall automatically be converted
into shares of Class B Common Stock at the then effective Series B Conversion
Rate (a) immediately prior to the closing of the first sale by this corporation
of shares of its Common Stock in a firm commitment underwriting pursuant to a
registration statement under the Securities Act of 1933, as amended, at a public
offering price (before deduction of underwriters' discounts and commissions) of
at least $_____ per share (as adjusted to reflect subsequent stock dividends,
stock splits or recapitalization) and at least $____________ in the aggregate or
(b) upon the written consent of holders of 66.67% of the then outstanding Series
B Stock voting together as a separate class.
(b) Automatic Conversion Based Upon Beneficial Ownership. If the
----------------------------------------------------
beneficial ownership (as determined under Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended) of any share of Series B Stock is initially or changes, voluntarily or
involuntarily, such that, at any time after the Class B Convertibility Date,
Rain, or an affiliate of Rain, is not the beneficial owner of such share, then
such share of Series B Stock shall thereupon be converted automatically into one
(1) fully paid and nonassessable share of Series A Stock. A determination by the
Secretary of the corporation that a share's beneficial ownership requires
conversion under this paragraph shall be conclusive. Upon making such
determination, the Secretary of the corporation shall promptly request of the
holder of record of such share that such holder promptly deliver, and such
holder shall promptly deliver, the certificate representing such share to the
corporation for documentation of such conversion, together with instruments of
transfer, in form satisfactory to the corporation and Transfer Agent, duly
executed by such holder or such holder's duly authorized attorney, and together
with transfer tax stamps or funds therefor, if required pursuant to Section 3(d)
of this Article.
(c) Mechanics of Conversion. Before any holder of Series A Stock
-----------------------
shall be entitled to convert the same into shares of Class A Common Stock and
before any holder of Series B Stock shall be entitled to convert the same into
shares of Class B Common Stock or Series A Stock, such holder shall surrender
the certificate or certificates therefore, duly endorsed, at the office of this
corporation or of any transfer agent for the Series A Stock or Series B Stock,
as applicable, and shall give written notice by mail, postage prepaid, to this
corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
-7-
<PAGE>
certificates for shares of Class A Common Stock or Class B Common Stock or
Series A Stock issuable upon such conversion are to be issued. This corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder, or to the nominee or nominees of such holder, the new certificate
or certificates. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares to be
converted, and the person or persons entitled to receive the shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares as of such date. If the conversion is in connection with
an underwritten offering of securities registered pursuant to the Securities Act
of 1933, as amended, the conversion may, at the option of any holder tendering
Series A Stock or Series B Stock for conversion, be conditioned upon the closing
with the underwriter of the sale of securities pursuant to such offering, in
which event the person(s) entitled to receive the Class A Common Stock or Class
B Common Stock issuable upon such conversion of the Series A Stock or Series B
Stock shall not be deemed to have converted such Series A Stock or Series B
Stock until immediately prior to the closing of such sale of securities.
(d) Conversion Price Adjustments of Series A Stock and Series B
-----------------------------------------------------------
Stock. The Conversion Price of the Series A Stock and Series B Stock shall be
- -----
subject to adjustment from time to time as follows:
(i) In the event this corporation at any time or from time to
time fixes a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
------------------------
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend, distribution, split or subdivision if
no record date is fixed), the then-effective Conversion Price of the Series A
Stock shall be appropriately decreased so that the number of shares of Class A
Common Stock issuable on conversion of each share of Series A Stock shall be
increased in proportion to such increase in the aggregate numbers of shares of
Class A Common Stock outstanding and those issuable with respect to such Common
Stock Equivalents, with the number of shares issuable with respect to Common
Stock Equivalents determined from time to time in the manner provided for deemed
issuances in Article III(C)4(c)(i)(D) hereof, unless concurrently with the
foregoing split or subdivision of the outstanding shares of Common Stock, the
outstanding Series A Stock is also similarly split or subdivided.
(ii) In the event this corporation at any time or from time to
time fixes a record date for the effectuation of a split or subdivision of the
outstanding shares of Common Stock or the determination of holders of Common
Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
------------------------
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend, distribution, split or subdivision if
no record date is
-8-
<PAGE>
fixed), the then-effective Conversion Price of the Series B Stock shall be
appropriately decreased so that the number of shares of Class B Common Stock
issuable on conversion of each share of Series B Stock shall be increased in
proportion to such increase in the aggregate numbers of shares of Class B Common
Stock outstanding and those issuable with respect to such Common Stock
Equivalents, with the number of shares issuable with respect to Common Stock
Equivalents determined from time to time in the manner provided for deemed
issuances in Article III(C)4(c)(i)(D) hereof, unless concurrently with the
foregoing split or subdivision of the outstanding shares of Common Stock, the
outstanding Series B Stock is also similarly split or subdivided.
(iii) If the number of shares of Class A Common Stock outstanding
at any time is decreased by a combination of the outstanding shares of Class A
Common Stock, then, following the record date of such combination, the
then-effective Conversion Price for the Series A Stock shall be appropriately
increased so that the number of shares of Class A Common Stock issuable on
conversion of each share of Series A Stock shall be decreased in proportion to
such decrease in the outstanding shares of Class A Common Stock, unless
concurrently with the foregoing combination of the outstanding shares of Class A
Common Stock, the outstanding Series A Stock is also similarly combined.
(iv) If the number of shares of Class B Common Stock outstanding
at any time is decreased by a combination of the outstanding shares of Class B
Common Stock, then, following the record date of such combination, the then-
effective Conversion Price for the Series B Stock shall be appropriately
increased so that the number of shares of Class B Common Stock issuable on
conversion of each share of Series B Stock shall be decreased in proportion to
such decrease in the outstanding shares of Class B Common Stock, unless
concurrently with the foregoing combination of the outstanding shares of Class B
Common Stock, the outstanding Series B Stock is also similarly combined.
(v) Other Distributions. In the event this corporation shall
-------------------
declare a distribution payable in securities of other persons, evidences of
indebtedness issued by this corporation or other persons, assets (excluding cash
dividends) or options or rights not referred to in Article III(C)4(c)(iii)
hereof, then, in each such case for the purpose of Article III(C)4(d) hereof,
the holders of Series A Stock or Series B Stock shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of this corporation into which their shares
of Series A Stock or Series B Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of this corporation
entitled to receive such distribution.
(e) Recapitalization. If at any time or from time to time there shall
----------------
be a recapitalization of the Common Stock (other than a subdivision, combination
or consolidation, merger or sale of assets transaction provided for in Article
III(C)3 hereof), provision shall be made so that each holder of Series A Stock
and each holder of Series B stock shall thereafter be entitled to receive, upon
conversion of Series A Stock or Series B Stock, the number of shares of stock or
other securities or property of this corporation or otherwise, receivable upon
such recapitalization by a holder of the number of shares of Common Stock into
which such shares of Series A Stock or Series B Stock could have been converted
immediately prior to such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Article
III(C)4
-9-
<PAGE>
with respect to the rights of the holders of the Series A Stock and Series B
Stock after the recapitalization to the end that the provisions of this Article
III(C)4 (including adjustment of the Conversion Price then in effect and the
number of shares purchasable upon conversion of the Series A Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(f) No Impairment. This corporation will not, by amendment of its
-------------
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Article III(C)4 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series A Stock and Series B Stock against impairment.
(g) No Fractional Shares. No fractional shares shall be issued upon
--------------------
conversion of the Series A Stock or Series B Stock, and the number of shares of
Class A Common Stock, Class B Common Stock or Series A Stock to be issued shall
be rounded down to the nearest whole share, and there shall be no payment, for
any such rounded fractional share. Whether or not fractional shares result from
such conversion shall be determined on the basis of the total number of shares
of Series A Stock and the total number of shares of Series B Stock the holder is
at the time converting and the number of shares issuable upon such aggregate
conversion and the total number of shares of Series B Stock the holder is at the
time converting.
(h) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price of Series A Stock or Series B
Stock pursuant to this Article III(C)4, this corporation, at its expense, shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series A Stock and to each
holder of Series B Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. This corporation shall, upon the written request at any
time of any holder of Series A Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Conversion Price at the time in effect, and (C) the number of shares of
Class A Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of a share of Series A Stock. This
corporation shall, upon the written request at any time of any holder of Series
B Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (A) such adjustment and readjustment, (B) the Conversion Price at
the time in effect, and (C) the number of shares of Class B Common Stock or
Series A Stock and the amount, if any, of other property which at the time would
be received upon the conversion of a share of Series B Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series A Stock and to each holder of
Series B Stock, at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose
-10-
<PAGE>
of such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion.
---------------------------------------------
(i) Series A Stock. This corporation shall at all times reserve
--------------
and keep available out of its authorized but unissued shares of Class A Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series A Stock, such number of its shares of Class A Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
the Series A Stock; and if at any time the number of authorized but unissued
shares of Class A Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Stock, then in addition to such
other remedies as shall be available to the holders of such Series A Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Class A
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
approval of any necessary amendment to these articles.
(ii) Series B Stock. This corporation shall at all times reserve
--------------
and keep available out of its authorized but unissued shares of Class B Common
Stock and Series A Stock, solely for the purpose of effecting the conversion of
the shares of the Series B Stock, such number of its shares of each of Class B
Common Stock and Series A Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Stock; and if at
any time the number of authorized but unissued shares of each of Class B Common
Stock and Series A Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Series B Stock, then in addition to such other
remedies as shall be available to the holders of such Series B Stock, this
corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Class B
Common Stock and Series A Stock to such number of shares as shall be sufficient
for such purposes, including, without limitation, engaging in best efforts to
obtain the requisite approval of any necessary amendment to these articles.
(k) Notices. Any notice required by the provisions of this Article
-------
III(C)4 to be given to the holders of shares of Series A Stock or Series B Stock
shall be deemed given if sent by facsimile, by telex, or if deposited in the
United States mail, postage prepaid, and addressed to each holder of record at
his, her or its address appearing on the books of this corporation.
5. Voting Rights.
-------------
(i) Series A Stock. The holder of each share of Series A Stock
--------------
shall have the right to one vote for each share of Class A Common Stock into
which such Series A Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded down to the nearest
whole share), and with respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Class
A Common Stock, and shall be entitled, notwithstanding any provision hereof, to
notice of any shareholders' meeting in accordance with the Bylaws of this
corporation and applicable law, and shall be entitled
-11-
<PAGE>
to vote, together with holders of Class A Common Stock, with respect to any
question upon which holders of Class A Common Stock have the right to vote.
(ii) Series B Stock. The holder of each share of Series B Stock
--------------
shall have the right to the same number of votes as could be cast by the
share(s) of Class B Common Stock into which such Series B Stock could then be
converted (with any fractional share determined on an aggregate conversion basis
being rounded down to the nearest whole share), and with respect to such vote,
such holder shall have full voting rights and powers equal to the voting rights
and powers of the holders of Class B Common Stock, and shall be entitled,
notwithstanding any provision hereof, to notice of any shareholders' meeting in
accordance with the Bylaws of this corporation and applicable law, and shall be
entitled to vote, together with holders of Class B Common Stock, with respect to
any question upon which holders of Class B Common Stock have the right to vote.
6. Protective Provisions. So long as any shares of Series A Stock or
---------------------
Series B Stock are outstanding, and in addition to any other approval required
by law, this corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the Series A Stock and Series B Stock voting together as a single
class, instigate or consummate the following actions:
(a) Rights, Etc. of Series A Stock. Alter or change the rights,
------------------------------
preferences or privileges of the shares of Series A Stock or Series B Stock,
whether by amendment of this corporation's Articles of Incorporation or
otherwise;
(b) Increase in Authorized Series A Stock or Series B Stock. Increase
-------------------------------------------------------
the authorized number of shares of Series A Stock or Series B Stock;
(c) Creation of New Stock. Create any new class or series of stock or
---------------------
any other debt or equity securities convertible into equity securities of this
corporation or reclassify outstanding shares into shares (i) having a preference
over, or being on a parity with, Series A Stock or Series B Stock with respect
to voting, dividends, conversion or upon liquidation or dissolution of this
corporation, or (ii) having rights similar to any of the rights of Series A
Stock or Series B Stock under this Article III(C);
(d) Dividends, Distribution. Declare or pay any dividends on, or make
-----------------------
any distributions with respect to, any shares of any equity security of any kind
of this corporation, other than (A) dividends on Common Stock payable solely in
Common Stock, and (B) dividends or distributions made in accordance with Article
III(C)2 hereof;
(e) Repurchases. Repurchase or redeem any shares of Common Stock,
-----------
Series A Stock, Series B Stock or Common Stock Equivalents of this corporation,
other than for the original price per share paid for such shares pursuant to
repurchase agreements entered into at the time of issuance of such shares to
employees, directors or consultants; or
(f) Recapitalization. Recapitalize in any manner the capital stock of
----------------
this corporation.
-12-
<PAGE>
7. Status of Converted Stock. In the event any shares of Series A Stock
-------------------------
or Series B Stock are converted pursuant to Article III(C)4 hereof, the shares
so converted shall be canceled, retired and eliminated and shall not be reissued
by this corporation. The Articles of Incorporation of this corporation shall be
appropriately amended to effect the corresponding reduction in this
corporation's authorized capital stock.
8. Repurchase of Shares. In connection with repurchases by this
--------------------
corporation of shares of its Common Stock pursuant to agreements with certain of
the holders thereof, each holder of Series A Stock and each holder of Series B
Stock shall, by virtue of such holder's acceptance of a certificate evidencing
Preferred Stock, be deemed to have consented to all such repurchases for
purposes of Sections 502, 503 and 506 of the California General Corporation Law.
ARTICLE IV
(A) Liability Limitation. The liability of the directors of this
--------------------
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
(B) Indemnification. This corporation is authorized to provide
---------------
indemnification of agents (as defined in Section 317 of the California
Corporations Code) for breach of duty to the corporation and its shareholders
through bylaw provisions, agreements with the agents, vote of shareholders or
disinterested directors, or otherwise in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject only to
the applicable limits set forth in Section 204 of the California Corporations
Code.
ARTICLE V
The foregoing Amended and Restated Articles of Incorporation set forth
herein have been duly approved by the Board of Directors of the corporation.
The foregoing Amended and Restated Articles of Incorporation set forth
herein have been duly approved by the required vote of the shareholders of the
corporation in accordance with Section 902 and 903 of the California
Corporations Code. The corporation has two classes of stock, and the number of
outstanding shares is 4,521,330 shares of Common Stock and 79,086,774 shares of
Preferred Stock, consisting of 3,000,000 shares of Series A Preferred Stock,
4,946,000 shares of Series B Preferred Stock, 9,139,485 shares of Series C
Preferred Stock, 7,838,085 shares of Series D Preferred Stock, 12,700,370 shares
of Series E Preferred Stock, 34,681,280 shares of Series F Preferred Stock,
935,616 shares of Series G Preferred Stock, 5,845,938 shares of Series H
Preferred Stock and _______ shares of Series I Preferred Stock. The number of
shares voting in favor of the amendment set forth herein equaled or exceeded the
vote required. The percentage vote required was more than 50% of the outstanding
shares of Common Stock, more than 50% of the outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock, Series F Preferred Stock, Series G
Preferred Stock, Series H Preferred Stock and Series I Preferred Stock voting
together as a single class, and more than 66 2/3% of the outstanding shares of
Series F Preferred Stock and Series H Preferred Stock voting together as a
separate class. There are no shares of Series H-1 Preferred Stock outstanding.
-13-
<PAGE>
The undersigned further declares under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are true
and correct of her knowledge.
Date: ____________, 2000
___________________________________________
President, Chief Executive Officer and
Secretary
-14-
<PAGE>
EXHIBIT C
---------
FORM OF OPINION OF COUNSEL TO THE COMPANY
We have acted as counsel for RightWorks Corporation, a California corporation
(the "Company"), in connection with (i) that certain Recapitalization and
Exchange Offer Agreement and Plan of Reorganization dated as of March __, 2000
(the "Reorganization Agreement") among Internet Capital Group, Inc., a Delaware
corporation ("Parent"), Rain Acquisition Corp., a Delaware corporation ("Sub"),
and the Company and (ii) that certain Stock Purchase Agreement dated as of March
__, 2000 (the "Purchase Agreement") between Sub and the Company. We are
rendering this opinion pursuant to Section 6.2(d) of the Reorganization
Agreement. Capitalized terms used but not defined herein have the respective
meanings given to them in the Reorganization Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Reorganization Agreement by the various parties and originals or
copies, certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to our knowledge" or concerning an item "known to us" or "of which
we are aware" or our opinion otherwise refers to our knowledge, it is based
solely upon (i) an inquiry of attorneys within this firm who have performed
legal services for the Company with respect to the Reorganization Agreement and
the transactions contemplated thereby, (ii) receipt of a certificate executed by
an officer of the Company covering such matters and (iii) such other
investigation, if any, that we specifically set forth herein; we advise you that
(a) that dockets of courts and administrative agencies have not been examined
and (b) that constructive knowledge should not be implied.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Reorganization Agreement and Purchase Agreement), where
authorization, execution and delivery are prerequisites to the effectiveness of
such documents. We have also assumed: that all individuals executing and
delivering documents had the legal capacity to so execute and deliver; that
Parent and Sub have received all documents they were to receive under the
Reorganization Agreement and Purchase Agreement; that each of the Reorganization
Agreement and Purchase Agreement is an obligation binding upon Parent and/or
Sub, as the case may be; that each of Parent and Sub has filed any required
California franchise or income tax returns and paid any required California
franchise or income taxes; and that there are no extrinsic agreements or
understandings among the parties to the Reorganization Agreement or the Purchase
Agreement that would modify or interpret the terms of the Reorganization
Agreement or the Purchase Agreement or the respective rights or obligations of
the parties thereunder.
1
<PAGE>
Our opinion is expressed only with respect to the federal laws of the United
States of America, the laws of the State of California and the securities laws
of the State of Pennsylvania. We express no opinion as to whether the laws of
any particular jurisdiction apply, and no opinion to the extent that the laws of
any jurisdiction other than those identified above are applicable to the subject
matter hereof. With respect to the securities laws of the State of Pennsylvania,
we have based our opinion solely upon our examination of such laws and the rules
and regulations of the authorities administering such laws, all as reported in
unofficial compilations. Neither special rulings of such authorities nor
opinions of counsel in said jurisdiction have been obtained. We are not
rendering any opinion as to compliance with any antifraud law, rule or
regulation relating to securities or to the sale or issuance thereof, or as to
compliance with any antitrust law.
With regard to our opinion in paragraph 2 below, we have examined and relied
upon a certificate executed by an officer of the Company to the effect that the
consideration for all outstanding shares of capital stock of the Company was
received by the Company in accordance with the provisions of the applicable
Board of Directors resolutions and any plan or agreement relating to the
issuance of such shares, and we have undertaken no independent verification with
respect thereto. Additionally, with regard to our opinion in paragraph 2 below,
with respect to shares of the Company's capital stock issued prior to October
12, 1999, we have relied upon an opinion issued on October 12, 1999 by Wilson
Sonsini Goodrich & Rosati, Professional Corporation, to the purchasers of the
Series H Preferred Stock of the Company.
With regard to our opinion in paragraph 5 below with respect to material
defaults under any material agreement known to us, we have relied solely upon
(i) inquiries of officers of the Company, (ii) a list supplied to us by the
Company, a copy of which is attached hereto as Exhibit A, of material agreements
to which the Company is a party or by which it is bound, and (iii) an
examination of the items on the aforementioned list; we have made no further
investigation.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and, to our knowledge,
except as set forth in the Company Disclosure Schedule, is duly qualified or
licensed as a foreign corporation to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Company Material Adverse Effect. The Company has all requisite corporate power
and authority to own and operate its properties, to lease the properties it
currently operates under lease, and to carry on its business as now being
conducted.
2. Immediately prior to the filing of the Amended and Restated Articles,
the authorized capital stock of the Company consisted of 100,000,000 shares of
Common Stock, of which _________ shares were issued and outstanding, and
87,276,219 shares of Preferred, of which 3,000,000 shares have been designated
Series A Preferred Stock, 4,946,000 shares have been designated Series B
Preferred Stock, 9,139,485 shares have been designated Series C Preferred Stock,
7,838,085 shares have been designated Series D Preferred Stock, 14,417,093
shares have been designated Series E Preferred Stock, 35,000,000 shares have
been designated Series F Preferred Stock, 1,000,000 shares have been designated
Series G Preferred Stock, 8,428,935 shares have been designated Series H
Preferred Stock, 6,621 shares have been designated Series H-1 Preferred Stock,
2
<PAGE>
and 3,500,000 shares have been designated Series I Preferred Stock, of which
3,000,000; 4,946,000; 9,139,485; 7,838,085; 12,700,370; 34,681,280; 935,616;
5,845,938; 0; and 2,449,407 shares were issued and outstanding, respectively. To
our knowledge, (i) there currently are options outstanding for the purchase of
an aggregate of _________ shares of Company Common Stock under the Plan and
options to purchase an additional _________ shares of Company Common Stock
outstanding outside of the Plan and (ii), except as disclosed in Part 2.2 of the
Company Disclosure Schedule, there currently are no other outstanding
commitments to issue any shares of capital stock or voting securities of the
Company. Except as disclosed in Part 2.2 of the Company Disclosure Schedule, all
outstanding shares of the Company capital stock are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
or rights of first refusal created by statute, the Articles of Incorporation or
Bylaws of the Company or, to our knowledge, any agreement to which the Company
is a party or by which it is bound, other than rights which have been waived. To
our knowledge, except as disclosed in Part 2.2 of the Company Disclosure
Schedule and except for the rights created pursuant to the Reorganization
Agreement and the Purchase Agreement, there are no other options, calls, rights,
commitments or agreements of any character to which the Company is a party or by
which it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of capital stock of the Company.
3. The Company has all requisite corporate power and authority to enter
into the Reorganization Agreement and the Purchase Agreement and to consummate
the transactions contemplated thereby. The execution and delivery of the
Reorganization Agreement and the Purchase Agreement and the consummation of the
transactions contemplated thereby have been duly authorized by all necessary
corporate actions and proceedings on the part of the Company and the
Shareholders. The Reorganization Agreement and the Purchase Agreement have been
duly executed and delivered by the Company and constitute legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms.
4. To our knowledge, no consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required by the Company in connection with the execution and delivery of the
Reorganization Agreement or the Purchase Agreement or the consummation of the
transactions contemplated thereby other than (i) the filing of the Amended and
Restated Articles with the Secretary of State of the State of California, (ii)
the filing of a Notice of Transaction pursuant to Section 25102(f) of the
California Corporate Securities Law of 1968 and any filing which may be required
in the State of Pennsylvania, (iii) the filing of a Form D pursuant to
Regulation D promulgated under the Securities Act of 1933, as amended, and (iv)
as set forth in the Company Disclosure Schedule.
5. To our knowledge, there is no action, suit, proceeding, claim or
investigation pending or overtly threatened against the Company, its properties
or any of its officers or directors (in their capacities as such) which is not
disclosed in the Company Disclosure Schedule, nor to our knowledge is there any
action, suit, proceeding, claim or investigation pending or overtly threatened
against the Company, its properties or any of its officers or directors (in
their capacities as such) which challenges or seeks to enjoin, alter or
materially delay any of the transactions contemplated by the Reorganization
Agreement and the Purchase Agreement.
3
<PAGE>
6. Except for such filings, notices, permits, consents and approvals as
have been made, given or obtained, the execution, delivery and performance of
the Reorganization Agreement and Purchase Agreement by the Company will not: (i)
violate any provision of the Articles of Incorporation or Bylaws of the Company;
(ii) violate any law, ordinance or regulation or, to our knowledge, any order,
judgment, injunction, decree or other requirement of any court, arbitrator or of
any governmental or regulatory body applicable to the Company; (iii) except as
set forth in paragraph 4 above, require any filing with, notice to or permit,
consent or approval of any governmental or regulatory body; (iv) to our
knowledge, result in the creation of any lien or other encumbrance on the assets
or properties of the Company; or (v) except as disclosed in the Company
Disclosure Schedule, constitute a material default under the provisions of any
material agreement known to us to which the Company is a party or by which it is
bound, excluding from the foregoing clauses (ii), (iii), (iv) and (v) any
exceptions to the foregoing that, in the aggregate, would not have a Company
Material Adverse Effect or a material adverse effect on the ability of the
Company to consummate the transactions contemplated by the Reorganization
Agreement and the Purchase Agreement.
This opinion is intended solely for your benefit and is not to be made available
to anyone (other than an employee or representative of Internet Capital Group,
Inc.) or be relied upon by any other person, firm, or entity without our prior
written consent.
4
<PAGE>
Exhibit A
1. Subordinated Loan Security Agreement June 25, 1999 between Comdisco, Inc.
and the Company.
2. Software Development Agreement dated February 22, 1999 and a Patent
Assignment and Software License Agreement dated February 22, 1999 between
Silicon Graphics, Inc. and the Company.
3. Hosted Portal Use License Agreement between Silicon Valley Bank and the
Company, dated December 31, 1999.
4. Hosted Portal License Agreement between FacilityPro.com and the Company,
dated December 30, 1999.
5. Hosted Portal License Agreement between Hotelworks and the Company, dated
January 21, 2000.
6. Hosted Portal Software License Agreement between Bank One, NA e-Solutions
and the Company, dated March 1, 2000.
7. Portal Software License Agreement between ShopNow.com and the Company,
dated January 21, 2000.
8. Portal Software License Agreement between Embion, Inc. and the Company,
dated February 23, 2000.
9. Software License Agreement between Computer Sciences Corporation and the
Company, dated December 28, 1999.
10. Software License and Distribution Agreement between Commerce One and the
Company, dated December 16, 1999.
11. Software License Agreement between Fujitsu Computer Products of America and
the Company, dated June 8, 1998.
12. Software License and Maintenance Agreement between Dynegy Inc. and the
Company, dated March 31, 1999.
13. Enterprise License Agreement between Applied Materials and the Company,
dated April 27, 1998.
14. Subscription and Distribution Agreement between Commerce One, Inc. and the
Company, dated December 16, 1999.
15. Joint Marketing, Licensing and Content Provider Agreement between
InfoSpace.com, Inc. and the Company, dated December 20, 1999.
A-1
<PAGE>
16. Software Agreement between Norwest Services, Inc. and the Company, dated
July 28, 1999.
17. Restricted Use License Agreement between RoweCom Inc. and the Company,
dated March 26, 1999.
18. Software Agreement between Norwest Services, Inc. and the Company, dated
July 28, 1999.
19. Software Evaluation Agreement between E-TEK Dynamics and the Company, dated
April 23, 1998.
20. Employment Agreement dated March __, 2000 between the Company and Vani
Kola.
21. Consulting Agreement between Russ Bohart and the Company, dated October 1,
1999.
22. Engineering Services Agreement between INFOSYSTEMS America Inc. and the
Company, dated July 13, 1999.
23. Consulting Partnership Agreement between Cybercom Partners, Inc. and the
Company, dated February 8, 1996.
24. Strategic Alliance Memorandum of Understanding between FASTXchange Inc. and
the Company, dated August 6, 1999.
25. Alliance Partner Memorandum of Understanding between Harbinger Corporation
and the Company, dated March 1999.
26. Joint Referral Agreement between Harbinger Corporation and the Company,
dated May 12, 1999.
27. Joint Catalog Access Agreement between Online Office Supplies and the
Company, dated February 28, 2000.
28. Joint Catalog Access Agreement between Office Depot and the Company, dated
February 25, 2000.
29. Joint Catalog Access Agreement between Adecco and the Company, dated
February 10, 2000.
30. Joint Catalog Access Agreement between Boise Cascade Office Products
Corporation and the Company, dated March 2, 2000.
31. Joint Catalog Access Agreement between Wiznet, Inc. and the Company, dated
March 2, 2000.
32. Joint Catalog Access Agreement between Polyphasic, Inc. and the Company,
dated March 1, 2000.
33. Software Evaluation Agreement between webMethods, Inc. and the Company,
dated February 15, 2000.
34. Master Services Agreement between Exodus and the Company, dated August 26,
1999.
A-2
<PAGE>
35. Value Added Reseller Agreement between i2 Technologies, Inc. and the
Company, dated October 8, 1999.
36. Value Added Reseller Agreement between Aspect Development, Inc. and the
Company, dated December 29, 1999.
37. Value Added Reseller Agreement between VerticalNet, Inc. and the Company,
dated January 24, 1999.
38. Agreement with Broadview International LLC dated February 7, 2000.
A-3
<PAGE>
Exhibit 5.1
[Letterhead of Dechert Price & Rhoads]
April 13, 2000
Internet Capital Group, Inc.
435 Devon Park Drive
Building 600
Wayne, PA 19087
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen and Ladies:
We have acted as counsel to Internet Capital Group, Inc., a
Delaware corporation ("ICG"), in connection with the preparation and filing of
the Registration Statement on Form S-4 filed today (the "Registration
Statement"), with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the proposed
issuance of up to 23,000,000 shares (the "Shares") of common stock, par value
$.001 per share, of ICG ("Common Stock"), which will be issued from time to time
in connection with acquisitions by ICG, or its subsidiaries, of other
businesses, assets or securities.
We have participated in the preparation of the Registration
Statement and have made such legal and factual examination and inquiry as we
have deemed necessary for the rendering of this opinion. In making our
examination we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity to all
authentic original documents of all documents submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion
that when (i) issued, delivered and paid for in accordance with the terms of the
definitive agreements governing the issuance of such shares (the "Acquisition
Agreements"), assuming: (a) that at least par value will be paid for the
Remaining Shares, (b) that the execution and delivery of the Acquisition
Agreements and the issuance of the Remaining Shares governed thereby are duly
authorized and approved by the Board of Directors of ICG, and (c) the completion
of all proceedings to be taken in order to permit such issuances to be carried
out in accordance with applicable securities laws; and (ii)
<PAGE>
Internet Capital Group, Inc.
April 13, 2000
Page 2
certificates representing the Remaining Shares in the form of the specimen
certificate examined by us have been manually signed by an authorized officer of
the transfer agent and registrar for the Common Stock and registered by such
transfer agent and registrar, the issuance and sale of the Remaining Shares will
have been duly authorized, and the Remaining Shares will be validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the use of our name in the Prospectus
contained therein, under the caption "Legal Matters." In giving such consent we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act.
Very truly yours,
/s/ Dechert Price & Rhoads
<PAGE>
Exhibit 8.1
[LETTERHEAD OF COOLEY GODWARD LLP]
April 12, 2000
RightWorks Corporation
31 North Second Street
Suite 400
San Jose, California 95113
Ladies and Gentlemen:
We have acted as counsel to RightWorks Corporation, a California corporation
(the "Company") in connection with the offer by Rain Acquisition Corp., a
Delaware corporation ("Sub") and a wholly-owned subsidiary of Internet Capital
Group, Inc., a Delaware corporation ("Parent"), to exchange shares of Parent
common stock, par value $.001 per share ("Parent Common Stock"), for shares of
capital stock of the Company pursuant to a Recapitalization and Exchange Offer
Agreement and Agreement and Plan of Reorganization made and entered into as of
March 7, 2000 (the "Agreement"). The Offer and certain proposed transactions
incident thereto are described in the Registration Statement on Form S-4 (the
"Registration Statement") of Parent which includes the Proxy
Statement/Prospectus of the Company (the "Proxy Statement/Prospectus"). This
opinion is being rendered pursuant to the requirements of Item 21(a) of Form S-4
under the Securities Act of 1933, as amended. Unless otherwise indicated, any
capitalized terms used herein and not otherwise defined have the meaning
ascribed to them in the Proxy Statement/Prospectus.
In connection with this opinion, we have examined and are familiar with the
Agreement, the Registration Statement, and such other presently existing
documents, records and matters of law as we have deemed necessary or appropriate
for purposes of our opinion.
Based upon and subject to the foregoing, in our opinion, the discussion
contained in the Registration Statement under the caption "Material United
States Federal Income Tax Consequences of the RightWorks Exchange Offer,"
subject to the assumptions, limitations, conditions and qualifications described
therein, sets forth the material United States Federal income tax considerations
generally applicable to the Offer. Because this opinion is being delivered
prior to the Closing Date of the Offer, it must be considered prospective and
dependent on future events. There can be no assurance that changes in the law
will not take place which could affect the United States Federal income tax
consequences of the Offer or that contrary positions may not be taken by the
Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as
Exhibit 8.1 to the Registration Statement. We also consent to the reference to
our firm name wherever appearing in the
<PAGE>
[LETTERHEAD OF COOLEY GODWARD LLP]
RightWorks Corporation
April 12, 2000
Page Two
Registration Statement with respect to the discussion of the material federal
income tax consequences of the Offer, including the Proxy Statement/Prospectus
constituting a part thereof, and any amendment thereto. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder, nor do we
thereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Sincerely,
Cooley Godward LLP
/s/ Susan Cooper Philpot
Susan Cooper Philpot
SCP:ls
<PAGE>
Exhibit 8.2
[Wilson Sonsini Goodrich & Rosati Letterhead]
April 12, 2000
Internet Capital Group, Inc.
435 Devon Park Drive
Building 800
Wayne, Pennsylvania 19087
Ladies and Gentlemen:
We have acted as counsel to Internet Capital Group, Inc., a Delaware
corporation ("Parent") in connection with the offer (the "Offer") by Rain
Acquisition Corp., a Delaware corporation ("Sub") and a wholly-owned subsidiary
of Parent, to exchange shares of Parent common stock, par value $.001 per share
(the "Parent Common Stock"), for a number of shares of capital stock of
RightWorks Corporation, a California corporation (the "Company") pursuant to a
Recapitalization and Exchange Offer Agreement and Agreement and Plan of
Reorganization made and entered into as of March 7, 2000 (the "Agreement"). The
Offer and certain proposed transactions incident thereto are described in the
Registration Statement on Form S-4 (the "Registration Statement") of Parent
which includes the Proxy Statement/Prospectus of the Company (the "Proxy
Statement/Prospectus"). This opinion is being rendered pursuant to the
requirements of Item 21(a) of Form S-4 under the Securities Act of 1933, as
amended. Unless otherwise indicated, any capitalized terms used herein and not
otherwise defined have the meaning ascribed to them in the Proxy
Statement/Prospectus.
In connection with this opinion, we have examined and are familiar with the
Agreement, the Registration Statement, and such other presently existing
documents, records and matters of law as we have deemed necessary or appropriate
for purposes of our opinion.
Based upon and subject to the foregoing, in our opinion, the discussion
contained in the Registration Statement under the caption "Material United
States Federal Income Tax Consequences of the RightWorks Exchange Offer,"
subject to the assumptions, limitations, conditions and qualifications described
therein, sets forth the material United
<PAGE>
Internet Capital Group, Inc.
April 12, 2000
Page 2
States Federal income tax considerations generally applicable to the Offer.
Because this opinion is being delivered prior to the Closing Date of the Offer,
it must be considered prospective and dependent on future events. There can be
no assurance that changes in the law will not take place which could affect the
United States Federal income tax consequences of the Offer or that contrary
positions may not be taken by the Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as
Exhibit 8.2 to the Registration Statement. We also consent to the reference to
our firm name wherever appearing in the Registration Statement with respect to
the discussion of the material federal income tax consequences of the Offer,
including the Proxy Statement/Prospectus constituting a part thereof, and any
amendment thereto. In giving this consent, we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
/s/ Wilson Sonsini Goodrich & Rosati
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
Exhibit 10.31
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is dated as of March 28, 2000
and is made by and among INTERNET CAPITAL GROUP, INC., a Delaware corporation
("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG Holdings" and together
with ICG, each a "Borrower" and collectively the "Borrowers"), the BANKS (as
hereinafter defined), PNC BANK, NATIONAL ASSOCIATION, in its capacity as
administrative agent for the Banks under this Agreement (hereinafter referred to
in such capacity as the "Administrative Agent"), BANK OF AMERICA, N.A. ("Bank of
America"), DEUTSCHE BANK AG NEW YORK BRANCH/CAYMAN ISLAND BRANCH ("Deutsche
Bank" and together with Bank of America, each a "Co-Syndication Agent" and
collectively, the "Co-Syndication Agent's") and PNC CAPITAL MARKETS, INC., as
Lead Arranger (in such capacity, the "Lead Arranger").
WITNESSETH:
WHEREAS, the Borrowers, the Administrative Agent and certain Banks (the
"Existing Banks") have entered into that certain Existing Agreement (as
hereinafter defined) pursuant to which the Existing Banks agreed to make
extensions of credit available to the Borrowers on the terms and conditions set
forth therein; and
WHEREAS, the Borrowers, the Agents, and the Banks party hereto desire to
amend the Existing Agreement in certain respects more fully described
hereinafter; and
WHEREAS, pursuant to the terms of this Agreement, on the Effective Date (as
hereinafter defined), (i) all loans and other obligations of the Borrowers to
the Existing Lenders outstanding as of such date shall be deemed to be loans and
obligations outstanding hereunder, (ii) the New Banks (as hereinafter defined)
shall become parties to this Agreement, and (iii) all provisions of this
Agreement not previously in effect shall become effective; and
WHEREAS, the Borrowers and the Guarantors have requested the Banks to
provide (i) a 364-day line of credit facility to the Borrowers in an aggregate
principal amount not to exceed $125,000,000; and (ii) a revolving credit
facility to the Borrowers in an aggregate principal amount not to exceed
$125,000,000; and
WHEREAS, the line of credit facilities and the revolving credit facilities
shall be used for working capital purposes and capital expenditures, including
issuance of letters of credit and for Acquisitions (as hereinafter defined),
subject to the limitations set forth in Section 8.1.15 hereof; and
WHEREAS, the Banks are willing to provide such credit upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, hereby covenant and agree that effective upon the Effective Date, the
Existing Agreement is hereby amended and restated in its entirety as follows:
<PAGE>
CREDIT AGREEMENT
1. CERTAIN DEFINITIONS
-------------------
1.1 Certain Definitions.
-------------------
In addition to words and terms defined elsewhere in this Agreement,
the following words and terms shall have the following meanings, respectively,
unless the context hereof clearly requires otherwise:
Account Control Agreement (In-Registration Company Pledged
----------------------------------------------------------
Securities) shall mean the Account Control Agreement (In-Registration Company
- -----------
Pledged Securities) in substantially the form of Exhibit 1.1(P(2) executed and
----------------
delivered by each of ICG, ICG Holdings and 1999 Internet Capital L.P., Merrill
Lynch, Pierce Fenner & Smith Incorporated and the Administrative Agent.
Account Control Agreement (Private Company Pledged Securities)
--------------------------------------------------------------
shall mean the Account Control Agreement (Private Company Pledged Securities) in
substantially the form of Exhibit 1.1(P)(3) executed and delivered by each of
-----------------
ICG, ICG Holdings and 1999 Internet Capital L.P., Merrill Lynch, Pierce Fenner &
Smith Incorporated and the Administrative Agent.
Account Control Agreement (Public Company Pledged Securities)
-------------------------------------------------------------
shall mean the Account Control Agreement (Public Company Pledged Securities) in
substantially the form of Exhibit 1.1(P)(4) executed and delivered by each of
-----------------
ICG, ICG Holdings and 1999 Internet Capital L.P., Merrill Lynch, Pierce Fenner &
Smith Incorporated and the Administrative Agent.
Account Control Agreement (Subject to Pledge Securities) shall
--------------------------------------------------------
mean the Account Control Agreement (Subject to Pledge Securities) in
substantially the form of Exhibit 1.1(P)(5) executed and delivered by each of
-----------------
ICG, ICG Holdings and 1999 Internet Capital L.P., Merrill Lynch, Pierce Fenner &
Smith Incorporated and the Administrative Agent.
Acquisition Entity of any Loan Party shall mean any U.S. Person
------------------
with respect to whom such Loan Party has acquired an ownership interest by
virtue of Acquisitions by such Loan Party permitted in accordance with the terms
hereof.
Acquisition Related Indebtedness shall mean, as to any Loan
--------------------------------
Party, any Indebtedness created, incurred, assumed or suffered to exist in
connection with, or related to, any Acquisition provided that (i) the payment of
principal of and interest on any such Indebtedness, and any other obligations of
any Loan Party in respect thereof, are subordinated to the prior payment in full
of the Notes and all other obligations and liabilities of any such Loan Party to
the Administrative Agent and the Banks hereunder on terms and conditions no less
favorable to the Administrative Agent and the Banks term as set forth in Exhibit
1.1(D)(1) attached hereto and (ii) the sole recourse of any holder of any such
- ---------
Indebtedness is to the Securities which have been acquired in connection with
any such Acquisition to the extent of any such outstanding Indebtedness and not
to any assets of any Loan Party, including, without limitation, any Pledged
Securities.
-2-
<PAGE>
CREDIT AGREEMENT
Acquisitions shall mean acquisitions of interests in Acquisition
------------
Entities in the ordinary course of business of any Loan Party by any purchase of
any debt or equity security, including without limitation, capital stock, bonds,
debentures, notes, general partnership interests, limited partnership interests,
limited liability company member interests, warrants or other rights, all
whether certificated or uncertificated in any Person including, but not limited
to, any loans, advances or extensions of credit (other than guaranties).
Administrative Agent shall mean PNC Bank, National Association,
--------------------
in its capacity as administrative agent for the Banks under this Agreement and
its successors in such capacity.
Administrative Agent's Fees shall have the meaning assigned to
---------------------------
that term in Section 10.15.
Administrative Agent's Letter shall have the meaning assigned to
-----------------------------
that term in Section 10.15.
Administrative Borrower shall have the meaning specified
-----------------------
therefor in Section 11.6 hereof.
Affiliate as to any Person shall mean any other Person (i) which
---------
directly or indirectly controls, is controlled by, or is under common control
with such Person, (ii) which beneficially owns or holds 10% or more of any class
of the voting or other equity interests of such Person, or (iii) 10% or more of
any class of voting interests or other equity interests of which is beneficially
owned or held, directly or indirectly, by such Person. Control, as used in this
definition, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise, including
the power to elect a majority of the directors or trustees of a corporation or
trust, as the case may be.
Agents shall mean the collective reference to the Administrative
------
Agent and the Co-Syndication Agents.
Agreement shall mean this Amended and Restated Credit Agreement,
---------
as the same may be supplemented or amended from time to time, including all
schedules and exhibits.
Annual Statements shall have the meaning assigned to that term
-----------------
in Section 6.1.9(i) .
Applicable Margin shall mean 2.00% per annum.
-----------------
Assignment and Assumption Agreement shall mean an Assignment and
-----------------------------------
Assumption Agreement by and among a Purchasing Bank, a Transferor Bank and the
Administrative Agent, as Administrative Agent and on behalf of the remaining
Banks, substantially in the form of Exhibit 1.1(A).
--------------
-3-
<PAGE>
CREDIT AGREEMENT
Authorized Officer shall mean those individuals, designated by
------------------
written notice to the Administrative Agent from the Administrative Borrower,
authorized to execute notices, reports and other documents on behalf of the Loan
Parties required hereunder. The Administrative Borrower may amend such list of
individuals from time to time by giving written notice of such amendment to the
Administrative Agent. As of the Closing Date, such authorized officers shall be
any of the Chief Executive Officer, President, Chief Financial Officer, Vice
Presidents, Treasurer or Assistant Treasurer of each Loan Party.
Banks shall mean the financial institutions named on Schedule
----- --------
1.1(B) and their respective successors and assigns as permitted hereunder, each
- ------
of which is referred to herein as a Bank.
Base Rate shall mean the greater of (i) the interest rate per
---------
annum announced from time to time by the Administrative Agent at its Principal
Office as its then prime rate, which rate may not be the lowest rate then being
charged commercial borrowers by the Administrative Agent, or (ii) the Federal
Funds Effective Rate plus 1/2% per annum.
Base Rate Option shall mean the option of the Borrowers to have
----------------
Revolving Credit Loans bear interest at the rate and under the terms and
conditions set forth in Section 4.1.1(i) [Base Rate Option].
Benefit Arrangement shall mean at any time an "employee benefit
-------------------
plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan nor
a Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to by any member of the ERISA Group.
Borrower and Borrowers shall have the meaning specified therefor
-------- ---------
in the preamble.
Borrowing Base shall mean, as of any date, the lesser of (a) the
--------------
Commitments and (b) a dollar amount equal to the sum of
(i) the lesser of (x) twenty-five percent (25%) of the
aggregate dollar value of the Qualified Public Company Unrestricted Securities
or (y) the Minimum Margin Value (as hereinafter defined), not to exceed
$100,000,000 per Acquisition Entity;
(ii) fifteen percent (15%) of the aggregate dollar value of the
Qualified Public Company Restricted Securities, not to exceed $50,000,000 per
Acquisition Entity;
(iii) twelve and one-half percent (12.5%) of the aggregate cost
basis of Qualified In-Registration Company Securities, not to exceed $25,000,000
per Acquisition Entity and $50,000,000 in the aggregate;
(iv) ten percent (10%) of the aggregate cost basis of Qualified
Private Company Restricted Securities, not to exceed $50,000,000 in the
aggregate; and
-4-
<PAGE>
CREDIT AGREEMENT
(v) five percent (5%) of the aggregate cost basis of Subject to
Pledge Private Company Restricted Securities, not to exceed $5,000,000 per
Acquisition Entity and $20,000,000 in the aggregate;
provided, however, that, notwithstanding anything to the contrary contained
- -------- -------
herein (A) in no event shall any advance made hereunder based on the aggregate
dollar value of Qualified Public Company Restricted Securities or the aggregate
dollar value of Qualified Public Company Unrestricted Securities in accordance
with clauses (i) and (ii) above, as the case may be, exceed the lesser of (x)
the then "maximum loan value" (as such term is defined in Regulation U) for
margin stock applicable thereto pursuant to Regulation U or (y) any ordinary and
customary maintenance requirements (the "Regulation T Requirements") with
respect to margin loans imposed by the New York or American Stock Exchange or
any applicable brokerage firm (the "Minimum Margin Value"); provided, further,
-------- -------
that, notwithstanding any such Regulation T Requirements, in no event shall the
percentage applicable under clause (i) above be less than fifteen percent (15%)
of the aggregate dollar value of such Qualified Public Company Unrestricted
Securities, (B) in determining the aggregate dollar value of Qualified Public
Company Unrestricted Securities and Qualified Public Company Restricted
Securities calculated in accordance with clauses (i) and (ii) above which are
owned by 1999 Internet Capital L.P., such dollar value shall be multiplied by a
number equal to 1.00 minus the aggregate Profit Percentage, (C) at least
twenty-five percent (25%) of the Borrowing Base availability shall be
attributable to clause (i) above and (D) when determining the Borrowing Base
hereunder (x) no credit shall be given for any Pledged Collateral which is
subject to a Securities Monetization and (y) in no event shall any advance be
made hereunder based on the value of Securities acquired with Acquisition
Related Indebtedness which exceeds the amount then paid by or on behalf of the
applicable Loan Party pursuant to the subordinated note or other evidence of
indebtedness evidencing any such Acquisition Related Indebtedness.
The value of Public Company Restricted Securities and Public
Company Unrestricted Securities as of a particular date shall be determined
using the closing market value on the last trading day immediately prior the
date of such determination as reported on a recognized national securities
exchange or by the Nasdaq National or small-cap market, or on the over-the-
counter market, all as of the close of the last previous trading day.
For purposes of this definition, "cost basis" of Private Company
Restricted Securities, In-Registration Company Securities and Subject to Pledge
Private Company Restricted Securities, as the case may be, shall mean the sum of
the aggregate amount of Cash, Cash Equivalents, and the securities (including
the principal amount of any Subordinated Debt) of any Borrower or any
Acquisition Entity (subject to the limitations set forth in Section 8.2.8
[Affiliate Transactions]) invested by the Borrowers in any Private Company
Restricted Securities, any In-Registration Company Securities or Subject to
Pledge Private Company Restricted Securities, as the case may be.
Borrowing Base Availability shall mean the unused portion of the
---------------------------
Borrowing Base at the date of determination as calculated by the most recent
Borrowing Base Certificate.
-5-
<PAGE>
CREDIT AGREEMENT
Borrowing Base Certificate shall mean the Borrowing Base
--------------------------
Certificate given by the Borrowers to the Banks on the Closing Date and from
time to time pursuant to Section 8.3.4 [Borrowing Base Certificate] in the form
of Exhibit 1.1(B).
--------------
Borrowing Date shall mean, with respect to any Loan, the date
--------------
for the making thereof or the renewal or conversion thereof at or to the same or
a different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of Loans
-----------------
outstanding as follows: (i) any Loans to which a Euro-Rate Option applies which
become subject to the same Interest Rate Option under the same Loan Request by
the Borrowers and which have the same Interest Period shall constitute one
Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall
constitute one Borrowing Tranche.
Broker shall mean Merrill Lynch, Pierce, Fenner & Smith
------
Incorporated in its capacity as Broker under the Security Agreement (Special
Collateral Account).
Business Day shall mean any day other than a Saturday or Sunday
------------
or a legal holiday on which commercial banks are authorized or required to be
closed for business in Pittsburgh, Pennsylvania, New York, New York or San
Francisco, California and if the applicable Business Day relates to any Loan to
which the Euro-Rate Option applies, such day must also be a day on which
dealings are carried on in the London interbank market.
Capitalized Lease shall mean, as applied to any Person, any
-----------------
lease of any property (whether real, personal or mixed) by that Person as lessee
which, in conformity with GAAP, is accounted for as a capital lease on the
balance sheet of that Person.
Cash shall be defined according to GAAP.
----
Cash Equivalents: (a) securities with maturities of 365 days or
----------------
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of 365 days or less from the date of
acquisition and overnight bank deposits of any Bank or of any commercial bank
having capital and surplus in excess of $500,000,000, (c) repurchase obligations
of any Bank or of any commercial bank satisfying the requirements of clause (b)
of this definition, having a term of not more than seven (7) days with respect
to securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least A-1 or the
equivalent thereof by Standard & Poor's or P-1 or the equivalent thereof by
Moody's Investors Service, Inc. ("Moody's") and in either case maturing within
-------
270 days after the day of acquisition, (e) securities with maturities of 365
days or less from the date of acquisition issued or fully guaranteed by any
state, commonwealth or territory of the United States, by any political
subdivision or taxing authority of any such state, commonwealth or territory or
by any foreign government, the securities of which state, commonwealth,
territory, political subdivision, taxing authority or foreign government (as the
case may be) are rated at least A by Standard & Poor's or A by Moody's, (f)
securities with maturities of 365 days or less from the date of acquisition
backed by standby letters of credit issued by any Bank or any commercial bank
satisfying the requirements of clause (b) of this
-6-
<PAGE>
CREDIT AGREEMENT
definition or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
Certificates shall have the meaning specified in clause (3) of
------------
the definition of Qualified In-Registration Company Securities.
Closing Date shall mean March 28, 2000 or, if all the conditions
------------
specified in Section 7 have not been satisfied or waived by such date, not later
than April 3, 2000, as designated by the Borrower by at least two (2) Business
Days' advance notice to the Administrative Agent at its Principal Office, or
such other date as the parties agree. The closing shall take place at 10:00
a.m., Eastern time, on the Closing Date at the offices of Buchanan Ingersoll,
Eleven Penn Center, 14th Floor, 1835 Market Street, Philadelphia, Pennsylvania
19103-2985 or at such other time and place as the parties agree.
Co-Syndication Agents shall have the meaning specified therefor
---------------------
in the preamble hereto.
Collateral shall mean the Pledged Collateral, the UCC Collateral
----------
and the Intellectual Property Collateral.
Collateral Assignment of Contract Rights shall mean the Amended
----------------------------------------
and Restated Collateral Assignment of Contract Rights in substantially the form
of Exhibit 7.1.6 executed and delivered by ICG, ICG Holdings and 1999 Internet
-------------
Capital L.P. to the Administrative Agent for the benefit of the Banks.
Commitment shall mean as to any Bank the aggregate of its Line
----------
of Credit Commitment and its Revolving Credit Commitment, and Commitments shall
-----------
mean the aggregate of the Line of Credit Commitments and the Revolving Credit
Commitments of all of the Banks.
Consents shall have the meaning specified in clause (2) of the
--------
definition of Qualified In-Registration Company Securities.
Consolidated Tangible Net Worth shall mean as of any date of
-------------------------------
determination total stockholders' equity plus minority interests in net assets
of any Subsidiaries less intangible assets of the Borrowers and their respective
Subsidiaries as of such date determined and consolidated in accordance with
GAAP.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful
----------------------------- -
money of the United States of America.
Drawing Date shall have the meaning assigned to that term in
------------
Section 2.8.3.2 [Disbursements, Reimbursements].
Environmental Law shall have the meaning set forth in Section
-----------------
6.1.24.
Environmental Permits shall have the meaning set forth in
---------------------
Section 6.1.24 [Environmental Matters].
-7-
<PAGE>
CREDIT AGREEMENT
ERISA shall mean the Employee Retirement Income Security Act of
-----
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all
-----------
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control and all other entities which,
together with the Borrower, are treated as a single employer under Section 414
of the Internal Revenue Code.
Euro-Rate shall mean, with respect to the Loans comprising any
---------
Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period,
the interest rate per annum determined by the Administrative Agent by dividing
(the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of
1% per annum) (i) the rate of interest determined by the Administrative Agent in
accordance with its usual and customary procedures (which determination shall be
conclusive absent manifest error) to be the average of the London interbank
offered rates for U.S. Dollars quoted by the British Bankers' Association
("BBA") as set forth on Dow Jones Markets Service (formerly known as Telerate)
(or appropriate successor or, if the British Bankers' Association or its
successor ceases to provide such quotes, a comparable replacement determined by
the Administrative Agent) display page 3750 (or such other display page on the
Dow Jones Markets Service system as may replace display page 3750) two (2)
Business Days prior to the first day of such Interest Period for an amount
comparable to such Borrowing Tranche and having a borrowing date and a maturity
comparable to such Interest Period by (ii) a number equal to 1.00 minus the
Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the
following formula:
Average of London interbank offered rates quoted
by BBA or appropriate successor as shown on
Euro-Rate = Dow Jones Markets Service display page 3750
-------------------------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Loan to which the Euro-Rate
Option applies that is outstanding on the effective date of any change in the
Euro-Rate Reserve Percentage as of such effective date. The Administrative Agent
shall give prompt notice to the Borrower of the Euro-Rate as determined or
adjusted in accordance herewith, which determination shall be conclusive absent
manifest error.
Euro-Rate Option shall mean the option of the Borrower to have
----------------
either Line of Credit Loans or Revolving Credit Loans bear interest at the rate
and under the terms and conditions set forth in Section [Interest Rate Options].
Euro-Rate Reserve Percentage shall mean as of any day the
----------------------------
maximum percentage in effect on such day as prescribed by the Board of Governors
of the Federal Reserve System (or any successor) for determining the reserve
requirements (including supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding (currently referred to as
"Eurocurrency Liabilities").
-8-
<PAGE>
CREDIT AGREEMENT
Event of Default shall mean any of the events described in
----------------
Section Error! Reference source not found. [Events of Default] and referred to
therein as an "Event of Default."
Existing Agreement shall mean the Credit Agreement, dated as of
------------------
April 30, 1999, among the ICG, ICG Operations, the Banks as defined therein and
PNC Bank, National Association, in its capacity as Agent for the Banks
thereunder, as amended by that certain Amendment No.1, dated as of October 27,
1999, Amendment No. 2, dated as of November 22, 1999, Amended and Restated
Amendment No. 2, dated as of December 10, 1999 and Amendment No.3, dated as of
February 25, 2000, each by and among ICG, ICG Operations, the Banks thereunder
and the Agent thereunder.
Existing Banks shall have the meaning ascribed to such term in
--------------
the recitals to this Agreement.
Existing Letters of Credit shall mean each of the unexpired
--------------------------
letters of credit issued on behalf of any Borrower by PNC Bank or any issuing
bank outstanding on the Closing Date, as set forth on Schedule 2.9 hereto.
------------
Expiration Date shall mean, with respect to the Line of Credit
---------------
Commitments, the Line of Credit Expiration Date, and with respect to the
Revolving Credit Commitments, the Revolving Credit Expiration Date.
Federal Funds Effective Rate for any day shall mean the rate per
----------------------------
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight federal funds transactions arranged by federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day on which such rate was announced.
GAAP shall mean generally accepted accounting principles as are
----
in effect from time to time in the United States, subject to the provisions of
Section Error! Reference source not found. [Accounting Principles], and applied
on a consistent basis both as to classification of items and amounts.
Governmental Acts shall have the meaning assigned to that term
-----------------
in Section 2.8.8 [Indemnity].
Guarantor shall mean at any time each of the Significant
---------
Subsidiaries of the Borrowers.
Guarantor Joinder shall mean a joinder by a Person as a
-----------------
Guarantor under this Agreement, the Guaranty Agreement and the other Loan
Documents in the form of Exhibit 1.1(G)(1).
-----------------
-9-
<PAGE>
CREDIT AGREEMENT
Guaranty Agreement shall mean the Guaranty and Suretyship
------------------
Agreement in substantially the form of Exhibit 1.1(G)(2) executed and delivered
by each of the Guarantors to the Administrative Agent for the benefit of the
Banks.
Guaranty of any Person shall mean any obligation of such Person
--------
guaranteeing or in effect guaranteeing any liability or obligation of any other
Person in any manner, whether directly or indirectly, including any agreement to
indemnify or hold harmless any other Person, any performance bond or other
suretyship arrangement and any other form of assurance against loss, except
endorsement of negotiable or other instruments for deposit or collection in the
ordinary course of business.
Hazardous Substances shall have the meaning set forth in Section
--------------------
6.1.24 [Environmental Matters].
Historical Statements shall have the meaning assigned to that
---------------------
term in Section 6.1.9(i) [Financial Statements].
ICG Operations shall mean Internet Capital Group Operations,
--------------
Inc., a Delaware corporation and its successors.
ICG Shares shall have the meaning assigned to that term in
----------
Section 6.1.2.
Indebtedness shall mean, as to any Person at any time, any and
------------
all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such Person for or in respect of: (i) borrowed money, (ii)
amounts raised under or liabilities in respect of any note purchase or
acceptance credit facility, (iii) reimbursement obligations (contingent or
otherwise) under any letter of credit, (iv) any other transaction (including
forward sale or purchase agreements, Capitalized Leases and conditional sales
agreements) having the commercial effect of a borrowing of money entered into by
such Person to finance its operations or capital requirements (but not including
trade payables and accrued expenses incurred in the ordinary course of business
which are not represented by a promissory note or other evidence of indebtedness
and which are not more than thirty (30) days past due), (v) any Guaranty of
Indebtedness for borrowed money, (vi) any other indebtedness evidenced by a
note, bond, debenture or similar instrument that, in conformity with GAAP, is
accounted for as debt on the balance sheet of that Person or (vii) all
liabilities secured by any Lien on any property owned by such Person even though
such Person has not assumed or otherwise become liable for the payment thereof.
In-Registration Companies shall mean Acquisition Entities for
-------------------------
which an S-1 Registration Statement or any successor form thereto has been filed
with the Securities and Exchange Commission under the Securities Act.
In-Registration Company Securities shall mean Securities
----------------------------------
consisting of securities issued by one or more corporations but only so long as
such Securities are (i) subject to a registration statement filed with the
Securities and Exchange Commission on Form S-1 (or any successor form thereto)
under the Securities Act, but only to the extent that such Registration
Statement has not be declared effective by the Securities and Exchange
Commission, and
-10-
<PAGE>
CREDIT AGREEMENT
(ii) Restricted Securities. The Borrower shall promptly upon acquisition or sale
of such securities; and in any event no later than the date required for
delivery of the next Borrowing Base required to be delivered after any such
acquisition or sale in accordance Section 8.3.4 [Borrowing Base Certificate]
hereof, amend such list of In-Registration Company Securities from time to time
to reflect any such acquisition or sale of any such securities by giving written
notice of such amendment to the Administrative Agent.
Insolvency Proceeding shall mean, with respect to any Person, (a) a case,
---------------------
action or proceeding with respect to such Person (i) before any court or any
other Official Body under any bankruptcy, insolvency, reorganization or other
similar Law now or hereafter in effect, or (ii) for the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator
(or similar official) of any Loan Party or otherwise relating to the
liquidation, dissolution, winding-up or relief of such Person, or (b) any
general assignment for the benefit of creditors, composition, marshaling of
assets for creditors, or other, similar arrangement in respect of such Person's
creditors generally or any substantial portion of its creditors; undertaken
under any Law.
Intellectual Property Collateral shall mean all of the property described
--------------------------------
in the Patent, Trademark and Copyright Assignment.
Intercompany Subordination Agreement shall mean an Amended and Restated
------------------------------------
Subordination Agreement by each of ICG, ICG Holdings and 1999 Internet Capital
L.P. for the benefit of the Administrative Agent in the form attached hereto as
Exhibit 1.1(I).
Interest Period shall mean the period of time selected by the
---------------
Administrative Borrower in connection with (and to apply to) any election
permitted hereunder by the Administrative Borrower to have Line of Credit Loans
or Revolving Credit Loans bear interest under the Euro-Rate Option. Subject to
the last sentence of this definition, such period shall be one, two, three or
six Months. Such Interest Period shall commence on the effective date of such
Interest Rate Option, which shall be (i) the Borrowing Date if the Borrower is
requesting new Loans, or (ii) the date of renewal of or conversion to the
Euro-Rate Option if the Borrower is renewing or converting to the Euro-Rate
Option applicable to outstanding Loans. Notwithstanding the second sentence
hereof: (A) any Interest Period which would otherwise end on a date which is not
a Business Day shall be extended to the next succeeding Business Day unless such
Business Day falls in the next calendar month, in which case such Interest
Period shall end on the next immediately preceding Business Day, and (B) the
Borrower shall not select, convert to or renew an Interest Period for any
portion of the Loans that would end after the Expiration Date.
Interest Rate Option shall mean any Euro-Rate Option or Base Rate Option.
--------------------
Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the
---------------------
same may be amended or supplemented from time to time, and any successor statute
of similar import, and the rules and regulations thereunder, as from time to
time in effect.
-11-
<PAGE>
CREDIT AGREEMENT
Internet Capital Group Operations, Inc. shall mean Internet Capital Group
---------------------------------------
Operations, Inc., a Delaware corporation and its successors.
Labor Contracts shall mean all employment agreements, employment contracts,
---------------
collective bargaining agreements and other agreements among any Loan Party or
Subsidiary of a Loan Party and its employees.
Law shall mean any law (including common law), constitution, statute,
---
treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree, bond, judgment, authorization or approval, lien or
award of or settlement agreement with any Official Body.
Lead Arranger shall mean PNC Capital Markets, Inc. in its capacity as lead
-------------
arranger for the Banks under this Agreement and its successors in such capacity.
Letter of Credit shall have the meaning assigned to that term in Section
----------------
2.8.1 [Issuance of Letters of Credit].
Letter of Credit Borrowing shall have the meaning assigned to that term in
--------------------------
Section 2.8.3.4 [Disbursements, Reimbursement].
Letter of Credit Fee shall have the meaning assigned to that term in
--------------------
Section 2.8.2 [Letter of Credit Fees].
Letter of Credit Outstandings shall mean at any time the sum of (i) the
-----------------------------
aggregate undrawn face amount of outstanding Letters of Credit and (ii) the
aggregate amount of all unpaid and outstanding Reimbursement Obligations and
Letter of Credit Borrowings.
Lien shall mean any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), other charge or security
interest; or any preference, priority or other agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any Capitalized Lease
having substantially the same economic effect as any of the foregoing) and in
the case of Securities, any purchase option, call or similar right of a third
party with respect to such Securities.
Line of Credit Commitment shall mean, as to any Bank at any time, the
-------------------------
amount initially set forth opposite its name on Schedule 1.1(B) in the column
---------------
labeled "Amount of Commitment for Line of Credit Loans," and thereafter on
Schedule I to the most recent Assignment and Assumption Agreement, and Line of
Credit Commitments shall mean the aggregate Line of Credit Commitments of all
--------------------------
the Banks.
Line of Credit Commitment Fee shall have the meaning assigned to that term
-----------------------------
in Section 3.3 [Commitment Fees].
Line of Credit Expiration Date shall mean with respect to the Line of
------------------------------
Credit Commitments, March 30, 2001.
-12-
<PAGE>
CREDIT AGREEMENT
Line of Credit Facility Fee shall mean the fees referred to in Section 3.4
---------------------------
[Line of Credit Closing Fees].
Line of Credit Loan Request shall have the meaning given to such term in
---------------------------
Section 2.5.
Line of Credit Loans shall mean collectively and Line of Credit Loan shall
-------------------- -------------------
mean separately all Line of Credit Loans or any Line of Credit Loan made by the
Banks or one of the Banks to the Borrowers pursuant to Section 3.1 [Line of
Credit Commitments].
Line of Credit Notes shall mean collectively and Line of Credit Note shall
-------------------- -------------------
mean separately all Line of Credit Notes of the Borrowers in the form of Exhibit
-------
1.1(L) evidencing the Line of Credit Loan, together with all amendments,
- ------
extensions, renewals, replacements, refinancings or refundings thereof in whole
or in part.
Loan Documents shall mean this Agreement, the Administrative Agent's
--------------
Letter, the Intercompany Subordination Agreement, the Notes, the Patent,
Trademark and Copyright Assignment, the Security Agreement, the Security
Agreement (Special Collateral Account), the Pledge Agreement, the Collateral
Assignment of Contract Rights, the Account Control Agreement (In-Registration
Company Pledged Securities, the Account Control Agreement (Private Company
Pledged Securities), the Account Control Agreement (Public Company Pledged
Securities), the Account Control Agreement (Subject to Pledge Securities) and
any other instruments, certificates or documents delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or therewith, as the
same may be supplemented or amended from time to time in accordance herewith or
therewith, and Loan Document shall mean any of the Loan Documents.
-------------
Loan Parties shall mean the Borrowers and the Guarantors.
------------
Loans shall mean collectively all Line of Credit Loans and all Revolving
-----
Credit Loans and Loan shall mean separately any Line of Credit Loan and any
Revolving Credit Loan.
Material Adverse Change means a material adverse effect on (a) the validity
-----------------------
or enforceability of this Agreement or any other Loan Document, (b) the
business, properties, assets, condition (financial or otherwise), results of
operations or prospects of the Loan Parties taken as a whole, (c) the ability of
the Loan Parties taken as a whole to duly and punctually pay or perform their
Indebtedness, or (d) the ability of the Administrative Agent or any of the
Banks, to the extent permitted, to enforce their legal remedies pursuant to this
Agreement or any other Loan Document.
Material Contracts means, with respect to any Loan Party, any contract,
------------------
document, instrument or other agreement entered into by such Loan Party or any
Subsidiary of such Loan Party relating to the Acquisition of and rights to
transfer or dispose of any securities evidencing any Pledged Collateral.
-13-
<PAGE>
CREDIT AGREEMENT
Minimum Margin Value shall have the meaning ascribed thereto in the
--------------
definition Borrowing Base.
Month, with respect to an Interest Period under the Euro-Rate Option, shall
-----
mean the interval between the days in consecutive calendar months numerically
corresponding to the first day of such Interest Period. If any Euro-Rate
Interest Period begins on a day of a calendar month for which there is no
numerically corresponding day in the month in which such Interest Period is to
end, the final month of such Interest Period shall be deemed to end on the last
Business Day of such final month.
Multiemployer Plan shall mean any Plan which is a "multiemployer plan"
------------------
within the meaning of Section 4001(a)(3) of ERISA and to which the Borrower or
any member of the ERISA Group is then making or accruing an obligation to make
contributions or, within the preceding five Plan years, has made or had an
obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has two or more contributing
----------------------
sponsors (including the Borrower or any member of the ERISA Group) at least two
of whom are not under common control, as such a plan is described in Sections
4063 and 4064 of ERISA.
New Banks shall have the meaning assigned to that term in Section 11.21.
---------
1999 Internet Capital L.P. shall mean 1999 Internet Capital L.P., a
--------------------------
Delaware limited partnership and its successors.
Notes shall mean the Line of Credit Notes and the Revolving Credit Notes.
-----
Notices shall have the meaning assigned to that term in Section Error!
-------
Reference source not found. [Notices].
Obligation shall mean any obligation or liability of any of the Loan
----------
Parties to the Administrative Agent or any of the Banks, howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, now or
hereafter existing, or due or to become due, under or in connection with this
Agreement, the Notes, the Letters of Credit, the Administrative Agent's Letter
or any other Loan Document.
Official Body shall mean any national, federal, state, local or other
-------------
government or political subdivision or any agency, authority, board, bureau,
central bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic.
Participation Advance shall mean, with respect to any Bank, such Bank's
---------------------
payment in respect of its participation in a Letter of Credit Borrowing
according to its Ratable Share pursuant to Section 2.8.3.4 [Disbursements,
Reimbursement].
Patent, Trademark and Copyright Assignment shall mean the Amended and
------------------------------------------
Restated Patent, Trademark and Copyright Security Agreement in substantially the
form of
-14-
<PAGE>
Exhibit 1.1(P)(1) executed and delivered by ICG, ICG Holdings and 1999 Internet
- -----------------
Capital L.P. to the Administrative Agent for the benefit of the Banks.
PBGC shall mean the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA or any successor.
Permitted Investments shall mean:
---------------------
(i) direct obligations of the United States of America or any
agency or instrumentality thereof or obligations backed by the full faith and
credit of the United States of America maturing in twelve (12) months or less
from the date of acquisition;
(ii) commercial paper maturing in 270 days or less rated not lower
than A-1, by Standard & Poor's or P-1 by Moody's Investors Service, Inc. on the
date of acquisition;
(iii) demand deposits, time deposits or certificates of deposit
maturing within one year from the date of acquisition issued or guaranteed by or
placed with, and money market deposit accounts issued or offered by: a) any
Bank, b) any other commercial bank organized under the laws of the United States
of America or any state thereof or the District of Columbia having combined
capital, surplus and undivided profits (less any undivided losses) of not less
than $500,000,000, c) any branch located in the United States of America of a
commercial bank organized under the laws of the United Kingdom, Canada or Japan
having combined capital, surplus and undivided profits (less any undivided
losses) of not less than $500,000,000, or d) any domestic commercial bank the
deposits of which are guaranteed by the Federal Deposit Insurance Corporation,
provided that (A) the full amount of the deposits of the Person making such
Permitted Investment are so guaranteed and (B) the aggregate amount of all
Permitted Investments under this clause (d) does not exceed $5,000,000; and
(iv) fully collateralized repurchase agreements with a term of not
more than 30 days for underlying securities of the type described in paragraphs
(i) and (ii) of this definition, entered into with any institution meeting the
qualifications specified in subclauses (a) through (c) of clause (iii) of this
definition; and
(v) other money market marketable securities, including, without
limitation, municipal auction preferred and money market preferred securities,
in each case maturing in 270 days or less and rated not lower than A-1 by
Standard and Poor's or P-1 by Moody's Investors Service, Inc. on the date of
acquisition,
provided, that (i) Permitted Investments shall in no event include non-listed
partnership interests, annuities and life insurance contracts, precious metals,
loan receivables, note receivables, bridge loans and similar items and (ii) in
the case of clauses (i) through (v) hereof, such obligations are payable in
Dollars.
-15-
<PAGE>
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 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 Administrative
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, together with Capital Leases, exceed $25,000,000 (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;
-16-
<PAGE>
(x) Liens not otherwise permitted hereunder which secure
Indebtedness permitted under Section 8.2.1 (vi) not exceeding, as to the Loan
Parties and any of their respective Subsidiaries taken together, $25,000,000 in
aggregate amount at any time outstanding; and
(xi) Liens not otherwise permitted hereunder which secure
Indebtedness permitted under Section 8.2.1(viii).
Person shall mean any individual, corporation, partnership, limited
------
liability company, association, joint-stock company, trust, unincorporated
organization, joint venture, government or political subdivision or agency
thereof, or any other entity.
Plan shall have the meaning set forth in Section 6.1.22 [Plans and Benefit
----
Arrangements].
Pledge Agreement shall mean that certain Amended and Restated Pledge
----------------
Agreement substantially in the form of Exhibit 1.1(M) executed and delivered by
--------------
ICG, ICG Holdings and 1999 Internet Capital L.P. to the Administrative Agent for
the benefit of the Banks.
Pledged Collateral shall mean the Pledged Securities in which security
------------------
interests are to be granted under the Security Agreement (Special Collateral
Account) or under the Pledge Agreement.
Pledged In-Registration Company Securities shall mean In-Registration
------------------------------------------
Company Securities which have been pledged to the Pledgee pursuant to the
Security Agreement (Special Collateral Account). The initial list of the issuers
of Pledged In-Registration Company Securities is set forth on Schedule 1.1(A-1)
attached hereto. The Administrative Borrower shall promptly upon acquisition or
sale of such securities, and in any event no later than the date required for
delivery of the next Borrowing Base Certificate required to be delivered after
any such acquisition or sale in accordance with Section 8.3.4 [Borrowing Base
Certificate] hereof, amend such list of Pledged In-Registration Company
Securities from time to time to reflect any such acquisition or sale of any such
securities by giving written notice of such amendment to the Administrative
Agent.
Pledged Limited Liability Company Interest shall have the meaning assigned
------------------------------------------
thereto in the Pledge Agreement.
Pledged Partnership Interests shall have the meaning assigned thereto in
-----------------------------
the Pledge Agreement.
Pledged Private Company Restricted Securities shall mean Private Company
---------------------------------------------
Restricted Securities pledged to the Pledgee pursuant to the Security Agreement
(Special Collateral Account). The initial list of the issuers of the Pledged
Private Company Restricted Securities is set forth on Schedule 1.1(A-2) attached
hereto. The Administrative Borrower shall promptly upon sale of such securities,
and in any event no later than the date required for delivery of the next
Borrowing Base Certificate required to be delivered after any such sale in
accordance with Section 8.3.4 [Borrowing Base Certificate] hereof, amend such
list
-17-
<PAGE>
of Pledged Private Company Restricted Securities from time to time to reflect
any such sale of any such securities by giving written notice of such amendment
to the Administrative Agent.
Pledged Securities shall mean all Public Company Restricted Securities, all
------------------
Public Company Unrestricted Securities, all Pledged In-Registration Company
Securities, all Pledged Private Company Restricted Securities, all Pledged
Limited Liability Company Interests and all Pledged Partnership Interests, each
of which have been pledged to the Administrative Agent for the benefit of the
Banks pursuant to the Security Agreement (Special Collateral Account) or
pursuant to the Pledge Agreement, as the case may be.
Pledgor shall mean at any time each Borrower and each of the Significant
-------
Subsidiaries of the Borrowers, other than ICG Operations.
PNC Bank shall mean PNC Bank, National Association, its successors and
--------
assigns.
Potential Default shall mean any event, act or condition specified in
-----------------
Section 9.1 [Event of Default], whether or not any requirement for the giving of
notice, the lapse of time or both, or any other condition, has been satisfied.
Powers shall have the meaning specified in clause (3) of the definition of
------
Qualified In-Registration Company Securities.
Principal Office shall mean the main banking office of the Administrative
----------------
Agent in Pittsburgh, Pennsylvania.
Prior Security Interest shall mean a valid and enforceable perfected
-----------------------
first-priority security interest under the Uniform Commercial Code in the UCC
Collateral and the Pledged Collateral which is subject only to Liens for taxes
not yet due and payable to the extent such prospective tax payments are given
priority by statute or Purchase Money Security Interests and Capitalized Leases
as permitted hereunder.
Private Company Restricted Securities shall mean Securities which are (a)
-------------------------------------
issued by one or more corporations which do not have a class of securities
listed on a recognized national securities exchange, on the Nasdaq National
market or small-cap market or on the over-the-counter market and are (b)
Restricted Securities.
Profit Percentage has the meaning specified in Section 6.2 of that certain
-----------------
Agreement of Limited Partnership, effective as of March 1, 2000 (the
"Partnership Agreement"), among ICG Holdings and the persons and/or entities
identified on Exhibit I attached thereto as Limited Partners, and such other
persons as shall, from time to time, become limited partners as provided therein
and which aggregate Profit Percentage, whether or not the interests of any
limited partner have vested in accordance with the terms of the Partnership
Agreement, shall initially be twelve percent (12%), such Profit Percentage to be
increased or decreased pursuant to Section 7.6 or Section 9.5 of the Partnership
Agreement, in each case as certified by the Borrowers in the then applicable
Borrowing Base Certificate.
-18-
<PAGE>
CREDIT AGREEMENT
Prohibited Transaction shall mean any prohibited transaction as defined in
----------------------
Section 4975 of the Internal Revenue Code or Section 406 of ERISA for which
neither an individual nor a class exemption has been issued by the United States
Department of Labor.
Property shall mean all real property, both owned and leased, of any Loan
--------
Party or Subsidiary of a Loan Party.
Public Company Restricted Securities shall mean Pledged Securities
------------------------------------
consisting of securities issued by one or more corporations but only as long as
(A) such class of securities is listed on a recognized national securities
exchange, on the Nasdaq National market or small-cap market or on the
over-the-counter market and (B) such securities are Restricted Securities. The
initial list of the issuers of Public Company Restricted Securities is set forth
on Schedule 1.1(A-3) attached hereto. Each Loan Party shall promptly upon
acquisition or sale of such securities, and in any event no later than the date
required for delivery of the next Borrowing Base required to be delivered after
any such acquisition or sale in accordance with the Section 8.3.4 [Borrowing
Base Certificate] hereof, amend such list of Public Company Restricted
Securities from time to time to reflect any such acquisition or sale of any such
securities by giving written notice of such amendment to the Administrative
Agent.
Public Company Unrestricted Securities shall mean Pledged Securities
--------------------------------------
consisting of securities issued by one or more corporations but only as long as
(A) such class of securities is listed on a recognized national securities
exchange, on the Nasdaq National market or small-cap market or on the
over-the-counter market and (B) such securities are not Restricted Securities.
The initial list of the issuers of Public Company Unrestricted Securities is set
forth on Schedule 1.1(A-4) attached hereto. Each Loan Party shall promptly upon
acquisition or sale of such securities, and in any event no later than the date
required for delivery of the next Borrowing Base Certificate required to be
delivered after any such acquisition or sale in accordance with Section 8.3.4
[Borrowing Base Certificate] hereof, amend such list of Public Company
Unrestricted Securities from time to time to reflect any such acquisition or
sale of any such securities by giving written notice of such amendment to the
Administrative Agent.
Purchase Money Security Interest shall mean Liens upon tangible personal
--------------------------------
property securing loans to any Loan Party or Subsidiary of a Loan Party or
deferred payments by such Loan Party or Subsidiary for the purchase of such
tangible personal property not exceeding the value of such property.
Purchasing Bank shall mean a Bank which becomes a party to this Agreement
---------------
by executing an Assignment and Assumption Agreement.
Qualified In-Registration Company Securities shall mean, for the purposes
--------------------------------------------
of determining the Borrowing Base, any Pledged In-Registration Company
Securities that have met all of the following minimum requirements:
(1) all Material Contracts required to be delivered in accordance with the
terms of Section 8.1.17 [Delivery of Material Contracts] shall have been
delivered to the Administrative Agent. Notwithstanding anything to the contrary
contained herein, upon delivery of any such Material Contracts in accordance
with the terms hereof, Schedule 6.1.20 shall be
---------------
-19-
<PAGE>
CREDIT AGREEMENT
deemed to have been automatically, and without further act, updated to reflect
the delivery of any such Material Contracts;
(2) all consents to the pledge of such Acquisition Entity's securities and
assignment of applicable contract rights to the Administrative Agent, including,
without limitation, any applicable consents from such Acquisition Entity, any
applicable consents from founders or shareholders of such Acquisition Entity and
any other Persons from whom consent needs to be obtained in order to have an
effective pledge and assignment of the Collateral to the Administrative Agent in
accordance with the terms hereof and the other Loan Documents (collectively, the
"Consents") required to have been executed and delivered in accordance with the
terms of Section 8.1.18 [Delivery of Consents] shall have been executed and
delivered to the Administrative Agent, in form and substance satisfactory to the
Administrative Agent; and
(3) all original certificates evidencing ownership of such Acquisition
Entity's securities and notes or other debt instruments evidencing any
Borrower's Acquisition in such Acquisition Entity (collectively, the
"Certificates"), together with executed and undated stock powers and warrant
powers (collectively, the "Powers"), required to have been delivered in
accordance with the terms of Section 8.1.19 [Delivery of Certificates and
Powers] shall have been delivered to the Broker.
Qualified Private Company Restricted Securities shall mean, for purposes of
-----------------------------------------------
determining the Borrowing Base, any Pledged Private Company Restricted
Securities that have met all of the following minimum requirements:
(1) all Material Contracts required to be delivered in accordance with the
terms of Section 8.1.17 [Delivery of Material Contracts] shall have been
delivered to the Administrative Agent. Notwithstanding anything to the contrary
contained herein, upon delivery of any such Material Contracts in accordance
with the terms hereof, Schedule 6.1.20 shall be deemed to have been
---------------
automatically, and without further act, updated to reflect the delivery of any
such Material Contracts;
(2) all Consents required to have been executed and delivered in
accordance with the terms of Section 8.1.18 [Delivery of Consents] shall have
been executed and delivered to the Administrative Agent, in form and substance
satisfactory to the Administrative Agent; and
(3) all Certificates and Powers required to have been executed and
delivered in accordance with the terms of Section 8.1.19 shall have been
delivered to the Broker.
Qualified Public Company Restricted Securities shall mean, for purposes of
----------------------------------------------
the determining the Borrowing Base, Public Company Restricted Securities that
have met all of the following minimum requirements:
(1) all Material Contracts required to be delivered in accordance with the
terms of Section 8.1.17 [Delivery of Material Contracts] shall have been
delivered to the Administrative Agent. Notwithstanding anything to the contrary
contained herein, upon delivery of any such Material Contracts in accordance
with the terms hereof, Schedule 6.1.20 shall be
---------------
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<PAGE>
CREDIT AGREEMENT
deemed to have been automatically, and without further act, updated to reflect
the delivery of any such Material Contracts;
(2) all Consents required to have been executed and delivered in accordance
with the terms of Section 8.1.18 [Delivery of Consents] shall have been executed
and delivered to the Administrative Agent, in form and substance satisfactory to
the Administrative Agent; and
(3) all Certificates and Powers required to have been executed and
delivered in accordance with the terms of Section 8.1.19 [Delivery of
Certificates and Powers] hereof shall have been executed and delivered to the
Broker.
Qualified Public Company Unrestricted Securities shall mean, for purposes
------------------------------------------------
of determining the Borrowing Base, any Public Company Unrestricted Securities
that have met all of the following minimum requirements:
(1) all Material Contracts required to have been executed and delivered in
accordance with Section 8.1.17 [Delivery of Material Contracts] hereof shall
have been delivered to the Administrative Agent. Notwithstanding anything to the
contrary contained herein, upon delivery of any such Material Contracts in
accordance with the terms hereof, Schedule 6.1.20 shall be deemed to have been
---------------
automatically and without further act, updated to reflect the delivery of any
such Material Contracts;
(2) all Consents required to have been executed and delivered in accordance
with Section 8.1.18 [Delivery of Consents] hereof shall have been executed and
delivered to the Administrative Agent, in form and substance satisfactory to the
Administrative Agent; and
(3) all Certificates and Powers required to have been executed and
delivered in accordance with the terms of Section 8.1.19 [Delivery of
Certificates and Powers] hereof shall have been executed and delivered to the
Broker.
Ratable Share shall mean the proportion that a Bank's Commitment bears to
-------------
the Commitments of all of the Banks.
Regulation U shall mean Regulation U as promulgated by the Board of
------------
Governors of the Federal Reserve System, as amended from time to time.
Reimbursement Obligation shall have the meaning assigned to such term in
------------------------
Section 2.8.3.2 [Disbursements, Reimbursements].
Reportable Event shall mean a reportable event described in Section 4043 of
----------------
ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan.
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<PAGE>
CREDIT AGREEMENT
Required Banks shall mean
--------------
(i) if there are no Loans, Reimbursement Obligations or Letter of Credit
Borrowings outstanding, Banks whose Commitments aggregate at least 51% of the
Commitments of all of the Banks, or
(ii) if there are Loans, Reimbursement Obligations, or Letter of Credit
Borrowings outstanding, any Bank or group of Banks if the sum of the Loans,
Reimbursement Obligations, Letter of Credit Borrowings (net of all Participation
Advances) and Participation Advances of such Banks then outstanding aggregates
to at least 51% of the total principal amount of all of the Loans, Reimbursement
Obligations and Letter of Credit Borrowings then outstanding.
Restricted Securities shall mean securities now or hereafter owned by a
---------------------
Loan Party which Loan Party is, or Administrative Agent or any Bank if acquired
from a Loan Party as pledgor would be, prohibited under applicable federal or
state law or regulation, or pursuant to private contract, including any
underwriters' lock-up agreement, from publicly offering or selling such
securities in open market transactions throughout the United States. For this
purpose securities that may lawfully be sold pursuant to Rule 144 of the
Securities Act, subject only to volume limitations set forth in Rule 144(e) are
not "Restricted Securities" solely by reason of such volume limitations.
Revolving Credit Commitment shall mean, as to any Bank at any time, the
---------------------------
amount initially set forth opposite its name on Schedule 1.1(B) in the column
---------------
labeled "Amount of Commitment for Revolving Credit Loans," and thereafter on
Schedule I to the most recent Assignment and Assumption Agreement, and Revolving
---------
Credit Commitments shall mean the aggregate Revolving Credit Commitments of all
- ------------------
of the Banks.
Revolving Credit Commitment Fee shall have the meaning assigned to that
---------------------------
term in Section 2.3 [Commitment Fee].
Revolving Credit Expiration Date shall mean with respect to the Revolving
--------------------------------
Credit Commitments, March 29, 2002.
Revolving Credit Facility Fees shall mean the fees referred to in Section
------------------------------
2.4 [Revolving Credit Closing Fee].
Revolving Credit Loan Request shall have the meaning given to such term in
-----------------------------
Section 2.5 [Revolving Credit Loan Requests].
Revolving Credit Loans shall mean collectively and Revolving Credit Loan
----------------------
shall mean separately all Revolving Credit Loans or any Revolving Credit Loan
---------------------
made by the Banks or one of the Banks to the Borrowers pursuant to Section 2.1
[Revolving Credit Commitments] or 2.8.3.
Revolving Credit Notes shall mean collectively and Revolving Credit Note
---------------------- ---------------------
shall mean separately all the Revolving Credit Notes of the Borrowers in the
form of
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<PAGE>
CREDIT AGREEMENT
Exhibit 1.1 (R) evidencing the Revolving Credit Loans together with all
- ---------------
amendments, extensions, renewals, replacements, refinancings or refundings
thereof in whole or in part.
Revolving Facility Usage shall mean at any time the sum of the aggregate of
------------------------
the Revolving Credit Loans and the Letters of Credit Outstanding.
Securities shall mean any note, stock, treasury stock, bond, debenture,
----------
evidence of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, any limited partnership
interest or limited liability company interest (in each case whether
certificated or uncertificated), investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
foreign currency, or, in general, any interest or instrument commonly known as a
"security," or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to or purchase, any of the foregoing.
Securities Act shall mean the Securities Act of 1933, as amended.
--------------
Securities Exchange Act shall mean the Securities Exchange Act of 1934, as
-----------------------
amended.
Securities Monetization shall have the meaning set forth in Section
-----------------------
8.2.1(viii).
Security Agreement shall mean the Amended and Restated Security Agreement
------------------
in substantially the form of Exhibit 1.1 (S) executed and delivered by each of
---------------
the Loan Parties to the Administrative Agent for the benefit of the Banks.
Security Agreement (Special Collateral Account) shall mean each Security
----------------------------------------------
Agreement (Special Collateral Account) in substantially the form of Exhibit
-------
1.1(U)(1) executed and delivered by ICG, ICG Holdings and 1999 Internet Capital
- ---------
L.P. to the Administrative Agent for the benefit of the Banks.
Security Agreement Joinder shall mean a joinder by a Person as a Pledgor
--------------------------
under this Agreement, the Security Agreement (Special Collateral Account) and
the other Loan Documents in the form of Exhibit 1.1(U)(2).
-----------------
Senior Indebtedness shall have the meaning set forth in Exhibit 1.1(D)(1).
------------------- -----------------
Significant Subsidiaries shall mean any direct or indirect Subsidiary of
------------------------
the Borrower (other than ICG Holdings, Inc.) which owns any, all or any portion
of the Pledged Collateral and in any event shall at all times include ICG
Operations and 1999 Internet Capital L.P.
-23-
<PAGE>
CREDIT AGREEMENT
Solvent shall mean, with respect to any Person on a particular date, that
-------
on such date (i) the fair value of the property of such Person is greater than
the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
Standard & Poor's shall mean Standard & Poor's Ratings Services, a division
-----------------
of The McGraw-Hill Companies, Inc.
Standby Letter of Credit shall mean a Letter of Credit issued to support
------------------------
obligations of one or more of the Loan Parties, contingent or otherwise, which
finance the working capital and capital expenditures of the Loan Parties
incurred in the ordinary course of business.
Subject to Pledge Private Company Restricted Securities shall mean Private
-------------------------------------------------------
Company Restricted Securities which have been acquired by any Loan Party after
December 31, 1999 and not pledged to the Pledgee pursuant to a Security
Agreement (Special Collateral Account).
Subordinated Debt shall mean any unsecured Indebtedness of a Borrower,
-----------------
including any 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 April 3, 2003,
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 Administrative
Agent and the Banks hereunder on terms and conditions substantially no less
favorable to the Administrative Agent and the Banks than as set forth in Exhibit
-------
1.1(D)(1) attached hereto.
- ---------
Subordinated Lender shall mean any Person who makes a loan to any Loan
-------------------
Party to the extent such loan constitutes Subordinated Debt hereunder, together
with such Person's successors and assigns.
Subordinated Loan Documents shall mean (a) any and all instruments,
---------------------------
certificates or documents delivered or contemplated to be delivered in
connection with any Subordinated Debt and (b) any notes evidencing the
Subordinated Debt and all other instruments, certificates or documents delivered
or contemplated to be delivered thereunder or in connection
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<PAGE>
CREDIT AGREEMENT
therewith, as the same may be supplemented or amended from time to time in
accordance herewith.
Subordinated Loans shall mean subordinated loans made by the Subordinated
------------------
Lender(s) to ICG or any Loan Party pursuant to the Subordinated Loan Documents.
Subsidiary of any Person at any time shall mean (i) any corporation or
----------
trust of which 50% or more (by number of shares or number of votes) of the
outstanding capital stock or shares of beneficial interest normally entitled to
vote for the election of one or more directors or trustees (regardless of any
contingency which does or may suspend or dilute the voting rights) is at such
time owned directly or indirectly by such Person or one or more of such Person's
Subsidiaries, (ii) any partnership of which such Person is a general partner or
of which 50% or more of the partnership interests is at the time directly or
indirectly owned by such Person or one or more of such Person's Subsidiaries,
(iii) any limited liability company of which such Person is a member or of which
50% or more of the limited liability company interests is at the time directly
or indirectly owned by such Person or one or more of such Person's Subsidiaries
or (iv) any corporation, trust, partnership, limited liability company or other
entity which is controlled or capable of being controlled by such Person or one
or more of such Person's Subsidiaries. Notwithstanding anything to the contrary,
for purposes of this Agreement and the other Loan Documents, the term
"Subsidiary" shall not include any Acquisition Entity.
Subsidiary Shares shall have the meaning assigned to that term in Section
-----------------
6.1.3 [Subsidiaries].
Transferor Bank shall mean the selling Bank pursuant to an Assignment and
---------------
Assumption Agreement.
UCC Collateral shall mean the property of the Loan Parties in which
--------------
security interests are to be granted under the Security Agreement.
Uniform Commercial Code shall have the meaning assigned to that term in
-----------------------
Section 6.1.16 [Security Interests].
1.2 Construction.
------------
Unless the context of this Agreement otherwise clearly requires, the
following rules of construction shall apply to this Agreement and each of the
other Loan Documents:
1.2.1 Number; Inclusion.
-----------------
references to the plural include the singular, the plural, the part and the
whole; "or" has the inclusive meaning represented by the phrase "and/or," and
"including" has the meaning represented by the phrase "including without
limitation";
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<PAGE>
CREDIT AGREEMENT
1.2.2 Agent's Discretion and Consent.
------------------------------
whenever the Administrative Agent or the Banks are granted the right herein
to act in its or their sole discretion or to grant or withhold consent such
right shall be exercised in good faith;
1.2.3 Documents Taken as a Whole.
--------------------------
the words "hereof," "herein," "hereunder," "hereto" and similar terms in
this Agreement or any other Loan Document refer to this Agreement or such other
Loan Document as a whole and not to any particular provision of this Agreement
or such other Loan Document;
1.2.4 Headings.
--------
the section and other headings contained in this Agreement or such other
Loan Document and the Table of Contents (if any), preceding this Agreement or
such other Loan Document are for reference purposes only and shall not control
or affect the construction of this Agreement or such other Loan Document or the
interpretation thereof in any respect;
1.2.5 Implied References to this Agreement.
------------------------------------
article, section, subsection, clause, schedule and exhibit references are
to this Agreement or other Loan Document, as the case may be, unless otherwise
specified;
1.2.6 Persons.
-------
reference to any Person includes such Person's successors and assigns but,
if applicable, only if such successors and assigns are permitted by this
Agreement or such other Loan Document, as the case may be, and reference to a
Person in a particular capacity excludes such Person in any other capacity;
1.2.7 Modifications to Documents.
--------------------------
reference to any agreement (including this Agreement and any other Loan
Document together with the schedules and exhibits hereto or thereto), document
or instrument means such agreement, document or instrument as amended, modified,
replaced, substituted for, superseded or restated;
1.2.8 From, To and Through.
--------------------
relative to the determination of any period of time, "from" means "from and
including," "to" means "to but excluding," and "through" means "through and
including"; and
1.2.9 Shall; Will.
-----------
references to "shall" and "will" are intended to have the same meaning.
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<PAGE>
CREDIT AGREEMENT
1.3 Accounting Principles.
---------------------
Except as otherwise provided in this Agreement, all computations and
determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP; provided, however, that all accounting terms
-------- -------
used in Section 8.2 [Negative Covenants] (and all defined terms used in the
definition of any accounting term used in Section 8.2 shall have the meaning
given to such terms (and defined terms) under GAAP as in effect on the date
hereof applied on a basis consistent with those used in preparing the Annual
Statements referred to in Section 6.1.9((i)) [Historical Statements]. In the
event of any change after the date hereof in GAAP, and if such change would
result in the inability to determine compliance with the financial covenants set
forth in Section 8.2 based upon the Borrowers' regularly prepared financial
statements by reason of the preceding sentence, then the parties hereto agree to
endeavor, in good faith, to agree upon an amendment to this Agreement that would
adjust such financial covenants in a manner that would not affect the substance
thereof, but would allow compliance therewith to be determined in accordance
with the Borrowers' financial statements at that time.
2. REVOLVING CREDIT FACILITY
-------------------------
2.1 Revolving Credit Commitments.
----------------------------
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Bank severally agrees to
make Revolving Credit Loans to the Borrowers at any time or from time to time on
or after the date hereof and prior to the Revolving Credit Expiration Date,
provided that after giving effect to such Loan (i) the aggregate amount of
Revolving Credit Loans from such Bank plus such Bank's Ratable Share of the
Letters of Credit Outstanding shall not exceed (x) the lesser of (a) such Bank's
Revolving Credit Commitment or (b) such Bank's Ratable Share of the Borrowing
Base less the portion of the Borrowing Base attributable to such Bank's Ratable
Share of the Line of Credit Loans outstanding, and (ii) the Revolving Facility
Usage shall not exceed the Revolving Facility Commitments. Within such limits of
time and amount and subject to the other provisions of this Agreement, the
Borrowers may borrow, repay and reborrow pursuant to this Section 2.1.
2.2 Nature of Banks' Obligations with Respect to Revolving Credit Loans.
-------------------------------------------------------------------
Each Bank shall be obligated to participate in each request for Revolving
Credit Loans pursuant to Section 2.5 [Revolving Credit Loan Requests] in
accordance with its Ratable Share. The aggregate of each Bank's Revolving Credit
Loans outstanding hereunder to the Borrowers at any time shall not exceed such
Bank's Revolving Credit Commitment minus its Ratable Share of the Letter of
Credit Outstandings. The obligations of each Bank hereunder are several. The
failure of any Bank to perform its obligations hereunder shall not affect the
Obligations of the Borrowers to any other party nor shall any other party be
liable for the failure of such Bank to perform its obligations hereunder. The
Banks shall have no obligation to make Revolving Credit Loans hereunder on or
after the Revolving Credit Expiration Date.
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<PAGE>
CREDIT AGREEMENT
2.3 Revolving Credit Commitment Fees.
--------------------------------
Accruing from the date hereof until the Revolving Credit Expiration Date,
the Borrowers, jointly and severally, agree to pay to the Administrative Agent
for the account of each Bank, as consideration for such Bank's Revolving Credit
Commitment hereunder, a nonrefundable commitment fee (the "Revolving Credit
Commitment Fee") equal to .375% per annum (computed on the basis of a year of
360 days and actual days elapsed) on the average daily difference between the
amount of (i) such Bank's Revolving Credit Commitment as the same may be
constituted from time to time and (ii) the sum of such Bank's Revolving Credit
Loans outstanding plus its Ratable Share of Letters of Credit Outstanding. All
Revolving Credit Commitment Fees shall be payable in arrears on the first
Business Day of each April, July, October and January after the date hereof and
on the Revolving Credit Expiration Date or upon acceleration of the Notes in
accordance with Section 9.2 [Consequences of Event of Default] hereof.
2.4 Revolving Credit Closing Fees.
-----------------------------
The Borrowers, jointly and severally, agree to pay on the Closing Date to
the Administrative Agent for the account of each Bank, as consideration for such
Bank's Revolving Credit Commitment, nonrefundable closing fees (the "Revolving
Credit Facility Fees"), as more particularly described on Schedule 2.4.
------------
2.5 Revolving Credit Loan Requests.
------------------------------
Except as otherwise provided herein, the Borrowers may from time to time
prior to the Revolving Credit Expiration Date request the Banks to make
Revolving Credit Loans, or renew or convert the Interest Rate Option applicable
to existing Revolving Credit Loans pursuant to Section 4.2 [Interest Periods],
by delivering to the Administrative Agent, not later than 12:00 noon, Pittsburgh
time, (i) three (3) Business Days prior to the proposed Borrowing Date with
respect to the making of Revolving Credit Loans to which the Euro-Rate Option
applies or the conversion to or the renewal of the Euro-Rate Option for any
Loans; and (ii) on the proposed Borrowing Date with respect to the making of a
Revolving Credit Loan to which the Base Rate Option applies or the last day of
the preceding Interest Period with respect to the conversion to the Base Rate
Option for any Loan, of a duly completed request therefor substantially in the
form of Exhibit 2.5 or a request by telephone immediately confirmed in writing
by letter, facsimile or telex in such form (each, a "Revolving Credit Loan
Request"), it being understood that the Administrative Agent may rely on the
authority of any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Revolving Credit Loan
Request shall be irrevocable and shall specify (i) the proposed Borrowing Date;
(ii) the aggregate amount of the proposed Revolving Credit Loans comprising each
Borrowing Tranche, which shall be in integral multiples of $100,000 for each
Borrowing Tranche to which the Euro-Rate Option applies and not less than the
lesser of $3,000,000 or the maximum amount available for Borrowing Tranches to
which the Base Rate Option applies; (iii) whether the Euro-Rate Option or Base
Rate Option shall apply to the proposed Revolving Credit Loans comprising the
applicable Borrowing Tranche; and (iv) in the case of a Borrowing Tranche to
which the Euro-Rate Option applies, an appropriate Interest Period for the
Revolving Credit Loans comprising such Borrowing Tranche.
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<PAGE>
CREDIT AGREEMENT
2.6 Making Revolving Credit Loans.
-----------------------------
The Administrative Agent shall, promptly after receipt by it of a Revolving
Credit Loan Request pursuant to Section 2.5 [Revolving Credit Loan Requests],
notify the Banks of its receipt of such Revolving Credit Loan Request
specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of the Revolving Credit Loans requested thereby; (ii) the amount
and type of each such Revolving Credit Loan and the applicable Interest Period
(if any); and (iii) the apportionment among the Banks of such Revolving Credit
Loans as determined by the Administrative Agent in accordance with Section 2.2
[Nature of Banks' Obligations with Respect to Revolving Credit Loans]. Each Bank
shall remit the principal amount of each Revolving Credit Loan to the
Administrative Agent such that the Administrative Agent is able to, and the
Administrative Agent shall, to the extent the Banks have made funds available to
it for such purpose and subject to Section 7.2 [Each Additional Loan or Letter
of Credit], fund such Revolving Credit Loans to the Borrower in U.S. Dollars and
immediately available funds at the Principal Office prior to 2:00 p.m.,
Pittsburgh time, on the applicable Borrowing Date, provided that if any Bank
fails to remit such funds to the Administrative Agent in a timely manner, the
Administrative Agent may elect in its sole discretion to fund with its own funds
the Revolving Credit Loans of such Bank on such Borrowing Date, and such Bank
shall be subject to the repayment obligation in Section Error! Reference source
not found. [Availability of Funds].
2.7 Revolving Credit Notes.
----------------------
The joint and several Obligation of the Borrowers to repay the aggregate
unpaid principal amount of the Revolving Credit Loans made to them by each Bank,
together with interest thereon, shall be evidenced by a Revolving Credit Note
dated the Closing Date payable to the order of such Bank in a face amount equal
to the Revolving Credit Commitment of such Bank.
2.8 Letter of Credit Subfacility.
----------------------------
2.8.1 Issuance of Letters of Credit.
-----------------------------
The Administrative Borrower may request the issuance of a Standby Letter of
Credit denominated in Dollars (each a "Letter of Credit") on behalf of itself or
another Loan Party by delivering to the Administrative Agent a completed
application and agreement for letters of credit in the form attached hereto as
Exhibit 2.8 as the Administrative Agent may modify or amend from time to time by
- -----------
no later than 12:00 noon, Pittsburgh time, at least three (3) Business Days, or
such shorter period as may be agreed to by the Administrative Agent, in advance
of the proposed date of issuance. Subject to the terms and conditions hereof and
in reliance on the agreements of the other Banks set forth in this Section 2.8,
the Administrative Agent will issue a Letter of Credit provided that (i) each
Letter of Credit shall in no event expire later than five (5) Business Days
prior to the Revolving Credit Expiration Date, and (ii) in no event shall the
Revolving Facility Usage exceed, at any one time, the Revolving Credit
Commitments. The Administrative Agent shall provide (x) notification to the
Banks promptly upon the issuance of a Letter of Credit and (y) a schedule of
Letters of Credit issued and outstanding on a quarterly basis as of the first
day of each calendar quarter.
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<PAGE>
CREDIT AGREEMENT
2.8.2 Letter of Credit Fees.
---------------------
The Borrowers shall pay to the Administrative Agent for the ratable account
of the Banks a fee (the "Letter of Credit Fee") equal to the Applicable Margin
governing Loans under the Euro-Rate Option (computed on the basis of a year of
360 days and actual days elapsed), which fee shall be computed on the daily
average Letters of Credit Outstanding and shall be payable quarterly in arrears
commencing with the first Business Day of each April, July, October and January
following issuance of each Letter of Credit and on the Revolving Credit
Expiration Date. The Borrowers shall also pay to the Administrative Agent for
the Administrative Agent's sole account the Administrative Agent's then in
effect customary fees and administrative expenses payable with respect to the
Letters of Credit as the Administrative Agent may generally charge or incur from
time to time in connection with the issuance, maintenance, modification (if
any), assignment or transfer (if any), negotiation, and administration of
Letters of Credit.
2.8.3 Disbursements, Reimbursement.
----------------------------
2.8.3.1 Immediately upon the Issuance of each Letter of Credit, each Bank shall
be deemed to, and hereby irrevocably and unconditionally agrees to, purchase
from the Administrative Agent a participation in such Letter of Credit and each
drawing thereunder in an amount equal to such Bank's Ratable Share of the
maximum amount available to be drawn under such Letter of Credit and the amount
of such drawing, respectively.
2.8.3.2 In the event of a drawing under a Letter of Credit by the beneficiary or
transferee thereof, the Administrative Agent will promptly notify the
Administrative Borrower. Provided that it shall have received such notice, the
Borrowers shall reimburse (such obligation to reimburse the Administrative Agent
shall sometimes be referred to as a "Reimbursement Obligation") the
Administrative Agent prior to 12:00 noon, Pittsburgh time on each date that an
amount is paid by the Administrative Agent under any Letter of Credit (each such
date, an "Drawing Date") in an amount equal to the amount so paid by the
Administrative Agent. In the event the Borrowers fail to reimburse the
Administrative Agent for the full amount of any drawing under any Letter of
Credit by 12:00 noon, Pittsburgh time, on the Drawing Date, the Administrative
Agent will promptly notify each Bank thereof, and the Borrowers shall be deemed
to have requested that Revolving Credit Loans be made by the Banks under the
Base Rate Option to be disbursed on the Drawing Date under such Letter of
Credit, subject to the amount of the unutilized portion of the Revolving Credit
Commitment and subject to the conditions set forth in Section 7.2 [Each
Additional Loan or Letter of Credit] other than any notice requirements. Any
notice given by the Administrative Agent pursuant to this Section 2.8.3.2 may be
oral if immediately confirmed in writing; provided that the lack of such an
immediate confirmation shall not affect the conclusiveness or binding effect of
such notice.
2.8.3.3 Each Bank shall upon any notice pursuant to Section 2.8.3.2 make
available to the Administrative Agent an amount in immediately available funds
equal to its Ratable Share of the amount of the drawing, whereupon the
participating Banks shall (subject to Section 2.8.3.4) each be deemed to have
made a Revolving Credit Loan under the Base Rate Option to the Borrower in that
amount. If any Bank so notified fails to make available to the Administrative
Agent for the account of the Administrative Agent the amount of such Bank's
Ratable Share of such amount by no later than 2:00 p.m., Pittsburgh time on the
Drawing Date, then interest shall accrue on such
-30-
<PAGE>
CREDIT AGREEMENT
Bank's obligation to make such payment, from the Drawing Date to the date on
which such Bank makes such payment (i) at a rate per annum equal to the Federal
Funds Effective Rate during the first three days following the Drawing Date and
(ii) at a rate per annum equal to the rate applicable to Loans under the Base
Rate Option on and after the fourth day following the Drawing Date. The
Administrative Agent will promptly give notice of the occurrence of the Drawing
Date, but failure of the Administrative Agent to give any such notice on the
Drawing Date or in sufficient time to enable any Bank to effect such payment on
such date shall not relieve such Bank from its obligation under this Section
2.8.3.3.
2.8.3.4 With respect to any unreimbursed drawing that is not converted into
Revolving Credit Loans under the Base Rate Option to the Borrowers in whole or
in part as contemplated by Section 2.8.3.2, because of the Borrowers' failure to
satisfy the conditions set forth in Section 7.2 [Each Additional Loan or Letter
of Credit] other than any notice requirements or for any other reason, the
Borrowers shall be deemed to have incurred from the Administrative Agent a
borrowing (each a "Letter of Credit Borrowing") in the amount of such drawing.
Such Letter of Credit Borrowing shall be due and payable on demand (together
with interest) and shall bear interest at the rate per annum applicable to the
Revolving Credit Loans under the Base Rate Option plus an additional 2% per
annum. Each Bank's payment to the Administrative Agent pursuant to Section
2.8.3.3 shall be deemed to be a payment in respect of its participation in such
Letter of Credit Borrowing and shall constitute a "Participation Advance" from
such Bank in satisfaction of its participation obligation under this Section
2.8.3.
2.8.4 Repayment of Participation Advances.
-----------------------------------
2.8.4.1 Upon (and only upon) receipt by the Administrative Agent for its
account of immediately available funds from the Borrowers (i) in reimbursement
of any payment made by the Administrative Agent under the Letter of Credit with
respect to which any Bank has made a Participation Advance to the Administrative
Agent, or (ii) in payment of interest on such a payment made by the
Administrative Agent under such a Letter of Credit, the Administrative Agent
will pay to each Bank, in the same funds as those received by the Administrative
Agent, the amount of such Bank's Ratable Share of such funds, except the
Administrative Agent shall retain the amount of the Ratable Share of such funds
of any Bank that did not make a Participation Advance in respect of such payment
by Administrative Agent.
2.8.4.2 If the Administrative Agent is required at any time to return to any
Loan Party, or to a trustee, receiver, liquidator, custodian, or any official in
any Insolvency Proceeding, any portion of the payments made by any Loan Party to
the Administrative Agent pursuant to Section 2.8.4.1 in reimbursement of a
payment made under the Letter of Credit or interest or fee thereon, each Bank
shall, on demand of the Administrative Agent, forthwith return to the
Administrative Agent the amount of its Ratable Share of any amounts so returned
by the Administrative Agent plus interest thereon from the date such demand is
made to the date such amounts are returned by such Bank to the Administrative
Agent, at a rate per annum equal to the Federal Funds Effective Rate in effect
from time to time.
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CREDIT AGREEMENT
2.8.5 Documentation.
-------------
Each Loan Party agrees to be bound by the terms of the
Administrative Agent's application and agreement for letters of credit and the
Administrative Agent's written regulations and customary practices relating to
letters of credit, though such interpretation may be different from such Loan
Party's own. In the event of a conflict between such application or agreement
and this Agreement, this Agreement shall govern. It is understood and agreed
that, except in the case of gross negligence or willful misconduct, the
Administrative Agent shall not be liable for any error, negligence and/or
mistakes, whether of omission or commission, in following any Loan Party's
instructions or those contained in the Letters of Credit or any modifications,
amendments or supplements thereto.
2.8.6 Determinations to Honor Drawing Requests.
----------------------------------------
In determining whether to honor any request for drawing under any
Letter of Credit by the beneficiary thereof, the Administrative Agent shall be
responsible only to determine that the documents and certificates required to be
delivered under such Letter of Credit have been delivered and that they comply
on their face with the requirements of such Letter of Credit.
2.8.7 Nature of Reimbursement Obligations.
-----------------------------------
The Obligations of the Borrowers to reimburse the Administrative
Agent upon a draw under a Letter of Credit, shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Section 2.8 under all circumstances, irrespective of any of the following
circumstances:
(i) any set-off, counterclaim, recoupment, defense or other
right which the Borrower may have against the Administrative Agent or any other
Person for any reason whatsoever;
(ii) the failure of any Loan Party or any other Person to
comply, in connection with a Letter of Credit Borrowing, with the conditions set
forth in Section 2.1 [Revolving Credit Commitments], 2.5 [Revolving Credit Loan
Requests], 2.6 [Making Revolving Credit Loans] or 7.2 [Each Additional Loan or
Letter of Credit] or as otherwise set forth in this Agreement for the making of
a Revolving Credit Loan, it being acknowledged that such conditions are not
required for the making of a Letter of Credit Borrowing;
(iii) any lack of validity or enforceability of any Letter of
Credit;
(iv) the existence of any claim, set-off, defense or other
right which any Loan Party or any Bank may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons for whom
any such transferee may be acting), the Administrative Agent or any Bank or any
other Person or, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between any Loan Party or Subsidiaries of a Loan Party and the
beneficiary for which any Letter of Credit was procured);
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CREDIT AGREEMENT
(v) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect even if the Administrative Agent has been notified
thereof;
(vi) payment by the Administrative Agent under any Letter of
Credit against presentation of a demand, draft or certificate or other document
which does not strictly comply with the terms of such Letter of Credit;
(vii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of any Loan
Party or Subsidiaries of a Loan Party;
(viii) any breach of this Agreement or any other Loan Document
by any party thereto;
(ix) the occurrence or continuance of an Insolvency
Proceeding with respect to any Loan Party;
(x) the fact that an Event of Default or a Potential Default
shall have occurred and be continuing;
(xi) the fact that the Revolving Credit Expiration Date shall
have passed or this Agreement or the Commitments hereunder shall have been
terminated; or
(xii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing.
2.8.8 Indemnity.
---------
In addition to amounts payable as provided in Section 10.5
[Reimbursement and Indemnification of Agents by the Borrowers], the Borrowers
hereby agree to protect, indemnify, pay and save harmless the Agents from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable fees, expenses and disbursements of
counsel and allocated costs of staff counsel) which any Agent may incur or be
subject to as a consequence, direct or indirect, of the issuance of any Letter
of Credit, other than as a result of (A) the gross negligence or willful
misconduct of such Agent as determined by a final judgment of a court of
competent jurisdiction or (B) the wrongful dishonor by the Administrative Agent
of a proper demand for payment made under any Letter of Credit, except if such
dishonor resulted from any act or omission, whether rightful or wrongful, of any
present or future de jure or de facto government or governmental authority (all
such acts or omissions herein called "Governmental Acts").
2.8.9 Liability for Acts and Omissions.
--------------------------------
As between any Loan Party and the Agents, such Loan Party assumes
all risks of the acts and omissions of, or misuse of the Letters of Credit by,
the respective beneficiaries of such Letters of Credit. In furtherance and not
in limitation of the foregoing, the
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CREDIT AGREEMENT
Administrative Agent shall not be responsible for: (i) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document submitted by
any party in connection with the application for an issuance of any such Letter
of Credit, even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged (even if the Administrative Agent
shall have been notified thereof); (ii) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign any
such Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (iii) the failure of the beneficiary of any such Letter of Credit, or
any other party to which such Letter of Credit may be transferred, to comply
fully with any conditions required in order to draw upon such Letter of Credit
or any other claim of any Loan Party against any beneficiary of such Letter of
Credit, or any such transferee, or any dispute between or among any Loan Party
and any beneficiary of any Letter of Credit or any such transferee; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of the Administrative Agent, including any
Governmental Acts, and none of the above shall affect or impair, or prevent the
vesting of, any of the Administrative Agent's rights or powers hereunder.
Nothing in the preceding sentence shall relieve the Administrative Agent from
liability for such Administrative Agent's gross negligence or willful misconduct
in connection with actions or omissions described in such clauses (i) through
(viii) of such sentence.
In furtherance and extension and not in limitation of the specific
provisions set forth above, any action taken or omitted by the Administrative
Agent under or in connection with the Letters of Credit issued by it or any
documents and certificates delivered thereunder, if taken or omitted in good
faith, shall not put the Administrative Agent under any resulting liability to
the Borrowers or any Bank unless such act or omission was the result of the
gross negligence or willful misconduct of such Administrative Agent.
2.9 Existing Letters of Credit.
--------------------------
The Administrative Agent and each of the other parties hereto agree
that, effective on the Closing Date, each Existing Letter of Credit outstanding
on such date, and each extension, renewal or replacement thereof, shall be
deemed to have been issued pursuant to, and governed by, the terms of this
Agreement.
2.10 Sale of Subject to Pledge Private Company Securities.
----------------------------------------------------
The Borrowers may sell Subject to Pledge Private Company Securities
so long as after giving effect to any such sale, the Borrowers are not in
violation of the Borrowing Base.
2.11 Sale of Pledged Securities; Securities Monetizations.
----------------------------------------------------
The Borrowers may sell Pledged Securities or enter into Securities
Monetization transactions involving Pledged Securities in accordance with the
terms of the Security Agreement
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CREDIT AGREEMENT
(Special Collateral Account) so long as (i) after giving effect to any such
sale, the Borrowers are not in violation of the Borrowing Base and (ii) no such
sale shall involve Pledged Securities whose value exceeds ten percent (10%) of
the dollar amount equal to the sum of clauses (i) through (v) of the definition
of "Borrowing Base" calculated from time to time in accordance with the terms of
such definition.
3. LINE OF CREDIT FACILITY
-----------------------
3.1 Line of Credit Commitments.
--------------------------
Subject to the terms and conditions hereof and relying upon the
representations and warranties herein set forth, each Bank severally agrees to
make Line of Credit Loans to the Borrowers at any time or from time to time on
or after the date hereof and prior to the Line of Credit Expiration Date,
provided that after giving effect to such Loan the aggregate amount of Line of
- --------
Credit Loans from such Bank shall not exceed (x) the lesser of (a) such Bank's
Line of Credit Commitment or (b) such Bank's Ratable Share of the Borrowing Base
less the portion of the Borrowing Base attributable to such Bank's Ratable Share
of the Revolving Facility Usage. Within such limits of time and amount and
subject to the other provisions of this Agreement, the Borrowers may borrow,
repay and reborrow pursuant to this Section 3.1.
3.2 Nature of Banks' Obligations with Respect to Line of Credit Loans.
-----------------------------------------------------------------
Each Bank shall be obligated to participate in each request for Line
of Credit Loans pursuant to Section 3.5 [Line of Credit Loan Requests] in
accordance with its Ratable Share. The obligations of each Bank hereunder are
several. The failure of any Bank to perform its obligations hereunder shall not
affect the Obligations of the Borrowers to any other party nor shall any other
party be liable for the failure of such Bank to perform its obligations
hereunder. The Banks shall have no obligation to make Line of Credit Loans
hereunder on or after the Line of Credit Expiration Date.
3.3 Line of Credit Commitment Fees.
------------------------------
Accruing from the date hereof until the Line of Credit Expiration
Date, the Borrowers, jointly and severally, agree to pay to the Administrative
Agent for the account of each Bank, as consideration for such Bank's Line of
Credit Commitment hereunder, a nonrefundable commitment fee (the "Line of Credit
Commitment Fee") equal to .25% per annum (computed on the basis of a year of 360
days and actual days elapsed) on the average daily difference between the amount
of (i) such Bank's Line of Credit Commitment as the same may be constituted from
time to time and (ii) such Bank's Line of Credit Loans outstanding. All Line of
Credit Commitment Fees shall be payable in arrears on the first Business Day of
each April, July, October and January after the date hereof and on the Line of
Credit Expiration Date or upon acceleration of the Notes in accordance with
Section 8.2 [Consequences of Event of Default] hereof.
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CREDIT AGREEMENT
3.4 Line of Credit Closing Fees.
---------------------------
The Borrowers, jointly and severally, agree to pay on the
Closing Date to the Administrative Agent for the account of each Bank, as
consideration for such Bank's Line of Credit Commitment, nonrefundable closing
fees (the "Line of Credit Facility Fees"), as more particularly described on
Schedule 3.4.
- ------------
3.5 Line of Credit Loan Requests.
----------------------------
Except as otherwise provided herein, the Borrowers may from
time to time prior to the Line of Credit Expiration Date request the Banks to
make Line of Credit Loans, or renew or convert the Interest Rate Option
applicable to existing Line of Credit Loans pursuant to Section 4.2 [Interest
Periods], by delivering to the Administrative Agent, not later than 12:00 noon,
Pittsburgh time, (i) three (3) Business Days prior to the proposed Borrowing
Date with respect to the making of Line of Credit Loans to which the Euro-Rate
Option applies or the conversion to or the renewal of the Euro-Rate Option for
any Loans; and (ii) on the proposed Borrowing Date with respect to the making of
a Line of Credit Loan to which the Base Rate Option applies or the last day of
the preceding Interest Period with respect to the conversion to the Base Rate
Option for any Loan, of a duly completed request therefor substantially in the
form of Exhibit 3.5 or a request by telephone immediately confirmed in writing
-----------
by letter, facsimile or telex in such form (each, a "Line of Credit Loan
Request"), it being understood that the Administrative Agent may rely on the
authority of any individual making such a telephonic request without the
necessity of receipt of such written confirmation. Each Line of Credit Loan
Request shall be irrevocable and shall specify (i) the proposed Borrowing Date;
(ii) the aggregate amount of the proposed Line of Credit Loans comprising each
Borrowing Tranche, which shall be in integral multiples of $100,000 for each
Borrowing Tranche to which the Euro-Rate Option applies and not less than the
lesser of $3,000,000 or the maximum amount available for Borrowing Tranches to
which the Base Rate Option applies; (iii) whether the Euro-Rate Option or Base
Rate Option shall apply to the proposed Line of Credit Loans comprising the
applicable Borrowing Tranche; and (iv) in the case of a Borrowing Tranche to
which the Euro-Rate Option applies, an appropriate Interest Period for the Line
of Credit Loans comprising such Borrowing Tranche.
3.6 Making Line of Credit Loans.
---------------------------
The Administrative Agent shall, promptly after receipt by it of
a Line of Credit Loan Request pursuant to Section 3.5 [Line of Credit Loan
Requests], notify the Banks of its receipt of such Line of Credit Loan Request
specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of the Line of Credit Loans requested thereby; (ii) the amount and
type of each such Line of Credit Loan and the applicable Interest Period (if
any); and (iii) the apportionment among the Banks of such Line of Credit Loans
as determined by the Administrative Agent in accordance with Section 3.2 [Nature
of Banks' Obligations with Respect to Line of Credit Loans]. Each Bank shall
remit the principal amount of each Line of Credit Loan to the Administrative
Agent such that the Administrative Agent is able to, and the Administrative
Agent shall, to the extent the Banks have made funds available to it for such
purpose and subject to Section 7.2 [Each Additional Loan or Letter of Credit],
fund such Line of Credit Loans to the Borrower in U.S. Dollars and immediately
available funds at the Principal Office prior to 2:00
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CREDIT AGREEMENT
p.m., Pittsburgh time, on the applicable Borrowing Date, provided that if any
--------
Bank fails to remit such funds to the Administrative Agent in a timely manner,
the Administrative Agent may elect in its sole discretion to fund with its own
funds the Line of Credit Loans of such Bank on such Borrowing Date, and such
Bank shall be subject to the repayment obligation in Section 10.16 [Availability
of Funds].
3.7 Line of Credit Notes.
--------------------
The joint and several Obligation of the Borrowers to repay the
aggregate unpaid principal amount of the Line of Credit Loans made to them by
each Bank, together with interest thereon, shall be evidenced by a Line of
Credit Note dated the Closing Date payable to the order of such Bank in a face
amount equal to the Line of Credit Commitment of such Bank.
4. INTEREST RATES
--------------
4.1 Interest Rate Options.
---------------------
The Borrowers shall pay interest in respect of the outstanding
unpaid principal amount of the Loans as selected by it from the Base Rate Option
or Euro-Rate Option set forth below applicable to the Loans, it being understood
that, subject to the provisions of this Agreement, the Borrowers may select
different Interest Rate Options and different Interest Periods to apply
simultaneously to the Loans comprising different Borrowing Tranches and may
convert to or renew one or more Interest Rate Options with respect to all or any
portion of the Loans comprising any Borrowing Tranche, provided that there shall
--------
not be at any one time outstanding more than six (6) Borrowing Tranches in the
aggregate among all of the Loans. If at any time the designated rate applicable
to any Loan made by any Bank exceeds such Bank's highest lawful rate, the rate
of interest on such Bank's Loan shall be limited to such Bank's highest lawful
rate.
4.1.1 Interest Rate Options.
---------------------
The Borrowers shall have the right to select from the following
Interest Rate Options applicable to the Revolving Credit Loans and the Line of
Credit Loans:
(i) Base Rate Option: A fluctuating rate per annum
----------------
(computed on the basis of a year of 365 or 366 days, as the case may be, and
actual days elapsed) equal to the Base Rate, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Base Rate; or
(ii) Euro-Rate Option: A rate per annum (computed on the
----------------
basis of a year of 360 days and actual days elapsed) equal to the Euro-Rate plus
the Applicable Margin.
4.1.2 Rate Quotations.
---------------
The Borrowers may call the Administrative Agent on or before
the date on which a Revolving Credit Loan Request or a Line of Credit Loan
Request, as the case may be, is
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CREDIT AGREEMENT
to be delivered to receive an indication of the rates then in effect, but it is
acknowledged that such projection shall not be binding on the Administrative
Agent or the Banks nor affect the rate of interest which thereafter is actually
in effect when the election is made.
4.2 Interest Periods.
----------------
At any time when the Borrowers shall select, convert to or
renew a Euro-Rate Option, the Administrative Borrower shall notify the
Administrative Agent thereof at least three (3) Business Days prior to the
effective date of such Euro-Rate Option by delivering a Revolving Credit Loan
Request or a Line of Credit Loan Request, as the case may be. The notice shall
specify an Interest Period during which such Interest Rate Option shall apply.
Notwithstanding the preceding sentence, the following provisions shall apply to
any selection of, renewal of, or conversion to a Euro-Rate Option:
4.2.1 Amount of Borrowing Tranche.
---------------------------
each Borrowing Tranche of Euro-Rate Loans shall be in integral
multiples of $100,000 and not less than $3,000,000; and
4.2.2 Renewals.
--------
in the case of the renewal of a Euro-Rate Option at the end of
an Interest Period, the first day of the new Interest Period shall be the last
day of the preceding Interest Period, without duplication in payment of interest
for such day.
4.3 Interest After Default.
----------------------
To the extent permitted by Law, upon the occurrence of an Event
of Default and until such time as such Event of Default shall have been cured or
waived:
4.3.1 Letter of Credit Fees, Interest Rate.
------------------------------------
the Letter of Credit Fees and the rate of interest for each
Loan otherwise applicable pursuant to Section 2.8.2 [Letter of Credit Fees] or
Section 4.1 [Interest Rate Options], respectively, shall be increased by 2.0%
per annum; and
4.3.2 Other Obligations.
-----------------
each other Obligation hereunder if not paid when due shall bear
interest at a rate per annum equal to the sum of the rate of interest applicable
under the Base Rate Option plus an additional 2% per annum from the time such
Obligation becomes due and payable and until it is paid in full.
4.3.3 Acknowledgment.
--------------
The Borrowers acknowledge that the increase in rates referred
to in this Section 4.3 reflects, among other things, the fact that such Loans or
other amounts have become a substantially greater risk given their default
status and that the Banks are entitled to additional
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CREDIT AGREEMENT
compensation for such risk; and all such interest shall be payable by the
Borrowers upon demand by Agent.
4.4 Euro-Rate Unascertainable; Illegality; Increased Costs; Deposits Not
--------------------------------------------------------------------
Available.
----------
4.4.1 Unascertainable.
---------------
If on any date on which a Euro-Rate would otherwise be
determined, the Administrative Agent shall have determined that:
(i) adequate and reasonable means do not exist for
ascertaining such Euro-Rate, or
(ii) a contingency has occurred which materially and
adversely affects the London interbank eurodollar market relating to the Euro-
Rate, then the Administrative Agent shall have the rights specified in Section
4.4.3 [Administrative Agent's and Banks' Rights].
4.4.2 Illegality; Increased Costs; Deposits Not Available.
---------------------------------------------------
If at any time any Bank shall have determined that:
(i) the making, maintenance or funding of any Loan to
which a Euro-Rate Option applies has been made unlawful by compliance by such
Bank in good faith with any Law or any interpretation or application thereof by
any Official Body or with any request or directive of any such Official Body
(whether or not having the force of Law), or
(ii) after making all reasonable efforts, deposits of the
relevant amount in Dollars for the relevant Interest Period for a Loan to which
a Euro-Rate Option applies, respectively, are not available to such Bank with
respect to such Loan, or to banks generally, in the interbank eurodollar market,
then the Administrative Agent shall have the rights specified in Section 4.4.3
[Administrative Agent's and Banks' Rights.]
4.4.3 Administrative Agent's and Banks' Rights.
----------------------------------------
In the case of any event specified in Section 4.4.1 above, the
Administrative Agent shall promptly so notify the Banks and the Administrative
Borrower thereof, and in the case of an event specified in Section 4.4.2 above,
such Bank shall promptly so notify the Administrative Agent and endorse a
certificate to such notice as to the specific circumstances of such notice, and
the Administrative Agent shall promptly send copies of such notice and
certificate to the other Banks and the Administrative Borrower. Upon such date
as shall be specified in such notice (which shall not be earlier than the date
such notice is given), the obligation of (A) the Banks, in the case of such
notice given by the Administrative Agent, or (B) such Bank, in the case of such
notice given by such Bank, to allow the Borrowers to select, convert to or renew
a Euro-Rate Option shall be suspended until the Administrative Agent shall have
later notified the Administrative Borrower, or such Bank shall have later
notified the Administrative Agent, of the Administrative Agent's or such Bank's,
as the case may be,
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CREDIT AGREEMENT
determination that the circumstances giving rise to such previous determination
no longer exist. If at any time the Administrative Agent makes a determination
under Section 4.4.1 and the Borrowers have previously notified the
Administrative Agent of its selection of, conversion to or renewal of a
Euro-Rate Option and such Interest Rate Option has not yet gone into effect,
such notification shall be deemed to provide for selection of, conversion to or
renewal of the Base Rate Option otherwise available with respect to such Loans.
If any Bank notifies the Administrative Agent of a determination under Section
4.4.2, the Borrowers shall, subject to each Loan Party's indemnification
Obligations under Section 5.5.2 [Indemnity], as to any Loan of the Bank to which
a Euro-Rate Option applies, on the date specified in such notice either convert
such Loan to the Base Rate Option otherwise available with respect to such Loan
or prepay such Loan in accordance with Section 5.4 [Prepayments of Loans].
Absent due notice from the Borrowers of conversion or prepayment, such Loan
shall automatically be converted to the Base Rate Option otherwise available
with respect to such Loan upon such specified date.
4.5 Selection of Interest Rate Options.
----------------------------------
If any Borrower fails to select a new Interest Period to apply
to any Borrowing Tranche of Loans under the Euro-Rate Option at the expiration
of an existing Interest Period applicable to such Borrowings Tranche in
accordance with the provisions of Section 4.2 [Interest Periods], such Borrower
shall be deemed to have converted such Borrowing Tranche to the Base Rate
Option, commencing upon the last day of the existing Interest Period.
5. PAYMENTS
--------
5.1 Payments.
--------
All payments and prepayments to be made in respect of
principal, interest, Revolving Credit Commitment Fees, Line of Credit Commitment
Fees, Revolving Credit Facility Fees, Line of Credit Facility Fees, Letter of
Credit Fees, Administrative Agent's Fee or other fees or amounts due from the
Borrowers hereunder shall be payable prior to 12:00 noon, Pittsburgh time, on
the date when due without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived by the Borrowers, and without set-off,
counterclaim or other deduction of any nature, and an action therefor shall
immediately accrue. Such payments shall be made to the Administrative Agent at
the Principal Office for the ratable accounts of the Banks with respect to the
Loans in U.S. Dollars and in immediately available funds, and the Administrative
Agent shall promptly distribute such amounts to the Banks in immediately
available funds, provided that in the event payments are received by 12:00 noon,
Pittsburgh time, by the Administrative Agent with respect to the Loans and such
payments are not distributed to the Banks on the same day received by the
Administrative Agent, the Administrative Agent shall pay the Banks the Federal
Funds Effective Rate with respect to the amount of such payments for each day
held by the Administrative Agent and not distributed to the Banks. The
Administrative Agent's and each Bank's statement of account, ledger or other
relevant record shall, in the absence of manifest error, be conclusive as the
statement of the amount of principal of and interest on the Loans and other
amounts owing under this Agreement and shall be deemed an "account stated."
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CREDIT AGREEMENT
5.2 Pro Rata Treatment of Banks.
---------------------------
Each borrowing shall be allocated to each Bank according to its Ratable
Share, and each selection of, conversion to or renewal of any Interest Rate
Option and each payment or prepayment by the Borrower with respect to principal,
interest, Revolving Credit Commitment Fees, Line of Credit Commitment Fees,
Revolving Credit Facility Fees, Line of Credit Facility Fees, Letter of Credit
Fees, or other fees (except for the Administrative Agent's Fee) or amounts due
from the Borrowers hereunder to the Banks with respect to the Loans, shall
(except as provided in Section 4.4.3 [Agent's and Bank's Rights] in the case of
an event specified in Section 4.4 [Euro-Rate Unascertainable; Etc.], 5.4.2
[Replacement of a Bank] or 5.5 [Additional Compensation in Certain
Circumstances]) be made in proportion to the applicable Loans outstanding from
each Bank and, if no such Loans are then outstanding, in proportion to the
Ratable Share of each Bank.
5.3 Interest Payment Dates.
----------------------
Interest on Loans to which the Base Rate Option applies shall be due and
payable in arrears on the first Business Day of each April, July, October and
January after the date hereof and on the Expiration Date or upon acceleration of
the Notes. Interest on Loans to which the Euro-Rate Option applies shall be due
and payable on the last day of each Interest Period for those Loans and, if such
Interest Period is longer than three (3) Months, also on the 90th day of such
Interest Period. Interest on the principal amount of each Loan or other monetary
Obligation shall be due and payable on demand after such principal amount or
other monetary Obligation becomes due and payable (whether on the stated
maturity date, upon acceleration or otherwise).
5.4 Prepayments of Loans.
--------------------
5.4.1 Right to Prepay.
---------------
The Borrowers shall have the right at its option from time to time to
prepay the Loans in whole or part without premium or penalty (except as provided
in Section 5.4.2 below or in Section 5.5 [Additional Compensation in Certain
Circumstances]):
(i) at any time with respect to any Loan to which the Base Rate Option
applies,
(ii) on the last day of the applicable Interest Period with respect to
Loans to which a Euro-Rate Option applies, or
(iii) on the date specified in a notice by any Bank pursuant to Section
4.4 [Euro-Rate Unascertainable, Etc.] with respect to any Loan to which a Euro-
Rate Option applies.
Whenever the Borrowers desire to prepay any part of the Loans, the
Administrative Borrower shall provide a prepayment notice to the Administrative
Agent by 1:00 p.m. at least one (1) Business Day prior to the date of prepayment
of Loans setting forth the following information:
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CREDIT AGREEMENT
(x) the date, which shall be a Business Day, on which the proposed
prepayment is to be made;
(y) a statement indicating the application of the prepayment between the
Revolving Credit Loans or Line of Credit Loans, as the case may be; and
(z) the total principal amount of such prepayment, which shall not be less
than $1,000,000.
All prepayment notices shall be irrevocable. The principal amount of the
Loans for which a prepayment notice is given, together with interest on such
principal amount except with respect to Loans to which the Base Rate Option
applies, shall be due and payable on the date specified in such prepayment
notice as the date on which the proposed prepayment is to be made. Except as
provided in Section 4.4.3 [Agent's and Bank's Rights], if any Borrower prepays a
Loan but fails to specify the applicable Borrowing Tranche which such Borrower
is prepaying, the prepayment shall be applied first to Loans to which the Base
Rate Option applies, then to Loans to which the Euro-Rate the Option applies.
Any prepayment hereunder shall be subject to the Borrowers' Obligation to
indemnify the Banks under Section 5.5.2 [Indemnity].
5.4.2 Mandatory Prepayment of Loans.
-----------------------------
The Borrowers agree that at any time the then current Borrowing Base is
less than the sum of (i) the then outstanding principal on all Loans outstanding
plus (ii) the then outstanding amount of all Letter of Credit Outstandings, the
Borrowers will upon any Authorized Officer having obtained knowledge of the
existence of the differential, promptly, and in any event within five (5) days
of obtaining such knowledge, give notice of such differential to the
Administrative Agent and prepay the Loans in an amount which will reduce the sum
of the outstanding principal on all Loans outstanding plus the then outstanding
amount of all Letter of Credit Outstandings to an amount less than or equal to
the then current Borrowing Base. If at any time after the Borrowers have
complied with the first sentence of this Section 5.4.2, the sum of the aggregate
Letter of Credit Outstandings is greater than the then current Borrowing Base,
the Borrowers shall provide cash collateral to the Administrative Agent in the
amount of such excess, which cash collateral shall be in the form of a
certificate of deposit pledged to the Administrative Agent and held by the
Administrative Agent for the benefit of the Banks and returned to Borrowers;
provided, however, that no Event of Default shall be deemed to have occurred and
- -------- -------
be continuing at such time that the aggregate Letters of Credit Outstanding plus
the aggregate principal amount of all outstanding Loans no longer exceed the
then current Borrowing Base.
5.4.3 Replacement of a Bank.
---------------------
In the event any Bank (i) gives notice under Section 4.4 [Euro-Rate
Unascertainable, Etc.] or Section 5.5.1 [Increased Costs, Etc.], (ii) does not
fund Revolving Credit Loans or Line of Credit Loans because the making of such
Loans would contravene any Law applicable to such Bank, or (iii) becomes subject
to the control of an Official Body (other than normal and customary
supervision), then any Borrower shall have the right at its option, with the
consent of the Administrative Agent, which shall not be unreasonably withheld,
to prepay the
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CREDIT AGREEMENT
Loans of such Bank in whole, together with all interest accrued thereon, and
terminate such Bank's Commitment after (x) receipt of such Bank's notice under
Section 4.4 [Euro-Rate Unascertainable, Etc.] or 5.5.1 [Increased Costs, Etc.],
(y) the date such Bank has failed to fund Revolving Credit Loans or Line of
Credit Loans, as the case may be, because the making of such Loans would
contravene Law applicable to such Bank, or (z) the date such Bank became subject
to the control of an Official Body, as applicable; provided that the Borrowers
--------
shall also pay to such Bank at the time of such prepayment any amounts required
under Section 5.5 [Additional Compensation in Certain Circumstances] and any
accrued interest due on such amount and any related fees; provided, however,
-------- -------
that the Commitment and any Loan of such Bank shall be provided by one or more
of the remaining Banks or a replacement bank acceptable to the Administrative
Agent; provided, further, the remaining Banks shall have no obligation hereunder
-------- -------
to increase their Commitments. Notwithstanding the foregoing, the Administrative
Agent may only be replaced subject to the requirements of Section Error!
Reference source not found. [Successor Administrative Agent] and provided that
--------
all Letters of Credit have expired or been terminated or replaced.
5.4.4 Change of Lending Office.
------------------------
Each Bank agrees that upon the occurrence of any event giving rise to
increased costs or other special payments under Section 4.4.2 [Illegality, Etc.]
or 5.5.1 [Increased Costs, Etc.] with respect to such Bank, it will if requested
by the Borrowers, use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any Loans
or Letters of Credit affected by such event, provided that such designation is
--------
made on such terms that such Bank and its lending office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the consequence of
the event giving rise to the operation of such Section. Nothing in this Section
5.4.4 shall affect or postpone any of the Obligations of the Borrowers or any
other Loan Party or the rights of any Administrative Agent or any Bank provided
in this Agreement.
5.5 Additional Compensation in Certain Circumstances.
------------------------------------------------
5.5.1 Increased Costs or Reduced Return Resulting from Taxes, Reserves, Capital
-------------------------------------------------------------------------
Adequacy Requirements, Expenses, Etc.
------------------------------------
If, subsequent to the date hereof, any Law, guideline or interpretation or
any change in any Law, guideline or interpretation or application thereof by any
Official Body charged with the interpretation or administration thereof or
compliance with any request or directive (whether or not having the force of
Law) of any central bank or other Official Body:
(i) subjects any Bank to any tax or changes the basis of taxation with
respect to this Agreement, the Notes, the Loans or payments by the Borrowers of
principal, interest, Revolving Credit Commitment Fees, Line of Credit Commitment
Fees or other amounts due from the Borrowers hereunder or under the Notes
(except for (i) taxes on the overall net income of such Bank or (ii) United
States federal withholding Taxes from which a Bank, participant, or assignee is
not exempt either (A) because such Bank, participant or assignee has not
properly delivered the applicable Form required to be delivered pursuant to
Section 11.18 of this Agreement or (B) because such Bank participant or assignee
has not established that it is fully
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<PAGE>
CREDIT AGREEMENT
exempt from such taxes at the time such Person became a party, assignee or
participant to this Agreement, as applicable),
(ii) imposes, modifies or deems applicable any reserve, special deposit
or similar requirement against credits or commitments to extend credit extended
by, or assets (funded or contingent) of, deposits with or for the account of, or
other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (A) against assets (funded or contingent) of, or letters of
credit, other credits or commitments to extend credit extended by, any Bank, or
(B) otherwise applicable to the obligations of any Bank under this Agreement, or
(iv) shall impose on any Bank any other condition,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank with respect to this Agreement, the Notes or the making, maintenance or
funding of any part of the Loans (or, in the case of any capital adequacy or
similar requirement, to have the effect of reducing the rate of return on any
Bank's capital, taking into consideration such Bank's customary policies with
respect to capital adequacy) by an amount which such Bank deems to be material,
such Bank shall from time to time notify the Borrowers and the Administrative
Agent of the amount determined in good faith (using any averaging and
attribution methods employed in good faith) by such Bank to be necessary to
compensate such Bank for such increase in cost, reduction of income, additional
expense or reduced rate of return. Such notice shall set forth in reasonable
detail the basis for such determination. Such amount shall be due and payable by
the Borrowers to such Bank promptly and in any event twenty (20) Business Days
after such notice is given.
5.5.2 Indemnity.
---------
In addition to the compensation required by Section 5.5.1 [Increased Costs,
Etc.], each Borrower shall indemnify each Bank against all liabilities, losses
or expenses (including loss of margin, any loss or expense incurred in
liquidating or employing deposits from third parties and any loss or expense
incurred in connection with funds acquired by a Bank to fund or maintain Loans
subject to a Euro-Rate Option) which such Bank sustains or incurs as a
consequence of any
(i) payment, prepayment, conversion or renewal of any Loan to which a
Euro-Rate Option applies on a day other than the last day of the corresponding
Interest Period (whether or not such payment or prepayment is mandatory,
voluntary or automatic and whether or not such payment or prepayment is then
due),
(ii) attempt by any Borrower to revoke (expressly, by later inconsistent
notices or otherwise) in whole or part any Revolving Credit Loan Requests under
Section 2.5 [Revolving Credit Loan Requests], Line of Credit Loan Requests under
Section 3.5 [Line of Credit Loan Requests] or Section 4.2 [Interest Periods] or
notice relating to prepayments under Section 5.4.1 [Right to Prepay], or
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CREDIT AGREEMENT
(iii) default by any Borrower in the performance or observance of any
covenant or condition contained in this Agreement or any other Loan Document,
including any failure of any Borrower to pay when due (by acceleration or
otherwise) any principal, interest, Revolving Credit Commitment Fee, Line of
Credit Commitment Fee or any other amount due hereunder.
If any Bank sustains or incurs any such loss or expense, it shall from time
to time notify the Administrative Borrower of the amount determined in good
faith by such Bank (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as such
Bank shall deem reasonable) to be necessary to indemnify such Bank for such loss
or expense. Such notice shall set forth in reasonable detail the basis for such
determination. Such amount shall be due and payable by the Borrowers to such
Bank promptly and in any event ten (10) Business Days after such notice is
given.
6. REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 Representations and Warranties.
------------------------------
The Loan Parties, jointly and severally, represent and warrant to the
Agents and each of the Banks as follows:
6.1.1 Organization and Qualification.
------------------------------
Each Loan Party and each Subsidiary of each Loan Party is a corporation,
partnership or limited liability company duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization. Each Loan
Party and each Subsidiary of each Loan Party has the corporate, partnership or
limited liability power to own or lease its properties and to engage in the
business it presently conducts or proposes to conduct. Each Loan Party and each
Subsidiary of each Loan Party is duly licensed or qualified and in good standing
in each jurisdiction listed on Schedule 6.1.1 and in all other jurisdictions
--------------
where the property owned or leased by it or the nature of the business
transacted by it or both makes such licensing or qualification necessary, except
where failure to be so licensed or qualified and in good standing could not
reasonably be expected to result in a Material Adverse Change.
6.1.2 Capitalization and Ownership.
----------------------------
As of March 1, 2000, the authorized capital stock of ICG consists of (x)
Three Hundred Million (300,000,000) shares of common stock, of which
approximately Two Hundred Sixty-Four Million Two Hundred Eighty-Three Thousand
Six Hundred Eighty Five (264,283,685) 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 6.1.2. All of the ICG Shares have been validly issued and are fully
- --------------
paid and nonassessable. As of March 1, 2000, there are no options, warrants or
other rights outstanding to purchase any such ICG Shares or ICG Preferred Shares
except as indicated on Schedule 6.1.2.
--------------
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<PAGE>
CREDIT AGREEMENT
6.1.3 Subsidiaries.
------------
Schedule 6.1.3 states the name of each of ICG's Subsidiaries, its
--------------
jurisdiction of incorporation, its authorized capital stock, the issued and
outstanding shares (referred to herein as the "Subsidiary Shares") and the
owners thereof. ICG has good and marketable title to all of the Subsidiary
Shares it purports to own, free and clear in each case of any Lien, except for
Permitted Liens. All Subsidiary Shares have been validly issued, and all
Subsidiary Shares are fully paid and nonassessable. There are no options,
warrants or other rights outstanding to purchase any such Subsidiary Shares
except as indicated on Schedule 6.1.3.
--------------
6.1.4 Power and Authority.
-------------------
Each Loan Party has full corporate power to enter into, execute, deliver
and carry out this Agreement and the other Loan Documents to which it is a
party, to incur the Indebtedness contemplated by the Loan Documents and to
perform its Obligations under the Loan Documents to which it is a party, and all
such actions have been duly authorized by all necessary proceedings on its part.
6.1.5 Validity and Binding Effect.
---------------------------
This Agreement has been duly and validly executed and delivered by each
Loan Party, and each other Loan Document which any Loan Party is required to
execute and deliver on or after the date hereof will have been duly executed and
delivered by such Loan Party on the required date of delivery of such Loan
Document. This Agreement and each other Loan Document constitutes, or will
constitute, legal, valid and binding obligations of each Loan Party which is or
will be a party thereto on and after its date of delivery thereof, enforceable
against such Loan Party in accordance with its terms, except to the extent that
enforceability of any of such Loan Document may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforceability of creditors' rights generally or limiting the right of specific
performance.
6.1.6 No Conflict.
-----------
Neither the execution and delivery of this Agreement or the other Loan
Documents by any Loan Party nor the consummation of the transactions herein or
therein contemplated or compliance with the terms and provisions hereof or
thereof by any of them will conflict with, constitute a default under or result
in any breach of (i) the terms and conditions of the certificate of
incorporation, bylaws, certificate of limited partnership, partnership
agreement, certificate of formation, limited liability company agreement or
other organizational documents of any Loan Party or (ii) any Law or any material
agreement or instrument or order, writ, judgment, injunction or decree to which
any Loan Party or any of its Subsidiaries is a party or by which it or any of
its Subsidiaries is bound or to which it is subject, or result in the creation
or enforcement of any Lien upon any property (now or hereafter acquired) of any
Loan Party or any of its Subsidiaries (other than Liens granted under the Loan
Documents).
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<PAGE>
CREDIT AGREEMENT
6.1.7 Litigation.
----------
There are no actions, suits, proceedings or investigations pending or, to
the knowledge of any Loan Party, threatened against such Loan Party or any
Subsidiary of such Loan Party at law or equity before any Official Body which
individually or in the aggregate could reasonably be expected to result in any
Material Adverse Change. None of the Loan Parties or any Subsidiaries of any
Loan Party is in violation of any order, writ, injunction or any decree of any
Official Body which could reasonably be expected to result in any Material
Adverse Change.
6.1.8 Title to Properties.
-------------------
The real property owned or leased by each Loan Party and each Subsidiary of
each Loan Party is described on Schedule 6.1.8. Each Loan Party and each
--------------
Subsidiary of each Loan Party has good and marketable title to or valid
leasehold interest in all properties, assets and other rights which it purports
to own or lease or which are reflected as owned or leased on its books and
records, free and clear of all Liens and encumbrances except Permitted Liens,
and subject to the terms and conditions of the applicable leases. To the best of
the Borrowers' knowledge after diligent inquiry and investigation, all leases of
real property are in full force and effect without the necessity for any consent
which has not previously been obtained upon consummation of the transactions
contemplated hereby, except where the failure to obtain such consent could not
reasonably result in a Material Adverse Change.
6.1.9 Financial Statements.
--------------------
(i) Historical Statements. The Administrative Borrower has delivered to
---------------------
the Administrative Agent a copy of ICG's audited consolidated year-end financial
statements for and as of the end of the fiscal years ended December 31, 1997,
December 31, 1998 and December 31, 1999 (the "1997 Annual Statements," the "1998
Annual Statements" and the "1999 Annual Statements", respectively) (the 1997
Annual Statements, the 1998 Annual Statements and the 1999 Annual Statements
being collectively referred to as the "Historical Statements"). The Historical
Statements were compiled from the books and records maintained by the Borrowers'
management, are correct and complete and fairly represent the consolidated
financial condition of the Borrowers and their respective Subsidiaries as of
their dates and the results of operations for the fiscal periods then ended and
have been prepared in accordance with GAAP consistently applied.
(ii) Accuracy of Financial Statements. No Borrower nor any Subsidiary of
--------------------------------
any Borrower has any liabilities, contingent or otherwise, or forward or
long-term commitments that are not disclosed in the Historical Statements or in
the notes thereto, and except as disclosed therein there are no unrealized or
anticipated losses from any commitments of any Borrower or any Subsidiary of any
Borrower which could reasonably be expected to cause a Material Adverse Change.
Since December 31, 1999, no Material Adverse Change has occurred.
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CREDIT AGREEMENT
6.1.10 Use of Proceeds; Margin Stock.
-----------------------------
6.1.10.1 General.
-------
The proceeds of the Loans shall be used to make Acquisitions (subject to
the limitations set forth in Section 8.1.15 [Acquisitions] hereof), for general
working capital purposes and capital expenditures. The Letters of Credit will be
used as credit support for the Borrowers and their Subsidiaries to make
Acquisitions (subject to the limitations set forth in Section 8.1.15
[Acquisitions]).
6.1.10.2 Margin Stock.
------------
None of the Loan Parties or any Subsidiaries of any Loan Party engages or
intends to engage principally, or as one of its important activities, in the
business of extending credit for the purpose, immediately, incidentally or
ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan has been or will be used,
immediately, incidentally or ultimately, to extend credit to others for the
purpose of purchasing or carrying any margin stock or to refund Indebtedness
originally incurred for such purpose, or for any purpose, which, in any such
case, entails a violation of or which is inconsistent with the provisions of the
regulations of the Board of Governors of the Federal Reserve System. The
Borrowers will furnish to the Administrative Agent and each Bank a statement to
the foregoing effect in conformity with the requirements of FR Form U-1 referred
to in Regulation U.
6.1.11 Full Disclosure.
---------------
Neither this Agreement, nor the Schedules hereto, nor any other Loan
Document, nor any certificate, statement, agreement or other documents furnished
to the Administrative Agent or any Bank in connection herewith or therewith,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein, in
light of the circumstances under which they were made, not misleading, as of the
date such statement was made. There is no fact known to any Loan Party, which
materially adversely affects the business, property, assets, condition
(financial or otherwise), results of operations or prospects of the Loan Parties
taken as a whole, that has not been set forth in this Agreement or in the
certificates, statements, agreements or other documents furnished in writing to
the Administrative Agent and the Banks prior to or at the date hereof in
connection with the transactions contemplated hereby except for normal market
fluctuations.
6.1.12 Taxes.
-----
All federal, state, local and other tax returns required to have been filed
with respect to each Loan Party and each Subsidiary of each Loan Party have been
filed, and payment or adequate provision has been made for the payment of all
taxes, fees, assessments and other governmental charges which have or may become
due pursuant to said returns or to assessments received, except to the extent
that (i) such taxes, fees, assessments and other charges are being contested in
good faith by appropriate proceedings, for which such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made and (ii) failure to file any such federal, state, local and other tax
return could not reasonably be expected to result
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<PAGE>
CREDIT AGREEMENT
in a Material Adverse Change. There are no agreements or waivers extending the
statutory period of limitations applicable to any federal income tax return of
any Loan Party or Subsidiary of any Loan Party for any period.
6.1.13 Consents and Approvals.
----------------------
Except for the filing of financing statements in the state and county
filing offices and except as otherwise provided in the Schedules to the
Borrowing Base being delivered under Section 7.1.17, no consent, approval,
exemption, order or authorization of, or a registration or filing with, any
Official Body or any other Person is required by any Law or any agreement in
connection with the execution, delivery and carrying out of this Agreement and
the other Loan Documents by any Loan Party.
6.1.14 No Event of Default; Compliance with Instruments.
------------------------------------------------
No event has occurred and is continuing and no condition exists or will
exist after giving effect to the borrowings or other extensions of credit to be
made on the Closing Date under or pursuant to the Loan Documents that
constitutes an Event of Default or Potential Default. None of the Loan Parties
or any Subsidiaries of any Loan Party is in violation of (i) any term of its
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, limited liability company
agreement or other organizational documents or (ii) any agreement or instrument
to which it is a party or by which it or any of its properties may be subject or
bound where such violation would constitute a Material Adverse Change.
6.1.15 Patents, Trademarks, Copyrights, Licenses, Etc.
----------------------------------------------
To its knowledge, each Loan Party and each Subsidiary of each Loan Party
owns, possesses or has rights to all the patents, trademarks, service marks,
trade names, copyrights, licenses, registrations, franchises, permits and rights
necessary to own and operate its properties and to carry on its business as
presently conducted by such Loan Party or Subsidiary, without known possible,
alleged or actual conflict with the rights of others, except for those the
failure to own or license which could not reasonably be expected to have a
Material Adverse Change. All material patents, trademarks, service marks, trade
names, copyrights, licenses, registrations, franchises and permits of each Loan
Party and each Subsidiary of each Loan Party are listed and described on
Schedule 6.1.15.
- ---------------
6.1.16 Security Interests.
------------------
The Liens and security interests granted to the Administrative Agent for
the benefit of the Banks pursuant to the Patent, Trademark and Copyright
Assignment, the Security Agreement (Special Collateral Account), the Pledge
Agreement and the Security Agreement in the Collateral (other than the Property)
constitute and will continue to constitute Prior Security Interests under the
Uniform Commercial Code as in effect in each applicable jurisdiction (the
"Uniform Commercial Code") or other applicable Law entitled to all the rights,
benefits and priorities provided by the Uniform Commercial Code or such Law.
Upon the filing of financing statements relating to said security interests in
each office and in each jurisdiction
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<PAGE>
CREDIT AGREEMENT
where required in order to perfect the security interests described above,
taking possession of any stock certificates or other certificates evidencing the
Pledged Collateral by the Broker pursuant to the provisions of the applicable
Account Control Agreement or by the Administrative Agent pursuant to the Pledge
Agreement and recordation of the Patent, Trademark and Copyright Assignment in
the United States Patent and Trademark Office and United States Copyright
Office, as applicable, all such action as is necessary or advisable to establish
such rights of the Administrative Agent will have been taken, and there will be
upon execution and delivery of the Patent, Trademark and Copyright Assignment,
the Pledge Agreement, the Account Control Agreement (Private Company Pledged
Securities), the Account Control Agreement (Public Company Pledged Securities),
the Security Agreement (Special Collateral Account) and the Security Agreement,
such filings, such taking of possession, no necessity for any further action in
order to preserve, protect and continue such rights, except the filing of
continuation statements with respect to such financing statements within six (6)
months prior to each five-year anniversary of the filing of such financing
statements and the filing of financing statements in compliance with all
statutory requirements necessary to keep perfected the Liens and security
interests in the event the Collateral is moved. All filing fees and other
expenses in connection with each such action have been or will be paid by the
Borrowers.
6.1.17 Status of the Pledged Collateral.
--------------------------------
Schedule 6.1.17 lists all the Pledgors who own any Pledged Securities. All
---------------
the securities included in the Pledged Collateral to be pledged pursuant to the
Security Agreement (Special Collateral Account) or the Pledge Agreement are, or
will be (in the case of convertible securities, upon issuance in accordance with
the terms of such convertible securities), validly issued and nonassessable and
owned beneficially and of record by the pledgor of such Pledged Collateral free
and clear of any Lien or restriction on transfer, except (i) as otherwise
provided by the Account Control Agreement (Private Company Pledged Securities),
the Account Control Agreement (Public Company Pledged Securities), the Security
Agreement (Special Collateral Account) or the Schedules to the Borrowing Base
Certificate to be delivered pursuant to Section 7.1.17, (ii) for Permitted Liens
and (iii) as the right of the Banks to dispose of such shares may be restricted
by the Securities Act, and the regulations promulgated by the Securities and
Exchange Commission thereunder and by applicable state securities laws.
6.1.18 Insurance.
---------
Schedule 6.1.18 lists all material insurance policies and other bonds to
---------------
which any Loan Party or Subsidiary of any Loan Party is a party, all of which
are valid and in full force and effect. No notice has been given or claim made
and, to the knowledge of each Loan Party, no grounds exist to cancel or avoid
any of such policies or bonds or to reduce the coverage provided thereby, except
where any such cancellation or avoidance of such policies or bonds or reduction
in coverage could not reasonably be expected to result in a Material Adverse
Change. Such policies and bonds provide adequate coverage from reputable and
financially sound insurers in amounts sufficient to insure the assets and risks
of the Loan Parties taken as a whole in accordance with prudent business
practice in the industry of the Loan Parties and their Subsidiaries.
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CREDIT AGREEMENT
6.1.19 Compliance with Laws.
--------------------
The Loan Parties and their Subsidiaries are in compliance in all
material respects with all applicable Laws (other than Environmental Laws which
are specifically addressed in Section 6.1.24 [Environmental Matters]) in all
jurisdictions in which any Loan Party or Subsidiary of any Loan Party is
presently or will be doing business except where the failure to do so would not
constitute a Material Adverse Change.
6.1.20 Material Contracts; Burdensome Restrictions.
-------------------------------------------
All Material Contracts are valid, binding and enforceable upon
such Loan Party or Subsidiary and each of the other parties thereto in
accordance with their respective terms, and there is no default thereunder, to
the Loan Parties' knowledge, with respect to parties other than such Loan Party
or Subsidiary. None of the Loan Parties or their Subsidiaries is bound by any
contractual obligation, or subject to any restriction in any organization
document, or any requirement of Law which could reasonably be expected to result
in a Material Adverse Change. Except to the extent set forth in the Schedules to
the Borrowing Base to be delivered under Section 7.1.17, all Material Contracts
have been delivered to the Administrative Agent.
6.1.21 Investment Companies; Regulated Entities.
----------------------------------------
None of the Loan Parties or any Subsidiaries of any Loan Party is
an "investment company" registered or required to be registered under the
Investment Company Act of 1940 or under the "control" of an "investment company"
as such terms are defined in the Investment Company Act of 1940 and shall not
become such an "investment company" or under such "control." None of the Loan
Parties or any Subsidiaries of any Loan Party is subject to any other Federal or
state statute or regulation limiting its ability to incur Indebtedness for
borrowed money.
6.1.22 Plans and Benefit Arrangements.
------------------------------
Except as set forth on Schedule 6.1.22,
---------------
(a) No Loan Party has any pension or other employee benefit
plans which are subject to the provisions of Title IV of ERISA (any such plans
which have been or may hereafter be adopted or assumed by any Loan Party are
hereinafter referred to individually as a "Plan" and, collectively, as the
"Plans"), the application of which could give rise to direct or contingent
liabilities of any Loan Party to the PBCG, the Department of Labor or the
Internal Revenue Service ("IRS"). No Loan Party is a participating employer in
any Multiple Employer Plan. No Loan Party has withdrawal liability to any
Multiemployer Plan and no withdrawal from any Multiemployer Plan is contemplated
or pending by any Loan Party.
(b) Each Loan Party is and has at all times been in full
compliance with all applicable provisions of ERISA. Each Loan Party's Plans and
other employee benefit plans subject to the qualification requirements of
Sections 401 et. seq. of the Internal Revenue Code are and have at all times
been in material compliance with such requirements.
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CREDIT AGREEMENT
(c) With respect to any of the Plans, no Loan Party has
knowledge of any Reportable Event, as described in Section 4043 of ERISA, except
that there has or may have occurred (1) a reduction in the number of active
participants as described in Section 4043(b)(3) of ERISA; (2) a termination or
partial termination; or (3) a merger or consolidation with, or transfer of
assets to, another plan. No Loan Party has any outstanding liability to the PBGC
by reason of any such Reportable Event, and no Loan Party has received any
notice from the PBGC that any of the Plans should be terminated or from the
Secretary of the Treasury that any partial or full termination of any of the
Plans has occurred.
(d) No termination proceedings with respect to any of the
Plans have been commenced and have not yet been concluded.
(e) With respect to any of the Plans and any other employee
benefit plans subject to ERISA, there has not occurred any prohibited
transaction (as defined in Section 406 of ERISA or Section 4975 of the Internal
Revenue Code) for which a prohibited transaction exemption has not been provided
by statute or regulation, ruling or opinion issued by the Department of Labor or
Internal Revenue Service and which may result in the imposition upon any Loan
Party of any prohibited transaction excise tax or civil liability under Section
502(i) or ERISA.
(f) Each Loan Party has made all required contributions under
the Plans and any other employee benefit plans subject to ERISA for all periods
through and including the date hereof or adequate accruals therefor have been
provided for as shown in the Financial Statements. No "accumulated funding
deficiency" (as defined in Section 302 of ERISA) has occurred with respect to
any of the Plans.
For purposes of this Agreement, all references to "ERISA" shall be deemed to
refer to the Employee Retirement Income Security Act of 1974 (including any
sections of the Internal Revenue Code of 1986 amended by it), as heretofore
amended and as it may hereafter be amended or modified, and all regulations
promulgated thereunder, and all references to any Loan Party in this Section
5.1.22, or in any other Section of this Agreement relating to ERISA, shall be
deemed to refer to each Loan Party and all other entities which are part of a
controlled or affiliated group or under common control with each Loan Party
within the meaning of Sections 414(b), 414(c) and 415(h) of the Internal Revenue
Code of 1986, as amended, and Section 4001(a)(2) of ERISA.
6.1.23 Employment Matters.
------------------
There are no actions or proceedings pending or, to the best of any
Loan Party's knowledge, threatened against any Loan Party, by or on behalf of or
with respect to its employees, which could reasonably be expected to have a
Material Adverse Change.
6.1.24 Environmental Matters.
---------------------
(i) Each Loan Party has accrued or otherwise provided, in
accordance with GAAP, consistently applied, for all damages, liabilities,
penalties or costs that it may incur in connection with any claim pending or
threatened against it, or any requirement that is
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CREDIT AGREEMENT
or may be applicable to it, under any Environmental Laws, and such accrual or
other provision is reflected in the Borrowers' Historical Statements, which
disclosed items could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Change.
(ii) Each Loan Party is in compliance with all applicable laws,
rules, regulations, ordinances, orders decrees and common law relating to
contamination, pollution or the protection of human health or the environment
("Environmental Laws"), and each Loan Party has all permits, licenses,
registrations and other governmental authorizations required under such laws
("Environmental Permits") for its operations, and there are no violations,
investigations or proceedings pending or, to the knowledge of any Loan Party,
threatened with respect to Environmental Laws or such Environmental Permits
except where the failure to have such Environmental Permits or where the
violation, investigation or proceeding relating thereto could not, individually
or in the aggregate, result in a Material Adverse Change.
(iii) No notice, notification, demand, request for information,
citation, summons, complaint or order is pending or has been received by or, to
the knowledge of any Loan Party, is threatened by any person against any Loan
Party under any Environmental Laws or in respect of any of the properties or
facilities now or previously owned, leased or operated by any such Loan Party.
No penalty has been assessed against any Loan Party, and no liability has been
imposed upon any Loan Party, under Environmental Law with respect to any alleged
notification, demand, request for information, citation, summons, complaint or
order except where such matters have been fully resolved, or where resolution
could not, individually or in the aggregate, result in a Material Adverse Change
or prevent or materially delay the consummation of the transactions contemplated
by this Agreement.
(iv) No hazardous, toxic or regulated substance, waste, materials
or chemical ("Hazardous Substance") has been discharged, generated, treated,
manufactured, handled, stored, transported, emitted, released or is present at
any property now or previously owned, leased or operated by any Loan Party in
violation of any Environmental Law or under circumstances which, individually or
in the aggregate, could result in a Material Adverse Change.
6.1.25 Senior Debt Status.
------------------
The Obligations of each Loan Party under this Agreement, the
Notes, the Guaranty Agreement and each of the other Loan Documents to which it
is a party do rank and will rank at least pari passu in priority of payment
---- -----
with all other Indebtedness of such Loan Party except Indebtedness of such Loan
Party to the extent secured by Permitted Liens. There is no Lien upon or with
respect to any of the properties or income of any Loan Party or Subsidiary of
any Loan Party which secures indebtedness or other obligations of any Person
except for Permitted Liens.
6.1.26 Year 2000.
---------
The Borrowers and their respective Subsidiaries have reviewed the
areas within their business and operations which could be adversely affected
by, and have developed or are developing a program to address on a timely
basis, the risk that certain computer applications
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CREDIT AGREEMENT
used by the Borrowers or their respective Subsidiaries (or any of their
respective material suppliers, customers or vendors) may be unable to recognize
and perform properly date-sensitive functions involving dates after December 31,
1999 (the "Year 2000 Problem"). To the knowledge of the Loan Parties, the Year
2000 Problem could not reasonably be expected to result in any Material Adverse
Change.
6.1.27 Validity and Binding Effect.
---------------------------
The 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 performance. All representations and warranties of any Loan Party
contained in the 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 Subordinated Debt under any 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 Subordinated Loan Documents constitute the entire agreement
between each Borrower and the holders of the Subordinated Debt and there are no
other agreements with respect to the Subordinated Debt.
6.1.28 Solvency.
--------
After giving effect to the transactions contemplated by the Loan
Documents and the Subordinated Loan Documents, including all Indebtedness
incurred thereby, the Liens granted by any Borrower in connection therewith and
the payment of all fees related thereto, the Borrowers, taken as a whole, will
be Solvent, determined as of the Closing Date.
6.1.29 Profit Percentage.
-----------------
The initial aggregate Profit Percentage is twelve percent (12%).
7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT
-------------------------------------------------------
The obligation of each Bank to make Loans and of the Administrative Agent
to issue Letters of Credit hereunder is subject to the performance by each of
the Loan Parties of its Obligations to be performed hereunder at or prior to the
making of any such Loans or issuance of such Letters of Credit and to the
satisfaction of the following further conditions:
7.1 First Loans and Letters of Credit.
---------------------------------
On the Closing Date:
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CREDIT AGREEMENT
7.1.1 Officer's Certificate.
---------------------
The representations and warranties of each of the Loan Parties
contained in Section 6 and in each of the other Loan Documents shall be true
and accurate in all material respects on and as of the Closing Date with the
same effect as though such representations and warranties had been made on and
as of such date (except representations and warranties which relate solely to an
earlier date or time, which representations and warranties shall be true and
correct on and as of the specific dates or times referred to therein), and each
of the Loan Parties shall have performed and complied with all covenants and
conditions hereof and thereof, no Event of Default or Potential Default shall
have occurred and be continuing or shall exist; and there shall be delivered to
the Administrative Agent for the benefit of each Bank a certificate of each of
the Loan Parties, dated the Closing Date and signed by an Authorized Officer of
each of the Loan Parties, to each such effect.
7.1.2 Secretary's Certificate.
-----------------------
There shall be delivered to the Administrative Agent for the
benefit of each Bank a certificate dated the Closing Date and signed by the
Secretary or an Assistant Secretary of each of the Loan Parties, certifying as
appropriate as to:
(i) all action (including resolutions) taken by each Loan
Party in connection with this Agreement and the other Loan Documents;
(ii) the names of the officer or officers authorized to sign
this Agreement and the other Loan Documents and the true signatures of such
officer or officers and specifying the Authorized Officers permitted to act on
behalf of each Loan Party for purposes of this Agreement and the true signatures
of such officers, on which the Administrative Agent and each Bank may
conclusively rely; and
(iii) copies of its organizational documents, including its
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, and limited liability company
agreement as in effect on the Closing Date certified by the appropriate state
official where such documents are filed in a state office together with
certificates from the appropriate state officials as to the continued existence
and good standing of each Loan Party in each state where organized or qualified
to do business and a bring-down certificate by facsimile dated the Closing Date.
7.1.3 Delivery of Loan Documents and Subordinated Loan Documents.
----------------------------------------------------------
Except for the Account Control Agreements (which are to be
delivered as soon as practicable following the Closing Date), the Loan Documents
and the Subordinated Loan Documents shall have been duly executed and delivered
to the Administrative Agent for the benefit of the Banks.
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CREDIT AGREEMENT
7.1.4 Delivery of Material Contracts, Consents, Certificates and Powers;
------------------------------------------------------------------
Closing Date Compliance Certificate.
- -----------------------------------
(a) Except as otherwise provided in the Schedules to the
Borrowing Base Certificate to be delivered under Section 7.1.17, there shall be
delivered to the Administrative Agent the Material Contracts, the Consents, the
Certificates and the Powers relating to each Acquisition Entity in which ICG or
its Subsidiaries have made an Investment as of December 31, 1999.
(b) The Borrowers shall deliver a Compliance Certificate (the
"Closing Date Compliance Certificate") showing Indebtedness and other balance
sheet items as of the Closing Date. Such Compliance Certificate shall be in the
form of Exhibit 7.1.4 hereto.
-------------
7.1.5 Existing Agreement.
------------------
The Existing Agreement shall have been terminated, any commitments
thereunder shall have been terminated, all Indebtedness thereunder shall have
been repaid in full and there shall be no letters of credit outstanding issued
for the account of a Borrower, other than the Existing Letters of Credit which,
pursuant to Section 2.9, are deemed to be issued hereunder.
7.1.6 Collateral Assignment of Contract Rights.
----------------------------------------
The Collateral Assignment of Contract Rights shall have been duly
executed and delivered by the Borrowers, in substantially the form of Exhibit
-------
7.1.6 hereto.
- -----
7.1.7 Opinion of Counsel.
------------------
(a) There shall be delivered to the Administrative Agent for
the benefit of each Bank a written opinion of Dechert Price & Rhoads, counsel
for the Loan Parties, dated the Closing Date and in form and substance
satisfactory to the Administrative Agent and its counsel:
(i) as to the matters set forth in Exhibit 7.1.7; and
-------------
(ii) as to such other matters incident to the transactions
contemplated herein as the Administrative Agent may reasonably request.
(b) Upon the execution and delivery of the Account Control
Agreements and the delivery of the Pledged Securities thereunder, there shall be
delivered to the Administrative Agent for the benefit of each Bank a written
opinion of Dechert Price & Rhoads, counsel for the Loan Parties, dated the date
on which such Account Control Agreements are deemed delivered in accordance with
the terms hereof and in form and substance satisfactory to the Administrative
Agent and its counsel, relating to the Banks' security interest therein and as
to such other matters incident to the transactions contemplated thereby as the
Administrative Agent may reasonably request.
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CREDIT AGREEMENT
7.1.8 Legal Details.
-------------
All corporate and other proceedings, and all documents,
instruments and other legal matters in connection with the transactions
contemplated by this Agreement and the other Loan Documents shall be in form and
substance satisfactory to the Administrative Agent, counsel for the
Administrative Agent and the Banks, and the Administrative Agent shall have
received all such other counterpart originals or certified or other copies of
such documents and legal opinions in connection with such transactions, as the
Administrative Agent or said counsel may reasonably request.
7.1.9 Payment of Fees.
---------------
The Borrowers shall have paid or caused to be paid to the Lead
Arranger all fees required to be paid by the Borrowers to the Lead Arranger, and
to the Administrative Agent for itself and for the account of the Banks to the
extent not previously paid, the Revolving Credit Facility Fees, the Line of
Credit Facility Fees, all other commitment and other fees accrued through the
Closing Date and the costs and expenses for which the Agents, the Lead Arranger
and the Banks are entitled to be reimbursed hereunder.
7.1.10 Consents.
--------
All material consents required to effectuate the transactions
contemplated hereby as set forth on Schedule 6.1.13 shall have been obtained,
except as otherwise set forth in the Schedules to the Borrowing Base Certificate
to be delivered under Section 7.1.17.
7.1.11 Officer's Certificate Regarding MACs.
------------------------------------
Since December 31, 1999, no Material Adverse Change shall have
occurred; prior to the Closing Date, there shall have been no material change in
the executive management of any Loan Party or Subsidiary of any Loan Party that
could reasonably be expected to result in a Material Adverse Change; and there
shall have been delivered to the Administrative Agent for the benefit of each
Bank a certificate dated the Closing Date and signed by an Authorized Officer of
each Loan Party to each such effect.
7.1.12 No Violation of Laws.
--------------------
The making of the Loans and the issuance of the Letters of Credit
shall not contravene, in any material respect, any Law applicable to any Loan
Party or any of the Banks.
7.1.13 No Actions or Proceedings.
-------------------------
No action, proceeding, investigation, regulation or legislation
shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, this Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby or which could
reasonably be expected to result in a Material Adverse Change.
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CREDIT AGREEMENT
7.1.14 Insurance Policies; Certificates of Insurance; Endorsements.
-----------------------------------------------------------
The Loan Parties shall have delivered evidence acceptable to the
Administrative Agent that adequate insurance in compliance with Section 8.1.3
[Maintenance of Insurance] is in full force and effect and that all premiums
then due thereon have been paid.
7.1.15 Actions to Perfect Liens; Lien Searches.
---------------------------------------
The Administrative Agent shall have received evidence in form and
substance satisfactory to it that all filings, recordings, registrations and
other actions, including, without limitation, the filing of duly executed
financing statements on form UCC-1, necessary or, in the opinion of the
Administrative Agent and the Banks, desirable to perfect the Liens created by
the Loan Documents shall have been completed or will be completed promptly
following the making of the initial Loans hereunder. The Administrative Agent
shall have received the results of a recent search by a Person satisfactory to
the Administrative Agent, of the Uniform Commercial Code, judgment and tax lien
filings which may have been filed with respect to personal property of each
Borrower, and the results of such search shall be satisfactory to the
Administrative Agent and the Banks.
7.1.16 Administrative Questionnaire.
----------------------------
Each of the Banks and the Borrowers shall have completed and
delivered to the Administrative Agent the Administrative Agent's form of
administrative questionnaire.
7.1.17 Borrowing Base Certificate.
--------------------------
On or prior to the third Business Day prior to the Closing Date,
the Administrative Agent and the Banks shall have received and the
Administrative Agent and the Banks shall be satisfied (both as to form and
substance) with a pro forma Borrowing Base Certificate in the form as set forth
---------
in Exhibit 1.1(B) which shall be prepared as of a date prior to the Closing
--------------
Date.
7.2 Additional Conditions Precedent.
-------------------------------
In addition, the obligation of each Bank to make Loans and of the
Administrative Agent to issue Letters of Credit hereunder is subject to the
satisfaction of the following additional conditions:
7.2.1 Delivery of Pledged Collateral.
------------------------------
The Administrative Agent shall have received, in form and
substance satisfactory to the Administrative Agent and the Banks, evidence that
the Pledged Collateral shall have been received by the Administrative Agent in
accordance with the terms of the Pledge Agreement.
7.3 Each Additional Loan or Letter of Credit.
----------------------------------------
At the time of making any Loans or issuing any Letters of Credit
other than Loans made or Letters of Credit issued on the Closing Date and after
giving effect to the proposed
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CREDIT AGREEMENT
extensions of credit: (a) the representations and warranties of the Loan Parties
contained in Section 6 and in the other Loan Documents shall be true on and as
of the date of such additional Loan or Letter of Credit, in all material
respects, with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
expressly relate solely to an earlier date or time, which representations and
warranties shall be true and correct on and as of the specific dates or times
referred to therein) and the Loan Parties shall have performed and complied with
all covenants and conditions hereof in all material respects; no Event of
Default or Potential Default shall have occurred and be continuing or shall
exist; the making of the Loans or issuance of such Letter of Credit shall not
contravene any Law applicable to any Loan Party or Subsidiary of any Loan Party
or any of the Banks in any material respect; and the Borrowers shall have
delivered to the Administrative Agent a duly executed and completed Revolving
Credit Loan Request, Line of Credit Loan Request or application for a Letter of
Credit, as the case may be, (b) the Administrative Agent shall have received
such other documentation concerning such matters as reasonably requested by, and
be in form and substance reasonably satisfactory to, the Administrative Agent;
and (c) the Administrative Agent and the Banks shall have received and shall be
reasonably satisfied (both as to form and substance) with a Borrowing Base
Certificate delivered to the Banks within three (3) Business Days of the date of
such additional Loan or Letter of Credit.
The acceptance of the proceeds of each borrowing of Loans shall
constitute a representation and warranty by each Loan Party to each of the Banks
that all of the applicable conditions specified in Section 7.3 (in each case
disregarding any reference therein that such condition be deemed satisfactory by
the Administrative Agent and/or the Banks) have been satisfied or waived.
All of the certificates and other documents and papers referred to
in this Section 7.3, unless otherwise specified, shall be delivered to the
Administrative Agent at the Principal Office (or such other location as may be
specified by the Administrative Agent) for the account of each of the Banks and
in sufficient counterparts for each of the Banks and shall be satisfactory in
form and substance to the Administrative Agent.
8. COVENANTS
---------
8.1 Affirmative Covenants.
---------------------
The Loan Parties, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings, and interest thereon, expiration or termination of all
Letters of Credit, satisfaction of all of the Loan Parties' other Obligations
under the Loan Documents and termination of the Commitments, the Loan Parties
shall, and shall cause each of its Subsidiaries to, comply with the following
affirmative covenants:
8.1.1 Preservation of Existence, Etc.
------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries
to, maintain its legal existence as a corporation, limited partnership or
limited liability company and its license
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CREDIT AGREEMENT
or qualification and good standing in each jurisdiction in which its ownership
or lease of property or the nature of its business makes such license or
qualification necessary for the proper conduct of its business, except (i) as
otherwise expressly permitted in Section 8.2.6 [Liquidations, Mergers, Etc.] and
(ii) where the failure to be so licensed or qualified could not reasonably be
expected to result in a Material Adverse Change.
8.1.2 Payment of Liabilities, Including Taxes, Etc.
--------------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries
to, duly pay and discharge all liabilities to which it is subject or which are
asserted against it, promptly as and when the same shall become due and payable,
including all taxes, assessments and governmental charges upon it or any of its
properties, assets, income or profits, prior to the date on which penalties
attach thereto, except to the extent that such liabilities, including taxes,
assessments or charges, are being contested in good faith by appropriate
proceedings and for which such reserve or other appropriate provisions, if any,
as shall be required by GAAP shall have been made.
8.1.3 Maintenance of Insurance.
------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries to
maintain with financially sound and reputable insurance companies insurance on
all its real or personal property in at least such amounts and against at least
such risks (but including in any event public liability, product liability and
business interruption) as are usually insured against in the same general area
by companies engaged in the same or a similar business, which insurance shall
name the Administrative Agent as lender loss payee, in the case of property or
casualty insurance, and as an additional insured, in the case of the liability
insurance, except where the failure to maintain any such insurance could not
reasonably be expected to result in a Material Adverse Change; and furnish to
each Bank, upon written request, copies of any such insurance policies.
8.1.4 Maintenance of Properties and Leases.
------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries
to, maintain in good repair, working order and condition (ordinary wear and tear
excepted) all of those properties useful or necessary to its business.
8.1.5 Maintenance of Patents, Trademarks, Etc.
---------------------------------------
Each Loan Party shall, and shall cause each of its Subsidiaries
to, maintain in full force and effect all patents, trademarks, service marks,
trade names, copyrights, licenses, franchises, permits and other authorizations
necessary for the ownership and operation of its properties and business if the
failure so to maintain the same would constitute a Material Adverse Change.
8.1.6 Visitation Rights.
-----------------
Each Loan Party shall, and shall cause each of its Subsidiaries
to, permit any of the officers or authorized employees or representatives of the
Administrative Agent or any of the Banks to visit and inspect any of its
properties during such Loan Party's normal business
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CREDIT AGREEMENT
hours and to examine and make excerpts from its books and records and discuss
its business affairs, finances and accounts with its officers, all in such
detail and at such times and as often as any of the Banks may reasonably
request, provided that each Bank shall provide the Administrative Borrower and
the Administrative Agent with reasonable notice prior to any visit or
inspection. In the event any Bank desires to conduct an audit of any Loan Party,
such Bank shall make a reasonable effort to conduct such audit contemporaneously
with any audit to be performed by the Administrative Agent.
8.1.7 Keeping of Records and Books of Account.
---------------------------------------
Each Borrower shall, and shall cause each Subsidiary of any
Borrower to, maintain and keep proper books of record and account in conformity
with GAAP and as otherwise required by applicable Laws of any Official Body
having jurisdiction over any Borrower or any Subsidiary of any Borrower, and in
which full, true and correct entries shall be made in all material respects of
all its dealings and business and financial affairs.
8.1.8 Plans and Benefit Arrangements.
------------------------------
Each Loan Party shall, and shall cause each other member of the
ERISA Group to, comply in all material respects with all applicable provisions
of ERISA, promptly notify the Administrative Agent in writing of the occurrence
of any Reportable Event, as defined in ERISA together with a description of such
Reportable Event and a statement of the action that any such Loan Party intends
to take with respect thereto, together with a copy of the notice (if any)
thereof given to the PBGC, and promptly notify Agent in writing of any proposed
withdrawal from a Multiemployer Plan or Multiple Employer Plan.
8.1.9 Compliance with Laws.
--------------------
Each Loan Party shall, and shall cause each of its Subsidiaries
to, comply with all applicable Laws, including all Environmental Laws in all
respects, provided that it shall not be deemed to be a violation of this Section
8.1.9 if any failure to comply with any Law would not result in fines,
penalties, remediation costs, other similar liabilities or injunctive relief
which in the aggregate would constitute a Material Adverse Change.
8.1.10 Use of Proceeds.
---------------
The Loan Parties will use the Letters of Credit only for credit
support for the Borrowers, their respective Subsidiaries and Acquisition
Entities. The Loan Parties will use the proceeds of the Loans only for (i)
Acquisitions (subject to the limitations set forth in Section 8.1.15 hereof),
(ii) working capital purposes or (iii) capital expenditures. The Loan Parties
shall not use the Letters of Credit or the proceeds of the Loans for any
purposes which contravenes any applicable Law or any provision hereof.
8.1.11 Further Assurances.
------------------
Each Loan Party shall, from time to time, at its expense,
faithfully preserve and protect the Administrative Agent's Lien on and Prior
Security Interest in the Collateral as a
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continuing first priority perfected Lien, subject only to Permitted Liens, and
shall do such other acts and things as the Administrative Agent and the Banks in
their sole discretion may deem necessary or advisable from time to time in order
to preserve, perfect and protect the Liens granted under the Loan Documents and
to exercise and enforce its rights and remedies thereunder with respect to the
Collateral.
8.1.12 Subordination of Intercompany Loans.
-----------------------------------
Each Loan Party shall cause any intercompany Indebtedness, loans
or advances owed by any Loan Party to any other Loan Party to be subordinated
pursuant to the terms of the Intercompany Subordination Agreement.
8.1.13 Dispositions; Exchanges.
-----------------------
(a) The Administrative Borrower shall notify the Administrative
Agent and the Broker of the disposition of any Securities in any Acquisition
Entity that constitute Pledged Collateral permitted by Section 8.2.7 hereof by
telephone at the latest contemporaneously therewith followed promptly by written
notice to the Administrative Agent and the Broker within five (5) Business Days
after any such disposition.
(b) If at any time any Pledged Private Company Restricted
Securities or Pledged In-Registration Company Securities become Public Company
Restricted Securities or Public Company Unrestricted Securities, then the
applicable Pledgor shall promptly, and in any event not more than 10 days
following such an event, deliver to the Broker a letter of direction in
substantially the form attached as Exhibit E to the Account Control Agreement
(Private Company Pledges Securities), signed by the applicable Pledgor and with
receipt acknowledged by the Administrative Agent.
8.1.14 Amendments of Purpose Statements.
--------------------------------
In accordance with the terms of Section 221.3(c)(2)(iv) of the
Federal Reserve Board Regulations, the Borrowers shall provide the
Administrative Agent with a current list of Pledged Collateral which adequately
supports all credit extended under this Agreement with respect to margin stock
which the Administrative Agent shall attach to the executed Form FR U-1 referred
to in Regulation U.
8.1.15 Acquisitions.
------------
The Loan Parties may make Acquisitions in other Persons in
addition to Acquisitions existing on the Closing Date and disclosed in Schedules
1.1(A-1), 1.1(A-2), 1.1(A-3) and 1.1(A-4) attached hereto as follows:
(i) the Loan Parties may make any Acquisition without restriction
as to amount, but otherwise subject to the terms and conditions of this
Agreement, if on the date of the proposed Acquisition, after giving effect to
the proposed Acquisition, the sum
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of (x) the Borrowers' Cash and Cash Equivalents and (y) Borrowing Base
Availability shall exceed $500,000,000;
(ii) if on the date of the proposed making of the Acquisition,
after giving effect to the proposed Acquisition, the sum of (x) the Borrowers'
Cash and Cash Equivalents and (y) Borrowing Base Availability shall be greater
than $250,000,000 but less than or equal to $500,000,000, the Borrowers may make
an Acquisition in such Acquisition Entity of up to 50% of the sum of (a) the
Borrowers' Cash and Cash Equivalents and (b) Borrowing Base Availability,
determined as of the date of the Acquisition but before giving effect to the
proposed Acquisition; and
(iii) if on the date of the proposed making of the Acquisition,
after giving effect to the proposed Acquisition, the sum of (x) the Borrowers'
Cash and Cash Equivalents and (y) Borrowing Base Availability shall be between
zero and $250,000,000, the Borrowers may make an Acquisition in such Acquisition
Entity of up to 40% of the sum of (a) the Borrowers' Cash and Cash Equivalents
and (b) Borrowing Base Availability, determined as of the date of the
Acquisition but before giving effect to the proposed Acquisition.
The Loan Parties will promptly, and in any event within five (5) Business Days
of the making of any such Acquisition, provide to the Administrative Agent
written notice of such Acquisition (substantially in the form of Exhibit 8.1.15
--------------
attached hereto) and, on the last Business Day of each calendar quarter, updated
Schedules to the Borrowing Base Certificate reflecting any such additional
Acquisition. Notwithstanding anything to the contrary contained herein, the
prohibitions contained in this Section 8.1.15 shall not apply to the extent
Acquisitions are made with the capital stock of ICG.
8.1.16 Minimum Margin Value.
--------------------
The Borrowers shall maintain Pledged Collateral having a Minimum
Margin Value and shall provide additional Pledged Collateral to the
Administrative Agent immediately upon the Administrative Agent's request if the
Minimum Margin Value is not maintained.
8.1.17 Delivery of Material Contracts.
------------------------------
For Acquisitions made by any Loan Party after the Closing Date in
(i) Private Company Restricted Securities (to the extent any Loan Party elects
to have such Private Company Restricted Securities pledged to the Administrative
Agent for the ratable benefit of the Banks in accordance with the terms of the
Security Agreement (Special Collateral Account)), Public Company Restricted
Securities and Public Company Unrestricted Securities, such Loan Party shall
deliver copies of all Material Contracts relating to such Acquisition to the
Administrative Agent within sixty (60) calendar days of the closing date for any
such Acquisition and (ii) Pledged In-Registration Company Securities, such Loan
Party shall deliver copies of all Material Contracts relating to such
Acquisition to the Administrative Agent within twenty (20) calendar days of the
filing of a registration statement with respect thereto with the Securities and
Exchange Commission. Notwithstanding the foregoing, Material Contracts relating
to Securities acquired with Acquisition Related Indebtedness shall be delivered
by the applicable Loan Party to
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CREDIT AGREEMENT
the Administrative Agent promptly (and in any event within sixty (60) days)
after the obligations evidenced by the notes or other evidence of indebtedness
evidencing such Acquisition Related Indebtedness shall have been satisfied in
full. Further, all Material Contracts which are not provided on the Closing Date
as indicated on the Schedules to the Borrowing Base Certificate delivered at
Closing shall be delivered by the applicable Loan Party within ninety (90) days
of the date of Closing unless the Agent reasonably determines that,
notwithstanding any such Loan Party's best efforts, the same cannot be obtained,
in which case the related Pledged Securities shall not be eligible for inclusion
in the Borrowing Base.
8.1.18 Delivery of Consents.
--------------------
For Acquisitions made by any Loan Party after the Closing Date in
(i) Private Company Restricted Securities (to the extent any Loan Party elects
to have such Private Company Restricted Securities pledged to the Administrative
Agent for the ratable benefit of the Banks in accordance with the terms of the
Security Agreement (Special Collateral Account)), Public Company Restricted
Securities and Public Company Unrestricted Securities, such Loan Party shall
deliver copies of all Consents relating to such Acquisition to the
Administrative Agent within sixty (60) calendar days of the closing date for any
such Acquisition and (ii) Pledged In-Registration Company Securities, such Loan
Party shall delivery copies of all Consents relating to such Acquisition to the
Administrative Agent within twenty (20) calendar days of the filing of a
registration statement with respect thereto with the Securities and Exchange
Commission. Notwithstanding the foregoing, Consents relating to Securities
acquired with Acquisition Related Indebtedness shall be delivered by the
applicable Loan Party to the Administrative Agent promptly (and in any event
within sixty (60) days) after the obligations evidenced by the notes or other
evidence of indebtedness evidencing such Acquisition Related Indebtedness shall
have been satisfied in full. Further, all Consents which are not provided on the
Closing Date as indicated on the Schedules to the Borrowing Base Certificate
delivered at Closing shall be delivered by the applicable Loan Party within
ninety (90) days of the date of Closing unless the Agent reasonably determines
that, notwithstanding any such Loan Party's best efforts, the same cannot be
obtained, in which case the related Pledged Securities shall not be eligible for
inclusion in the Borrowing Base.
8.1.19 Delivery of Certificates and Powers.
-----------------------------------
For Acquisitions made by any Loan Party after the Closing Date in
(i) Private Company Restricted Securities (to the extent any Loan Party elects
to have such Private Company Restricted Securities pledged to the Administrative
Agent for the ratable benefit of the Banks in accordance with the terms of the
Security Agreement (Special Collateral Account)), Public Company Restricted
Securities and Public Company Unrestricted Securities, such Loan Party shall (a)
deliver all Certificates and Powers relating to such Acquisition to the Broker
in accordance with the terms of the Security Agreement (Special Collateral
Account) within sixty (60) calendar days of the closing date for any such
Acquisition and (b) cause the owner of such Pledged Securities to grant to the
Administrative Agent for the benefit of the Banks a first prior perfected
security interest in such Pledged Securities in accordance with the terms of
Section 8.2.9 [Subsidiaries, Partnerships and Joint Ventures] and (ii) Pledged
In-Registration Company Securities, such Loan Party shall (a) deliver all
Certificates and Powers relating to such Acquisition to the Broker in accordance
with the terms of the Security Agreement
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CREDIT AGREEMENT
(Special Collateral Account) within twenty (20) calendar days of the filing of a
registration statement with respect thereto with the Securities and Exchange
Commission and (b) cause the owner of such Pledged Securities to grant to the
Administrative Agent for the benefit of the Banks a first prior perfected
security interest in such Pledged Securities in accordance with the terms of
Section 8.2.9 [Subsidiaries, Partnerships and Joint Ventures]. Notwithstanding
the foregoing, Certificates and Powers relating to Securities acquired with
Acquisition Related Indebtedness shall be delivered by the applicable Loan Party
to the Borrower promptly (and in any event within sixty (60) days) after the
obligations evidenced by the notes or other evidence of indebtedness evidencing
such Acquisition Related Indebtedness shall have been satisfied in full.
Further, all Certificates and Powers which are not provided on the Closing Date
as indicated on the Schedules to the Borrowing Base Certificate delivered at
Closing shall be delivered by the applicable Loan Party within ninety (90) days
of the date of Closing unless the Agent reasonably determines that,
notwithstanding any such Loan Party's best efforts, the same cannot be obtained,
in which case the related Pledged Securities shall not be eligible for the
inclusion in the Borrowing Base.
8.1.20 Security Agreement (Special Collateral Account) relating to the Account
-----------------------------------------------------------------------
Agreement.
---------
Effective upon the occurrence of an Event of Default, the Pledgors
shall execute and deliver a Security Agreement (Special Collateral Account),
substantially in the form of Exhibit 1.1(U)(1), providing for, among other
-----------------
things, the granting of a security interest to the Administrative Agent for the
benefit of the Banks in all right, title and interest of the Pledgors in and to
the Subject to Pledge Private Company Restricted Securities issued by U.S.
Persons and In-Registration Company Securities issued by U.S. Persons not
previously pledged pursuant to the Security Agreement (Special Collateral
Account).
8.1.21 Year 2000 Compliance.
--------------------
Each Borrower shall perform all acts reasonably necessary to
ensure that such Borrower and its Subsidiaries become Year 2000 Compliant in a
timely manner. Each Borrower will also take all reasonable steps to ensure that
it will not be materially adversely affected by, or as a result of, any
customer's, supplier's or vendor's failure to become Year 2000 compliant. As
used in this paragraph, "Year 2000 Compliant" shall mean, in regard to any
entity, that all Information Technology and Non-Information Technology (as
defined in SEC Release 33-7558, dated July 29, 1998) systems utilized by any
Borrower to the extent that they are material to the business operations or
financial condition of such entity, will properly perform date sensitive
functions before, during and after the year 2000.
8.2 Negative Covenants.
------------------
The Loan Parties, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings and interest thereon, expiration or termination of all Letters
of Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and termination of the Commitments, the Loan Parties shall, and shall cause each
of its Subsidiaries to, comply with the following negative covenants:
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CREDIT AGREEMENT
8.2.1 Indebtedness.
------------
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as set forth on Schedule 8.2.1
--------------
(including any extensions or renewals thereof), provided there is no increase in
--------
the amount thereof or other significant change in the terms thereof unless
otherwise specified on Schedule 8.2.1;
--------------
(iii) Indebtedness secured by Purchase Money Security
Interests and in respect to Capitalized Leases in the aggregate not exceeding
$25,000,000;
(iv) Indebtedness of a Loan Party to another Loan Party
which is subordinated in accordance with the provisions of Section 8.1.12
[Subordination of Intercompany Loans];
(v) Subordinated Debt;
(vi) 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;
(vii) Indebtedness in respect of Guarantees permitted
pursuant to Section 8.2.3;
(viii) Indebtedness in respect of any forward sales contract,
hedging contract, or similar monetization contract or agreement involving the
sale, transfer or other disposition of the Pledged Collateral or other assets
("Securities Monetization") provided that (i) any recourse granted with respect
to such Securities Monetization is limited to the Pledged Collateral or other
assets to which the Securities Monetization relates, (ii) no Event of Default
which results in an acceleration under Sections 9.2.1 or 9.2.2 hereof or which
occurs by reason of noncompliance with the Borrowing Base as a result of such
Securities Monetization shall be outstanding as of the date on which such
transaction is to be closed or would result therefrom and (iii) any such
Securities Monetization is subject to the terms of Section 5 of the Security
Agreement (Special Collateral Account); and
(ix) Acquisition Related Indebtedness.
8.2.2 Liens.
-----
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Lien on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except Permitted Liens.
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CREDIT AGREEMENT
8.2.3 Guaranties.
----------
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, at any time, directly or indirectly, become or be liable in
respect of any Guaranty, or assume, guarantee, become surety for, endorse or
otherwise agree, become or remain directly or contingently liable upon or with
respect to any obligation or liability of any other Person, except for (a)
Guaranties of Indebtedness in existence as of the date hereof and listed on
Schedule 8.2.3, (b) Guaranties of Indebtedness incurred after the date hereof
- --------------
(provided, however, that notwithstanding anything to the contrary contained
herein, in no event shall the aggregate amount of such Guaranties of
Indebtedness permitted under clause (b) of this Section 8.2.3 exceed $50,000,000
at any one time outstanding for the Loan Parties and their respective
Subsidiaries), and (c) Guaranties of Indebtedness of the Loan Parties otherwise
permitted hereunder.
8.2.4 Loans and investments.
---------------------
(a) Each of the Loan Parties shall not, and shall not
permit any of its Subsidiaries to, at any time make or suffer to remain
outstanding any loan or advance to, or purchase, acquire or own any stock,
bonds, notes or securities of, or any partnership interest (whether general or
limited) or limited liability company interest in, or any other investment or
interest in, or make any capital contribution to, any other Person, or agree,
become or remain liable to do any of the foregoing, except:
(i) trade credit extended on usual and customary terms in
the ordinary course of business;
(ii) advances to employees to (a) meet expenses incurred by
such employees in the ordinary course of business, (b) purchase equity
securities of the Loan Parties and (c) to pay tax liabilities of the employees
to the extent the aggregate amount of such advances in respect of taxes does not
exceed $20,000,000;
(iii) Permitted Investments;
(iv) loans, advances and investments in other Loan Parties
permitted pursuant to Section 8.2.1(iv); and
(v) Acquisitions permitted under Section 8.1.15.
8.2.5 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, (ii) non-cash distributions
contemplated by any rights offering, provided that in the case of distributions
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CREDIT AGREEMENT
permitted by clause (ii) hereof, (a) after giving effect to any such
distribution, no Default or Event of Default shall exist hereunder and (b) the
payment of such distribution shall not violate any law and (iii) distributions
payable to limited partners in accordance with the terms of the Partnership
Agreement as contemplated by clause (d) of the proviso in Section 8.2.7.
8.2.6 Liquidations, Mergers, Consolidations, Acquisitions.
---------------------------------------------------
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, dissolve, liquidate or wind-up its affairs, or become a
party to any merger or consolidation, or acquire by purchase, lease or otherwise
(other than in accordance with the terms of Section 8.1.15 [Acquisitions]) all
or substantially all of the assets or capital stock of any other Person,
provided that any Subsidiary of any Borrower may be merged into or consolidated
- --------
with (i) any Borrower (provided that such Borrower shall be the continuing or
--------
surviving corporation), (ii) any one or more wholly owned Subsidiaries of any
Borrower (provided that the wholly owned Subsidiary or Subsidiaries shall be the
--------
continuing or surviving corporation) or (iii) to the extent any Acquisition
Entity shall have joined this Agreement as a Loan Party pursuant to Section
11.19 [Joinder of Guarantors], any wholly-owned Subsidiary of any Borrower may
be merged into or consolidated with an Acquisition Entity in which such
Subsidiary is not the surviving corporation or entity.
8.2.7 Dispositions of Assets or Subsidiaries.
--------------------------------------
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, sell, convey, assign, lease, abandon or otherwise transfer
or dispose of, voluntarily or involuntarily, any of its properties or assets,
tangible or intangible (including sale, assignment, discount or other
disposition of accounts, contract rights, chattel paper, equipment or general
intangibles with or without recourse or of capital stock, shares of beneficial
interest, partnership interests or limited liability company interests of a
Subsidiary of such Loan Party), except:
(i) transactions involving the sale of inventory in the
ordinary course of business;
(ii) any sale, transfer or lease of assets in the ordinary
course of business which are no longer necessary or required in the conduct of
such Loan Party's or such Subsidiary's business;
(iii) any sale, transfer or lease of assets by any wholly
owned Subsidiary of such Loan Party to another Loan Party;
(iv) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through (iii) above, which is
approved by the Required Banks prior to such sale, transfer or lease of assets
which approval shall not be unreasonably withheld;
(v) any sale or disposition of assets not in the ordinary
course of business, provided that all such sales or other dispositions do not
--------
exceed, in the aggregate, $5,000,000; or
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CREDIT AGREEMENT
(vi) Securities Monetizations permitted in accordance with
the terms of Section 8.2.1(viii);
provided, however, that nothing contained in this Section 8.2.7 shall prohibit
- -------- -------
(a) the sale of any Acquisition, the stock of which Acquisition is not part of
the Pledged Collateral, so long as the Borrower gives notice of such sale to the
Administrative Agent and to the Broker in accordance with the terms of Section
8.1.13, (b) the making of any Acquisition permitted under Section 8.1.15 hereof,
(c) sales of Pledged Collateral in the ordinary course of Borrower's business
provided that Borrower is at all times in compliance with the Borrowing Base and
subject to the terms of Section 5 of the Security Agreement (Special Collateral
Account) or for (d) distributions of Pledged Collateral by 1999 Internet Capital
L.P. to the extent of the then applicable Profit Percentage to the limited
partners who shall be entitled thereto in accordance with the terms of the
Partnership Agreement and the Administrative Agent on behalf of the Banks agrees
to release its Lien on such portion of the Pledged Collateral at the time such
Securities are to be distributed in accordance with the terms of the Partnership
Agreement.
8.2.8 Affiliate Transactions.
----------------------
Except for transactions in connection with any registered offering
of ICG's securities and Acquisition Related Indebtedness permitted under Section
8.2.1(ix), each of the Loan Parties shall not, and shall not permit any of its
Subsidiaries to, enter into or carry out any transaction with an Affiliate
(including purchasing property or services from or selling property or services
to any Affiliate of any Loan Party or other Person) unless such transaction is
(a) not otherwise prohibited by this Agreement, (b) entered into in the ordinary
course of business and (c) upon fair and reasonable arm's-length terms and
conditions no less favorable to such Loan Party or such Subsidiary, as the case
may be, than it would obtain in a comparable arm's length transaction with a
Person which is not an Affiliate. Notwithstanding the foregoing, each Borrower
shall be entitled to charge for services provided to Acquisition Entities at
such Borrower's internal cost.
8.2.9 Subsidiaries, Partnerships and Joint Ventures.
---------------------------------------------
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, own any Pledged Securities other than a Subsidiary which
joins this Agreement as a Guarantor and Pledgor pursuant to Section Error!
Reference source not found. [Joinder of Guarantors and Pledgors], provided that
such Subsidiary and the Loan Parties, as applicable, shall grant and cause to be
perfected first priority Liens to the Administrative Agent for the benefit of
the Banks in the assets held by such Subsidiary, including the Pledged
Securities held by such Subsidiary.
8.2.10 Continuation of or Change in Business.
-------------------------------------
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, engage in any business other than the business of the Loan
Parties substantially as conducted and operated by such Loan Party or Subsidiary
on the Closing Date and business directly related to such existing business, and
such Loan Party or Subsidiary shall not permit any material change in such
business.
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CREDIT AGREEMENT
8.2.11 Plans and Benefit Arrangements.
------------------------------
Each Loan Party and each other member of the ERISA Group shall
not:
(i) be or become obligated to the PBGC, any Multiemployer
Plan which is an "Employee Pension" Plan within the meaning of Section 3(2) of
ERISA or any Multiple Employer Plan in excess of $500,000; or
(ii) be or become obligated to the Internal Revenue Service
in excess of $500,000 with respect to excise or other penalty taxes provided for
in those provisions of the Internal Revenue Code, as now in effect or hereafter
amended or supplemented, applicable to employee benefit plans subject to ERISA.
8.2.12 Fiscal Year.
-----------
No Borrower shall, and neither Borrower shall permit any
Subsidiary of any such Borrower to, change its fiscal year from the twelve-month
period beginning January 1 and ending December 31.
8.2.13 Changes in Organizational Documents.
-----------------------------------
Each of the Loan Parties shall not, and shall not permit any of
its Subsidiaries to, amend in any respect its certificate of incorporation
(including any provisions or resolutions relating to capital stock), by-laws,
certificate of limited partnership, partnership agreement, certificate of
formation, limited liability company agreement or other organizational documents
without providing written notice to the Administrative Agent and the Banks
within ten (10) Business Days of any such amendment after the effective date
thereof.
8.2.14 Negative Pledges.
----------------
Each of the Loan Parties covenants and agrees that it shall not, and shall
not permit any of its Subsidiaries to, enter into any agreement with any Person
which prohibits any of the Loan Parties from granting any Liens to the
Administrative Agent or the Banks except for Permitted Liens.
8.2.15 Amendment or Waiver of Subordinated Debt; Prepayment of 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 Subordinated Debt, the Subordinated Loan Documents or any other evidences of
such 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)(1);
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CREDIT AGREEMENT
(B) any advancement of the maturity date under any
Subordinated Loan Document; or
(C) any increase in the interest rate applicable to any
Subordinated Debt; or
(ii) amend, change, waive or otherwise modify any of the terms
and provisions set forth in Exhibit 1.1(D)(1) to the extent such amendment,
-----------------
change or waiver or other modification of any of the material terms and
provisions set forth in Exhibit 1.1(D)(1) would result in the terms of such
-----------------
Subordinated Debt being less favorable to the Senior Indebtedness than those
currently applicable to such 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 Subordinated Debt.
8.2.16 Minimum Liquidity.
-----------------
The Loan Parties shall not permit the sum of the Borrowers' Cash,
Cash Equivalents and Borrowing Base Availability to be less than that required
to pay debt service (excluding the principal amount of the Credit Facilities)
and operating expenses for the period ending 90 days past the Line of Credit
Expiration Date.
8.2.17 Maximum Leverage Ratio.
----------------------
The Loan Parties shall not at any time permit the ratio of
consolidated Indebtedness (excluding convertible Subordinated Debt) plus Letters
of Credit and Guarantees of the Borrowers and their respective Subsidiaries to
Consolidated Tangible Net Worth plus convertible Subordinated Debt to exceed the
ratio as set forth below:
Period Ratio
------ -----
Closing Date and thereafter .50 to 1.0
8.3 Reporting Requirements.
----------------------
The Loan Parties, jointly and severally, covenant and agree that
until payment in full of the Loans, Reimbursement Obligations and Letter of
Credit Borrowings and interest thereon, expiration or termination of all Letters
of Credit, satisfaction of all of the Loan Parties' other Obligations hereunder
and under the other Loan Documents and termination of the Commitments, the Loan
Parties will furnish or cause to be furnished to the Administrative Agent and
each of the Banks:
8.3.1 Quarterly and Annual Financial Information.
------------------------------------------
As soon as available and in any event within sixty (60) calendar
days after the end of each of the first three fiscal quarters in each fiscal
year, in the case of quarterly financial
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<PAGE>
information, copies of Forms 10-Q and as soon as available and in any event
within one hundred (100) calendar days after the end of each fiscal year of the
Borrowers, in the case of annual financial information, copies of Forms 10-K
(including audited financial statements and an opinion of KPMG LLP or other
independent certified public accountants of nationally recognized standing
reasonably acceptable to the Administrative Agent), in each case certified by an
Authorized Officer of the Administrative Borrower as having been prepared in
accordance with GAAP, consistently applied (subject to normal year end audit
adjustments in the case of quarterly information), and setting forth in
comparative form the respective financial statements for the corresponding date
and period in the previous fiscal year.
8.3.2 [Intentionally Omitted].
8.3.3 Performance and Financial Information.
-------------------------------------
Upon reasonable request of the Required Banks, a report of the
Borrowers of the performance of each Acquisition Entity whose Pledged Collateral
is then included in the Borrowing Base, such report to be substantially in the
form of Exhibit 8.3.3 hereto, together with such other information as the
-------------
Administrative Agent may reasonably request, including internally generated
financial and managerial reports, provided that the Administrative Agent and the
Banks must keep such reports or such other information confidential in
accordance with the terms of Section 11.13 hereof.
8.3.4 Borrowing Base Certificate.
--------------------------
On or before three (3) Business Days following the last Friday of
each month, the Borrowers shall execute and deliver to the Administrative Agent
a Borrowing Base Certificate prepared by the Borrowers and certified by an
Authorized Officer of the Administrative Borrower, setting forth (i) the cost
basis of Private Company Restricted Securities and In-Registration Restricted
Securities and (ii) the value of all Public Company Restricted Securities and
Public Company Unrestricted Securities, in each case determined in accordance
with the provisions of the definition of "Borrowing Base" provided for herein,
and a comparison of such number to the Commitment and to the amount of
outstanding Obligations.
8.3.5 Certificate of the Borrower.
---------------------------
Concurrently with the financial information of the Borrowers
furnished to the Administrative Agent and to the Banks pursuant to Sections
8.3.1 [Quarterly and Annual Financial Information], a certificate of the
Administrative Borrower signed by an Authorized Officer of the Administrative
Borrower, in the form of Exhibit 8.3.5, to the effect that (i) the
-------------
representations and warranties of the Borrowers contained in Section 6 and in
the other Loan Documents are true on and as of the date of such certificate with
the same effect as though such representations and warranties had been made on
and as of such date (except representations and warranties which expressly
relate solely to an earlier date or time) and the Loan Parties have performed
and complied with all covenants and conditions hereof in all material respects,
(ii) no Event of Default or Potential Default exists and is continuing on the
date of such certificate and (iii) containing calculations in sufficient detail
to demonstrate compliance as of the date of such
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<PAGE>
financial statements with all financial covenants contained in Section 8.2.15
[Minimum Liquidity] and 8.2.16 [Maximum Leverage Ratio].
8.3.6 Notice of Default.
-----------------
Promptly after any Authorized Officer of any Loan Party has
acquired knowledge of the occurrence of an Event of Default or Potential
Default, a certificate signed by the Authorized Officer of such Loan Party
setting forth the details of such Event of Default or Potential Default and the
action which such Loan Party proposes to take with respect thereto.
8.3.7 Notice of Litigation.
--------------------
Promptly after the commencement thereof, notice of all actions,
suits, proceedings or investigations before or by any Official Body or any other
Person against any Loan Party or Subsidiary of any Loan Party which relate to
the Collateral, involve a claim or series of claims in excess of $5,000,000 or
which if adversely determined would constitute a Material Adverse Change.
8.3.8 Certain Events.
--------------
Written notice to the Administrative Agent:
(i) within the time limits set forth in Section 8.2.13
[Changes in Organizational Documents], of any amendment to the organizational
documents of any Loan Party; and
(ii) at least thirty (30) calendar days prior thereto,
with respect to any change in any Loan Party's locations from the locations set
forth in Schedule A to the Security Agreement.
8.3.9 Budgets, Forecasts, Other Reports and Information.
-------------------------------------------------
(a) Promptly upon the reasonable request of the Required Banks
and upon their becoming available to any Authorized Officer of any Borrower:
(i) the annual budget and any forecasts or projections
of any Borrower, and
(ii) any reports including management letters submitted
to any Borrower by independent accountants in connection with any annual,
interim or special audit.
(b) Promptly upon their becoming available to any Authorized
Officer of any Borrower:
(i) any reports, notices or proxy statements generally
distributed by any Borrower to its stockholders on a date no later than the date
supplied to such stockholders,
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<PAGE>
(ii) subject to the requirements of Section 8.3.1,
regular or periodic reports, including Form 8-K, registration statements and
prospectuses, filed by any Borrower with the Securities and Exchange Commission,
and
(iii) a copy of any order in any proceeding to which any
Borrower or any of its respective Subsidiaries is a party issued by any Official
Body which relates to the Collateral, involves a claim or series of claims in
excess of $5,000,000 or which if adversely determined would constitute a
Material Adverse Change,
together with such other reports and information as any of the Banks may from
time to time reasonably request, including a Borrowing Base Certificate upon
three (3) days written notice to the Administrative Borrower. The Borrowers
shall also notify the Banks promptly upon acquiring knowledge of the enactment
or adoption of any Law which could reasonably be expected to result in a
Material Adverse Change.
8.3.10 Notices Regarding Plans and Benefit Arrangements.
------------------------------------------------
The Borrowers shall:
(a) Within thirty (30) calendar days of such
filing, provide a copy of each annual report which is filed with respect to each
Plan with the Secretary of Labor or the PBGC; and
(b) Promptly, upon their becoming available,
provide copies of: (i) all non-routine correspondence with the PBGC, the
Secretary of Labor or any representative of the IRS with respect to any Plan;
(ii) copies of all reports received by any Borrower from its actuary with
respect to any Plan; (iii) copies of any notices of Plan termination filed by
any Plan Administrator (as those terms are used in ERISA) with the PBGC and of
any notices from the PBGC to any Borrower with respect to the intent of the PBGC
to institute involuntary termination proceedings; and (iv) copies of all non-
routine correspondence with the plan sponsor with respect to any Multiemployer
Plan or Multiple Employer Plan.
9. DEFAULT
-------
9.1 Events of Default.
-----------------
An Event of Default shall mean the occurrence or existence of any
one or more of the following events or conditions (whatever the reason therefor
and whether voluntary, involuntary or effected by operation of Law):
9.1.1 Payments Under Loan Documents.
-----------------------------
Any Borrower shall fail to pay (i) any principal of any Loan
(including scheduled installments, mandatory prepayments or the payment due at
maturity), Reimbursement Obligation or Letter of Credit Borrowing when due or
(ii) any interest on any Loan, Reimbursement Obligation or Letter of Credit
Borrowing or any other amount owing hereunder
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or under the other Loan Documents within three (3) Business Days after such
interest or other amount becomes due in accordance with the terms hereof or
thereof;
9.1.2 Breach of Warranty.
------------------
Any representation or warranty made at any time by any of the
Loan Parties herein or by any of the Loan Parties in any other Loan Document, or
in any certificate, other instrument or statement furnished pursuant to the
provisions hereof or thereof, shall prove to have been false or misleading in
any material respect as of the time it was made or furnished;
9.1.3 Breach of Negative Covenants or Visitation Rights.
-------------------------------------------------
Any of the Loan Parties shall default in the observance or
performance of any covenant contained in Section 8.1.6 [Visitation Rights] or
Section 8.2 [Negative Covenants] except Sections 8.2.11, 8.2.16 and 8.2.17;
9.1.4 Breach of Other Covenants.
-------------------------
Any of the Loan Parties shall default in the observance or
performance of any other covenant, condition or provision hereof or of any other
Loan Document (other than as provided in Sections 9.1.1, 9.1.2 or 9.1.3 hereof)
and such default shall continue unremedied for a period of ten (10) Business
Days after any Authorized Officer of any Loan Party acquires knowledge of the
occurrence thereof (such grace period to be applicable only in the event such
default can be remedied by corrective action of the Loan Parties);
9.1.5 Defaults in Other Agreements or Indebtedness.
--------------------------------------------
A default or event of default shall occur at any time under the
terms of any other agreement involving borrowed money or the extension of credit
or any other Indebtedness under which any Loan Party or Subsidiary of any Loan
Party may be obligated as a borrower or guarantor in excess of $5,000,000 in the
aggregate, and such breach, default or event of default consists of the failure
to pay (beyond any period of grace permitted with respect thereto, whether
waived or not) any indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or if such breach or default permits or causes the
acceleration of any indebtedness (whether or not such right shall have been
waived) or the termination of any commitment to lend;
9.1.6 Final Judgments or Orders.
-------------------------
Any final judgments or orders for the payment of money in excess
of $5,000,000 in the aggregate shall be entered against any Loan Party by a
court having jurisdiction in the premises, which judgment is not discharged,
vacated, bonded or stayed pending appeal within a period of forty-five (45)
calendar days from the date of entry;
9.1.7 Loan Document Unenforceable.
---------------------------
Any of the Loan Documents, any Guaranty or any Guaranty Joinder
shall cease to be legal, valid and binding agreements enforceable against the
party executing the same or such party's successors and assigns (as permitted
under the Loan Documents) in accordance
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with the respective terms thereof or shall in any way be terminated (except in
accordance with its terms) or become or be declared ineffective or inoperative
or shall in any way be challenged or contested or cease to give or provide the
respective Liens, security interests, rights, titles, interests, remedies,
powers or privileges intended to be created thereby;
9.1.8 Uninsured Losses; Proceedings Against Assets.
--------------------------------------------
There shall occur any material uninsured damage to or loss, theft
or destruction of any of the Collateral in excess of $5,000,000; or the
Collateral or any other of the Loan Parties' or any of their Subsidiaries'
assets are attached, seized, levied upon or subjected to a writ or distress
warrant; or such come within the possession of any receiver, trustee, custodian
or assignee for the benefit of creditors and the same is not cured within forty-
five (45) calendar days thereafter;
9.1.9 Notice of Lien or Assessment.
----------------------------
A notice of Lien or assessment in excess of $5,000,000 which is
not a Permitted Lien is filed of record with respect to all or any part of any
of the Loan Parties' or any of their Subsidiaries' assets by the United States,
or any department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including the PBGC, or any taxes or
debts owing at any time or times hereafter to any one of these becomes payable
and the same is not paid or discharged within forty-five (45) calendar days
after the same becomes payable;
9.1.10 Events Relating to Plans and Benefit Arrangements.
-------------------------------------------------
Any of the following occurs: (a) the termination of any Plan or
the institution by the PBGC of proceedings for the involuntary termination of
any Plan, in either case, with a vested unfunded liability in excess of
$500,000; or (b) failure by any Borrower to fund, in accordance with the
applicable provisions of ERISA, each of the Plans hereafter established or
assumed by it, provided that such failure to fund shall not constitute an Event
of Default hereunder unless such failure shall continue for five (5) days after
the date on which such funding was required; or (c) the withdrawal by any Loan
Party from any Multiemployer Plan or Multiple Employer Plan giving rise to a
withdrawal liability in excess of $500,000).
9.1.11 Cessation of Business.
---------------------
Any Loan Party or Subsidiary of a Loan Party ceases to conduct
its business as contemplated, except as expressly permitted under Section 8.2.6
[Liquidations, Mergers, Etc.] or 8.2.7 [Disposition of Assets or Subsidiaries],
or any Loan Party or Subsidiary of a Loan Party is enjoined, restrained or in
any way prevented by court order from conducting all or any material part of its
business and such injunction, restraint or other preventive order is not
dismissed within forty-five (45) calendar days after the entry thereof;
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<PAGE>
9.1.12 Change of Control.
-----------------
Any Person (other than existing shareholders of any Loan Party
who would be considered an Affiliate, the parent of any such shareholders or any
wholly-owned Subsidiary of any of them) shall acquire more than thirty percent
(30%) of the issued and outstanding capital stock of Internet Capital Group,
Inc.
9.1.13 Breach of Subordination Terms.
-----------------------------
Any agreement to subordinate the right of payment in respect of
the 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 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 Subordinated Loan Documents.
9.1.14 Bankruptcy, Insolvency or Reorganization Proceedings.
----------------------------------------------------
(a) Any Loan Party or any Subsidiary of a Loan Party shall make
an assignment for the benefit of creditors, file a petition for an Insolvency
Proceeding in favor of such Loan Party or such Subsidiary of such Loan Party, be
adjudicated insolvent or bankrupt, suffer an order for relief under any federal
bankruptcy law, petition or apply to any tribunal for the appointment of a
receiver, custodian, or any trustee for it or a substantial part of its assets,
or shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or there shall have been
filed any such petition or application, or any such proceeding shall have been
commenced against it, which remains undismissed for a period of sixty (60)
calendar days or more; or any order for relief shall be entered in any such
proceeding; or any Loan Party by any act or omission shall indicate its consent
to, approval of or acquiescence in any such petition, application or proceedings
or the appointment of a custodian, receiver or any trustee for it or any
substantial part of any of its properties, or shall suffer any custodianship,
receivership or trusteeship to continue undischarged for a period of sixty (60)
calendar days or more; or
(b) Any Loan Party or any Subsidiary of a Loan Party shall
generally not pay its debts as such debts become due; or
(c) Any Loan Party or any Subsidiary of a Loan Party shall have
concealed, removed, or permitted to be concealed or removed, any part of its
property, with intent to hinder, delay or defraud its creditors or any of them,
or made or suffered a transfer of any of its property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or shall have made
any transfer of its property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid; or shall have suffered or
permitted, while insolvent, any creditor to obtain a lien upon any of its
property through legal proceedings or distraint which is not vacated within
sixty (60) calendar days from the date thereof.
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<PAGE>
9.1.15 Investment Company Status.
-------------------------
Any Loan Party or any Subsidiary of any Loan Party shall be
registered or required to be registered under the Investment Company Act of 1940
or under the "control" of an "investment company" (as such terms are defined in
the Investment Company Act of 1940).
9.1.16 Borrowing Base.
--------------
The Borrowing Base shall at any time have less than twenty-five
percent (25%) availability from Acquisition Entities which are Qualified Public
Company Unrestricted Securities.
9.2 Consequences of Event of Default.
--------------------------------
9.2.1 Events of Default Other Than Bankruptcy, Insolvency or Reorganization
---------------------------------------------------------------------
Proceedings.
-----------
If an Event of Default specified under Sections 9.1.1 through
9.1.13 or Sections 9.1.15 or 9.1.16 shall occur and be continuing, the Banks and
the Administrative Agent shall be under no further obligation to make Loans or
issue Letters of Credit, as the case may be, and the Administrative Agent may,
and upon the request of the Required Banks, shall (i) by written notice to the
Administrative Borrower, declare the unpaid principal amount of the Notes then
outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrowers to the Banks hereunder and thereunder to be
forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Administrative Agent for the benefit of each
Bank without presentment, demand, protest or any other notice of any kind, all
of which are hereby expressly waived, and (ii) require the Borrowers to, and the
Borrowers shall thereupon, deposit in a non-interest-bearing account with the
Administrative Agent, as cash collateral for its Obligations under the Loan
Documents, an amount equal to the maximum amount currently or at any time
thereafter available to be drawn on all outstanding Letters of Credit, and the
Borrowers hereby pledge to the Administrative Agent and the Banks, and grant to
the Administrative Agent and the Banks a security interest in, all such cash as
security for such Obligations. Upon the curing of all existing Events of Default
to the satisfaction of the Required Banks, the Administrative Agent shall return
such cash collateral to the Borrowers; and
9.2.2 Bankruptcy, Insolvency or Reorganization Proceedings.
----------------------------------------------------
If an Event of Default specified under Section 9.1.14
[Bankruptcy, etc.] shall occur, the Banks shall be under no further obligations
to make Loans hereunder and the unpaid principal amount of the Loans then
outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrowers to the Banks hereunder and thereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived; and
9.2.3 Set-off.
-------
If an Event of Default shall occur and be continuing, any Bank to
whom any Obligation is owed by any Loan Party hereunder or under any other Loan
Document or any
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<PAGE>
participant of such Bank which has agreed in writing to be bound by the
provisions of Section Error! Reference source not found. [Equalization of Banks]
and any branch, Subsidiary or Affiliate of such Bank (not including the Broker)
or participant anywhere in the world shall have the right, in addition to all
other rights and remedies available to it, without notice to such Loan Party, to
set-off against and apply to the then unpaid balance of all the Loans and all
other Obligations of any Borrower and the other Loan Parties hereunder or under
any other Loan Document any debt owing to, and any other funds held in any
manner for the account of, any Borrower or any such other Loan Party by such
Bank or participant or by such branch, Subsidiary or Affiliate, including all
funds in all deposit accounts (whether time or demand, general or special,
provisionally credited or finally credited, or otherwise) now or hereafter
maintained by any Borrower or any such other Loan Party for its own account (but
not including funds held in custodian or trust accounts) with such Bank or
participant or such branch, Subsidiary or Affiliate. Such right shall exist
whether or not any Bank or the Administrative Agent shall have made any demand
under this Agreement or any other Loan Document, whether or not such debt owing
to or funds held for the account of any Borrower or any such other Loan Party is
or are matured or unmatured and regardless of the existence or adequacy of any
Collateral, Guaranty or any other security, right or remedy available to any
Bank or the Administrative Agent; and
9.2.4 Suits, Actions, Proceedings.
---------------------------
If an Event of Default shall occur and be continuing, and whether
or not the Administrative Agent shall have accelerated the maturity of Loans
pursuant to any of the foregoing provisions of this Section 9.2, the
Administrative Agent or any Bank, if owed any amount with respect to the Loans,
may proceed to protect and enforce its rights by suit in equity, action at law
and/or other appropriate proceeding, whether for the specific performance of any
covenant or agreement contained in this Agreement or the other Loan Documents,
including as permitted by applicable Law the obtaining of the ex parte
appointment of a receiver, and, if such amount shall have become due, by
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Administrative Agent or such Bank; and
9.2.5 Application of Proceeds.
-----------------------
From and after the date on which the Administrative Agent has
taken any action pursuant to this Section 9.2 and until all Obligations of the
Loan Parties have been paid in full, any and all proceeds received by the
Administrative Agent from any sale or other disposition of the Collateral, or
any part thereof, or the exercise of any other remedy by the Administrative
Agent, shall be applied as follows:
(i) first, to reimburse the Administrative Agent and
the Banks for out-of-pocket costs, expenses and disbursements, including
reasonable attorneys' and paralegals' fees and legal expenses, incurred by the
Administrative Agent or the Banks in connection with realizing on the Collateral
or collection of any Obligations of any of the Loan Parties under any of the
Loan Documents, including advances made by the Banks or any one of them or the
Administrative Agent for the reasonable maintenance, preservation, protection or
enforcement of, or realization upon, the Collateral, including advances for
taxes, insurance, repairs and the like and reasonable expenses incurred to sell
or otherwise realize on, or prepare for sale or other realization on, any of the
Collateral;
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<PAGE>
(ii) second, to the repayment of all Indebtedness then
due and unpaid of the Loan Parties to the Banks incurred under this Agreement or
the Guaranty Agreement or any of the other Loan Documents, whether of principal,
interest, fees, expenses or otherwise, in such manner as the Administrative
Agent may determine in its discretion; and
(iii) the balance, if any, as required by Law.
9.2.6 Other Rights and Remedies.
-------------------------
In addition to all of the rights and remedies contained in this
Agreement or in any of the other Loan Documents, the Administrative Agent and
the Banks shall have all of the rights and remedies of a secured party under the
Uniform Commercial Code or other applicable Law, all of which rights and
remedies shall be cumulative and non-exclusive, to the extent permitted by Law.
The Administrative Agent may, and upon the request of the Required Banks shall,
exercise all post-default rights granted to the Administrative Agent and the
Banks under the Loan Documents or applicable Law.
9.3 Notice of Sale.
--------------
(i) Any notice required to be given by the Administrative
Agent of a sale, lease, or other disposition of any Public Company Restricted
Securities or any Public Company Unrestricted Securities or any other intended
action by the Administrative Agent relating thereto, if given ten (10) calendar
days prior to such proposed action, shall constitute commercially reasonable and
fair notice thereof to the Loan Parties.
(ii) Any notice required to be given by the Administrative
Agent of a sale, lease or other disposition of any Private Company Restricted
Securities, any In-Registration Company Securities or any other intended action
by the Administrative Agent relating thereto, if given ten (10) Business Days
prior to such proposed action, shall constitute commercially reasonable action
and fair notice thereof to the Loan Parties.
10. THE ADMINISTRATIVE AGENT
10.1 Appointment.
-----------
Each Bank hereby irrevocably designates, appoints and authorizes
(i) PNC Bank to act as Administrative Agent for such Bank under this Agreement
and to execute and deliver or accept on behalf of each of the Banks the other
Loan Documents and (ii) authorizes each of Bank of America and Deutsche Bank to
act as Co-Syndication Agents for such Bank under this Agreement. Each Bank
hereby irrevocably authorizes, and each holder of any Note by the acceptance of
a Note shall be deemed irrevocably to authorize, the Administrative Agent to
take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and any other instruments and agreements referred to
herein, and to exercise such powers and to perform such duties hereunder as are
specifically delegated to or required of the Agents, the Administrative Agent or
any of them by the terms hereof, together with such powers as are
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CREDIT AGREEMENT
reasonably incidental thereto. PNC Bank agrees to act as the Administrative
Agent on behalf of the Banks to the extent provided in this Agreement.
10.2 Delegation of Duties.
--------------------
The Administrative Agent may perform any of its duties hereunder by or
through agents or employees (provided such delegation does not constitute a
relinquishment of their respective duties as the Administrative Agent) and,
subject to Sections 10.5 [Reimbursement of Agents by Borrower] and 10.6
[Exculpatory Provisions; Limitations of Liability], shall be entitled to engage
and pay for the advice or services of any attorneys, accountants or other
experts concerning all matters pertaining to its duties hereunder and to rely
upon any advice so obtained.
10.3 Nature of Duties; Independent Credit Investigation.
--------------------------------------------------
Neither the Agents nor the Administrative Agent shall have any duties or
responsibilities except those expressly set forth in this Agreement and no
implied covenants, functions, responsibilities, duties, obligations, or
liabilities shall be read into this Agreement or otherwise exist. The duties of
the Administrative Agent shall be mechanical and administrative in nature, the
Administrative Agent shall not have by reason of this Agreement a fiduciary or
trust relationship in respect of any Bank, and nothing in this Agreement,
expressed or implied, is intended to or shall be so construed as to impose upon
the Administrative Agent any obligations in respect of this Agreement except as
expressly set forth herein. Without limiting the generality of the foregoing,
the use of the term "Administrative Agents" in this Agreement with reference to
the Administrative Agent is not intended to connote any fiduciary or other
implied (or express) obligations arising under agency doctrine of any applicable
Law. Instead, such term is used merely as a matter of market custom, and is
intended to create or reflect only an administrative relationship between
independent contracting parties. Each Bank expressly acknowledges (i) that the
Administrative Agent has not made any representations or warranties to it and
that no act by the Administrative Agent hereafter taken, including any review of
the affairs of any of the Loan Parties, shall be deemed to constitute any
representation or warranty by the Administrative Agent to any Bank; (ii) that it
has made and will continue to make, without reliance upon the Administrative
Agent, its own independent investigation of the financial condition and affairs
and its own appraisal of the creditworthiness of each of the Loan Parties in
connection with this Agreement and the making and continuance of the Loans
hereunder; and (iii) except as expressly provided herein, that the
Administrative Agent shall not have any duty or responsibility, either initially
or on a continuing basis, to provide any Bank with any credit or other
information with respect thereto, whether coming into its possession before the
making of any Loan or at any time or times thereafter.
10.4 Actions in Discretion of Administrative Agent; Instructions From the Banks.
---------------------------------------------------------------------------
The Administrative Agent agrees, upon the written request of
the Required Banks, to take or refrain from taking any action of the type
specified as being within the Administrative Agent's rights, powers or
discretion herein, provided that the Administrative Agent shall not be required
to take any action which exposes the Administrative Agent to personal liability
or which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Required Banks, the Administrative Agent
shall have authority, in its sole
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CREDIT AGREEMENT
discretion, to take or not to take any such action, unless this Agreement
specifically requires the consent of the Required Banks or all of the Banks. Any
action taken or failure to act pursuant to such instructions or discretion shall
be binding on the Banks, subject to Section 10.6 [Exculpatory Provisions, Etc.].
Subject to the provisions of Section 10.6, no Bank shall have any right of
action whatsoever against the Administrative Agent as a result of the
Administrative Agent acting or refraining from acting hereunder in accordance
with the instructions of the Required Banks, or in the absence of such
instructions, in the absolute discretion of the Administrative Agent.
10.5 Reimbursement and Indemnification of Agents by the Borrowers.
------------------------------------------------------------
The Borrowers unconditionally agree to pay or reimburse the Administrative
Agent and each Agent and hold the Administrative Agent and each Agent harmless
against (a) liability for the payment of all reasonable out-of-pocket costs,
expenses and disbursements, including fees and expenses of counsel (including
the allocated costs of staff counsel), appraisers and environmental consultants,
incurred by the Administrative Agent or any Agent (i) in connection with the
development, negotiation, preparation, printing, execution, administration,
syndication, interpretation and performance of this Agreement and the other Loan
Documents, (ii) relating to any requested amendments, waivers or consents
pursuant to the provisions hereof, (iii) in connection with the enforcement of
this Agreement or any other Loan Document or collection of amounts due hereunder
or thereunder or the proof and allowability of any claim arising under this
Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout or restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, and
(b) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the
Administrative Agent or any Agent, in its capacity as such, in any way relating
to or arising out of this Agreement or any other Loan Documents or any action
taken or omitted by the Administrative Agent or any Agent hereunder or
thereunder, provided that the Borrowers shall not be liable for any portion of
--------
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements if the same results from the
Administrative Agent's or any Agent's gross negligence or willful misconduct, or
if the Administrative Borrower was not given notice of the subject claim and the
opportunity to participate in the defense thereof, at its expense (except that
the Borrowers shall remain liable to the extent such failure to give notice does
not result in a loss to the Borrowers), or if the same results from a compromise
or settlement agreement entered into without the consent of the Administrative
Borrower, which shall not be unreasonably withheld. In addition, upon the
happening of an Event of Default and during the continuance thereof, the
Borrowers agree to reimburse and pay all reasonable out-of-pocket expenses of
the Administrative Agent's and each Agent's regular employees and agents engaged
to perform audits of the Loan Parties' books, records and business properties.
10.6 Exculpatory Provisions; Limitation of Liability.
-----------------------------------------------
Neither the Administrative Agent, any Co-Syndication Agent, the Lead
Arranger, nor any of their respective directors, officers, employees, agents,
attorneys or Affiliates shall (a) be liable to any Bank for any action taken or
omitted to be taken by it or them hereunder, or in
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CREDIT AGREEMENT
connection herewith including pursuant to any Loan Document, unless caused by
its or their own gross negligence or willful misconduct, (b) be responsible in
any manner to any of the Banks for the effectiveness, enforceability,
genuineness, validity or the due execution of this Agreement or any other Loan
Documents or for any recital, representation, warranty, document, certificate,
report or statement herein or made or furnished under or in connection with this
Agreement or any other Loan Documents, or (c) be under any obligation to any of
the Banks to ascertain or to inquire as to the performance or observance of any
of the terms, covenants or conditions hereof or thereof on the part of the Loan
Parties, or the financial condition of the Loan Parties, or the existence or
possible existence of any Event of Default or Potential Default. No claim may be
made by any of the Loan Parties, any Bank, the Administrative Agent or any
Co-Syndication Agent or the Lead Arranger or any of their respective
Subsidiaries against the Administrative Agent, any Co-Syndication Agent, any
Bank, the Lead Arranger or any of their respective directors, officers,
employees, agents, attorneys or Affiliates, or any of them, for any special,
indirect or consequential damages or, to the fullest extent permitted by Law,
for any punitive damages in respect of any claim or cause of action (whether
based on contract, tort, statutory liability, or any other ground) based on,
arising out of or related to any Loan Document or the transactions contemplated
hereby or any act, omission or event occurring in connection therewith,
including the negotiation, documentation, administration or collection of the
Loans, and each of the Loan Parties (for itself and on behalf of each of its
Subsidiaries), the Administrative Agent, each Co-Syndication Agent, the Lead
Arranger and each Bank hereby waive, releases and agree never to sue upon any
claim for any such damages, whether such claim now exists or hereafter arises
and whether or not it is now known or suspected to exist in its favor. Each Bank
agrees that, except for notices, reports and other documents expressly required
to be furnished to the Banks by the Administrative Agent hereunder or given to
the Administrative Agent for the account of or with copies for the Banks, the
Administrative Agent, each Co-Syndication Agent, the Lead Arranger and each of
their respective directors, officers, employees, agents, attorneys or Affiliates
shall not have any duty or responsibility to provide any Bank with an credit or
other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Loan Parties
which may come into the possession of the Administrative Agent, any
Co-Syndication Agent, the Lead Arranger or any of their directors, officers,
employees, agents, attorneys or Affiliates.
10.7 Reimbursement and Indemnification of Administrative Agent by Banks.
------------------------------------------------------------------
Each Bank agrees to reimburse and indemnify the Administrative Agent (to
the extent not reimbursed by the Borrowers and without limiting the Obligation
of the Borrowers to do so) in proportion to its Ratable Share from and against
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements, including attorneys' fees and
disbursements (including the allocated costs of staff counsel), and costs of
appraisers and environmental consultants, of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Administrative Agent in
any way relating to or arising out of this Agreement or any other Loan Documents
or any action taken or omitted by the Administrative Agent hereunder or
thereunder, provided that no Bank shall be liable for any portion of such
--------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (a) if the same results from the Administrative
Agent's gross negligence or willful misconduct, or (b) if such Bank was not
given notice of the subject claim and
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CREDIT AGREEMENT
the opportunity to participate in the defense thereof, at its expense (except
that such Bank shall remain liable to the extent such failure to give notice
does not result in a loss to the Bank), or (c) if the same results from a
compromise and settlement agreement entered into without the consent of such
Bank, which shall not be unreasonably withheld. In addition, each Bank agrees
promptly upon demand to reimburse the Administrative Agent (to the extent not
reimbursed by the Borrowers and without limiting the Obligation of the Borrowers
to do so) in proportion to its Ratable Share for all amounts due and payable by
the Borrowers to the Administrative Agent in connection with the Administrative
Agent's periodic audit of the Loan Parties' books, records and business
properties.
10.8 Reliance by Administrative Agent.
--------------------------------
The Administrative Agent shall be entitled to rely upon any writing,
telegram, telex or teletype message, resolution, notice, consent, certificate,
letter, cablegram, statement, order or other document or conversation by
telephone or otherwise believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons, and upon the advice and
opinions of counsel and other professional advisers selected by the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action hereunder unless it shall first be
indemnified to its satisfaction by the Banks against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action.
10.9 Notice of Default.
-----------------
The Administrative Agent shall not be deemed to have knowledge or notice of
the occurrence of any Potential Default or Event of Default unless the
Administrative Agent has received written notice from a Bank or the
Administrative Borrower referring to this Agreement, describing such Potential
Default or Event of Default and stating that such notice is a "notice of
default."
10.10 Notices.
-------
The Administrative Agent agrees to promptly send to each Bank a copy of all
notices received from any Borrower pursuant to the provisions of this Agreement
or the other Loan Documents promptly upon receipt thereof. The Administrative
Agent shall promptly notify the Administrative Borrower and the other Banks of
each change in the Base Rate and the effective date thereof.
10.11 Banks in Their Individual Capacities; Administrative Agent in its
-----------------------------------------------------------------
Individual Capacity.
-------------------
With respect to its Revolving Credit Commitment, its Line of Credit
Commitment, the Revolving Credit Loans made by it, the Line of Credit Loans made
by it and any other rights and powers given to it as a Bank hereunder or under
any of the other Loan Documents, the Administrative Agent shall have the same
rights and powers hereunder as any other Bank and may exercise the same as
though it were not the Administrative Agent and the term "Bank" and "Banks"
shall, unless the context otherwise indicates, include the Administrative Agent
in its individual capacity. PNC Bank and its Affiliates and each of the other
Banks and their respective
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Affiliates may, without liability to account, except as prohibited herein, make
loans to, issue letters of credit for the account of, acquire equity interests
in, accept deposits from, discount drafts for, act as trustee under indentures
of, and generally engage in any kind of banking, trust, financial advisory,
underwriting or other business with, the Loan Parties and their Affiliates, in
the case of the Administrative Agent, as though it were not acting as
Administrative Agent hereunder and in the case of each Bank, as though such Bank
were not a Bank hereunder, in each case without notice to or consent of the
other Banks. The Banks acknowledge that, pursuant to such activities, the
Administrative Agent may (i) receive information regarding the Loan Parties or
any of their Subsidiaries or Affiliates (including information that may be
subject to confidentiality obligations in favor of the Loan Parties or such
Subsidiary or Affiliate) and acknowledge that the Administrative Agent shall not
be under any obligation to provide such information to them, and (ii) accept
fees and other consideration from the Loan Parties for services in connection
with this Agreement and otherwise without having to account for the same to the
Banks.
10.12 Holders of Notes.
----------------
The Administrative Agent may deem and treat any payee of any Note as the
owner thereof for all purposes hereof unless and until written notice of the
assignment or transfer thereof shall have been filed with the Administrative
Agent. Any request, authority or consent of any Person who at the time of making
such request or giving such authority or consent is the holder of any Note shall
be conclusive and binding on any subsequent holder, transferee or assignee of
such Note or of any Note or Notes issued in exchange therefor.
10.13 Equalization of Banks.
---------------------
The Banks and the holders of any participations in any Notes agree among
themselves that, with respect to all amounts received by any Bank or any such
holder for application on any Obligation hereunder or under any Note or under
any such participation, whether received by voluntary payment, by realization
upon security, by the exercise of the right of set-off or banker's lien, by
counterclaim or by any other non-pro rata source, equitable adjustment will be
made in the manner stated in the following sentence so that, in effect, all such
excess amounts will be shared ratably among the Banks and such holders in
proportion to their interests in payments under the Notes, except as otherwise
provided in Section 4.4.3 [Agent's and Bank's Rights], 5.4.2 [Replacement of a
Bank] or 5.5 [Additional Compensation in Certain Circumstances]. The Banks or
any such holder receiving any such amount shall purchase for cash from each of
the other Banks an interest in such Bank's Loans in such amount as shall result
in a ratable participation by the Banks and each such holder in the aggregate
unpaid amount under the Notes, provided that if all or any portion of such
--------
excess amount is thereafter recovered from the Bank or the holder making such
purchase, such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, together with interest or other amounts, if any,
required by law (including court order) to be paid by the Bank or the holder
making such purchase.
10.14 Successor Administrative Agent.
------------------------------
The Administrative Agent may, and at the request of the Required Banks
shall, resign as Administrative Agent by giving not less than thirty (30) days'
prior written notice to the Administrative Borrower. If the Administrative Agent
shall resign under this Agreement, then
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either (a) the Required Banks shall appoint from among the Banks a successor
Administrative Agent for the Banks, subject to the consent of the Administrative
Borrower, such consent not to be unreasonably withheld, or (b) if a successor
Administrative Agent shall not be so appointed and approved within the thirty
(30) day period following the Administrative Agent's notice to the Banks of its
resignation, then the resigning Administrative Agent shall appoint, with the
consent of the Administrative Borrower, such consent not to be unreasonably
withheld, a successor Administrative Agent who shall serve as Administrative
Agent until such time as the Required Banks appoint and the Administrative
Borrower consents to the appointment of a successor to such resigning
Administrative Agent. Upon its appointment pursuant to either clause (a) or (b)
above, such successor Administrative Agent shall succeed to the rights, powers
and duties of the resigning Administrative Agent and the term "Administrative
Agent" shall mean such successor Administrative Agent effective upon its
appointment, and the former Administrative Agent's rights, powers and duties as
Administrative Agent shall be terminated without any other or further act or
deed on the part of such former Administrative Agent or any of the parties to
this Agreement. After the resignation of the Administrative Agent hereunder, the
provisions of this Section 10 shall inure to the benefit of such former
Administrative Agent and such former Administrative Agent shall not by reason of
such resignation be deemed to be released from liability for any actions taken
or not taken by it while it was an Administrative Agent under this Agreement.
10.15 Administrative Agent's Fee.
--------------------------
The Borrowers shall pay to the Administrative Agent a periodic
nonrefundable fee (the "Administrative Agent's Fee") under the terms of a letter
(the "Administrative Agent's Letter") between the Borrowers and the
Administrative Agent, as amended from time to time.
10.16 Availability of Funds.
---------------------
The Administrative Agent may assume that each Bank has made or will make
the proceeds of a Loan available to the Administrative Agent unless the
Administrative Agent shall have been notified by such Bank on or before the
later of (x) the close of Business on the Business Day preceding the Borrowing
Date with respect to such Loan or (y) two (2) hours before the time on which the
Administrative Agent actually funds the proceeds of such Loan to any Borrower
(whether using its own funds pursuant to this Section 10.16 or using proceeds
deposited with the Administrative Agent by the Banks and whether such funding
occurs before or after the time on which Banks are required to deposit the
proceeds of such Loan with the Administrative Agent). The Administrative Agent
may, in reliance upon such assumption (but shall not be required to), make
available to the Borrowers a corresponding amount. If such corresponding amount
is not in fact made available to the Administrative Agent by such Bank, the
Administrative Agent shall be entitled to recover such amount on demand from
such Bank (or, if such Bank fails to pay such amount forthwith upon such demand
from the Administrative Borrower) together with interest thereon, in respect of
each day during the period commencing on the date such amount was made available
to any Borrower and ending on the date the Administrative Agent recovers such
amount, at a rate per annum equal to (i) the Federal Funds Effective Rate during
the first three (3) days after such interest shall begin to accrue and (ii) the
applicable interest rate in respect of such Loan after the end of such three-day
period.
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10.17 Calculations.
------------
In the absence of gross negligence or willful misconduct, the
Administrative Agent shall not be liable for any error in computing the amount
payable to any Bank whether in respect of the Loans, fees or any other amounts
due to the Banks under this Agreement. In the event an error in computing any
amount payable to any Bank is made, the Administrative Agent, the Borrowers and
each affected Bank shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error, and any compensation
therefor will be calculated at the Federal Funds Effective Rate.
10.18 Beneficiaries.
-------------
Except as expressly provided herein, the provisions of this Section 10 are
solely for the benefit of the Administrative Agent, each Agent and the Banks,
and the Loan Parties shall not have any rights to rely on or enforce any of the
provisions hereof. In performing its functions and duties under this Agreement,
the Administrative Agent and each Agent shall act solely as the Administrative
Agent or Agent, as the case may be, of the Banks and do not assume and shall not
be deemed to have assumed any obligation toward or relationship of agency or
trust with or for any of the Loan Parties.
10.19 Co-Syndication Agents and Lead Arranger.
---------------------------------------
None of the Banks identified on the facing page or signature pages of this
Agreement as a "Co-Syndication Agent" or "Lead Arranger" shall have any right,
power, obligation, liability, responsibility or duty under this Agreement other
than those applicable to all Banks as such. Without limiting the foregoing, none
of the Banks so identified as a "Co-Syndication Agent" or "Lead Arranger" shall
have or be deemed to have any fiduciary relationship with any Bank. Each Bank
acknowledges that it has not relied, and will not rely, on any of the Banks so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder.
11. MISCELLANEOUS
-------------
11.1 Modifications, Amendments or Waivers.
------------------------------------
With the written consent of the Required Banks, the Administrative Agent,
acting on behalf of all the Banks, and the Administrative Borrower, on behalf of
the Loan Parties, may from time to time enter into written agreements amending
or changing any provision of this Agreement or any other Loan Document or the
rights of the Banks or the Loan Parties hereunder or thereunder, or may grant
written waivers or consents to a departure from the due performance of the
Obligations of the Loan Parties hereunder or thereunder and any such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. Any such agreement, waiver or consent made with such written
consent shall be effective to bind all the Banks and the Loan Parties; provided,
--------
that, (i) without the written consent of Banks whose Commitments aggregate at
least 66-2/3% of the Commitments of all of the Banks, no such agreement shall
amend or change the definition of "Borrowing Base" or any of the various
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CREDIT AGREEMENT
components of the Borrowing Base and (ii) without the written consent of all the
Banks, no such agreement, waiver or consent may be made which will:
11.1.1 Increase of Commitment; Extension of Expiration Date.
----------------------------------------------------
Increase the amount of the Revolving Credit Commitment, the Line of Credit
Commitment, the Revolving Credit Commitment of any Bank hereunder, the Line of
Credit Commitment of any Bank hereunder or extend the Expiration Date;
11.1.2 Extension of Payment; Reduction of Principal, Interest or Fees;
---------------------------------------------------------------
Modification of Terms of Payment.
--------------------------------
Whether or not any Loans are outstanding, extend the time for payment of
principal or interest of any Loan (excluding the due date of any mandatory
prepayment of a Loan or any mandatory Commitment reduction in connection with
such a mandatory prepayment hereunder except for mandatory reductions of the
Commitments on the Expiration Date), the Revolving Credit Commitment Fee, the
Line of Credit Commitment Fee, the Letter of Credit Fee or any other fee payable
to any Bank, or reduce the principal amount of or the rate of interest borne by
any Loan or reduce the Revolving Credit Commitment Fee, the Line of Credit Fee,
the Letter of Credit Fee or any other fee payable to any Bank, or otherwise
affect the terms of payment of the principal of or interest of any Loan, the
Revolving Credit Commitment Fee, the Line of Credit Commitment Fee or any other
fee payable to any Bank;
11.1.3 Release of Collateral or Guarantor.
----------------------------------
Except for sales of assets permitted by Section 8.2.7 [Disposition of
Assets or Subsidiaries], release (i) (x) any Collateral consisting of
substantially all of the assets of any Loan Party, (y) any Guarantor from its
Obligations under the Guaranty Agreement or (z) any other security for any of
the Loan Parties' Obligations or (ii) any of the Pledged Collateral except upon
sale thereof by the Borrowers to the extent permitted by and subject to the
terms of the Security Agreement (Special Collateral Account); or
11.1.4 Miscellaneous
-------------
Amend Section 5.2 [Pro Rata Treatment of Banks], 10.6 [Exculpatory
Provisions, Etc.] or 10.13 [Equalization of Banks] or this Section 11.1, alter
any provision regarding the pro rata treatment of the Banks, change the
definition of Required Banks, or change any requirement providing for the Banks
or the Required Banks to authorize the taking of any action hereunder;
provided, further, that no agreement, waiver or consent which would modify the
- --------
interests, rights or obligations of any Agent in its capacity as an Agent or as
the issuer of Letters of Credit shall be effective without the written consent
of such Agent.
11.2 No Implied Waivers; Cumulative Remedies; Writing Required.
---------------------------------------------------------
No course of dealing and no delay or failure of the Administrative Agent,
any Agent or any Bank in exercising any right, power, remedy or privilege under
this Agreement or
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CREDIT AGREEMENT
any other Loan Document shall affect any other or future exercise thereof or
operate as a waiver thereof, nor shall any single or partial exercise thereof or
any abandonment or discontinuance of steps to enforce such a right, power,
remedy or privilege preclude any further exercise thereof or of any other right,
power, remedy or privilege. The rights and remedies of the Administrative Agent,
each Agent and the Banks under this Agreement and any other Loan Documents are
cumulative and not exclusive of any rights or remedies which they would
otherwise have. Any waiver, permit, consent or approval of any kind or character
on the part of any Bank of any breach or default under this Agreement or any
such waiver of any provision or condition of this Agreement must be in writing
and shall be effective only to the extent specifically set forth in such
writing.
11.3 Reimbursement and Indemnification of Banks by the Borrower; Taxes.
-----------------------------------------------------------------
The Borrowers, jointly and severally, agree unconditionally upon demand to
pay or reimburse to each Bank (other than the Administrative Agent and Agents,
as to which the Borrower's Obligations are set forth in Section 10.5
[Reimbursement of Agents By Borrower]) and to save such Bank harmless against
(i) liability for the payment of all out-of-pocket costs, expenses and
disbursements (including fees and expenses of counsel (including allocated costs
of staff counsel) for each Bank except with respect to (a) and (b) below),
incurred by such Bank (a) in connection with the development, preparation and
execution of this Agreement and the other Loan Documents and any other documents
prepared in connection herewith and therewith, and the consummation of the
transactions contemplated hereby and thereby, (b) relating to any amendments,
waivers or consents pursuant to the provisions hereof, (c) in connection with
the enforcement of this Agreement or any other Loan Document, or collection of
amounts due hereunder or thereunder or the proof and allowability of any claim
arising under this Agreement or any other Loan Document, whether in bankruptcy
or receivership proceedings or otherwise, and (d) in any workout or
restructuring or in connection with the protection, preservation, exercise or
enforcement of any of the terms hereof or of any rights hereunder or under any
other Loan Document or in connection with any foreclosure, collection or
bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against such Bank, in its capacity as such, in any way relating to or arising
out of this Agreement or any other Loan Documents or any action taken or omitted
by such Bank hereunder or thereunder, provided that the Borrowers shall not be
--------
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements (A) if
the same results from such Bank's gross negligence or willful misconduct, or (B)
if the Administrative Borrower was not given notice of the subject claim and the
opportunity to participate in the defense thereof, at its expense (except that
the Borrowers shall remain liable to the extent such failure to give notice does
not result in a loss to the Borrowers), or (C) if the same results from a
compromise or settlement agreement entered into without the consent of the
Administrative Borrower, which shall not be unreasonably withheld. The Banks
will attempt to minimize the fees and expenses of legal counsel for the Banks
which are subject to reimbursement by the Borrowers hereunder by considering the
usage of one law firm to represent the Banks, the Administrative Agent and the
Agents if appropriate under the circumstances. The Borrowers agree
unconditionally to pay all stamp, document, transfer, recording or filing taxes
or fees and similar impositions now or hereafter determined by the
Administrative Agent, any Agent or any
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CREDIT AGREEMENT
Bank to be payable in connection with this Agreement or any other Loan Document,
and the Borrowers agree unconditionally to save the Administrative Agent, each
Agent and the Banks harmless from and against any and all present or future
claims, liabilities or losses with respect to or resulting from any omission to
pay or delay in paying any such taxes, fees or impositions.
11.4 Holidays.
--------
Whenever payment of a Loan to be made or taken hereunder shall be due on a
day which is not a Business Day such payment shall be due on the next Business
Day and such extension of time shall be included in computing interest and fees,
except that the Loans shall be due on the Business Day preceding the Expiration
Date if the Expiration Date is not a Business Day. Whenever any payment or
action to be made or taken hereunder (other than payment of the Loans) shall be
stated to be due on a day which is not a Business Day, such payment or action
shall be made or taken on the next following Business Day (except as provided in
Section 4.2 [Interest Periods] with respect to Interest Periods under the
Euro-Rate Option), and such extension of time shall not be included in computing
interest or fees, if any, in connection with such payment or action.
11.5 Funding by Branch, Subsidiary or Affiliate.
------------------------------------------
11.5.1 Notional Funding.
----------------
Each Bank shall have the right from time to time, without notice to any
Borrower, to deem any branch, Subsidiary or Affiliate (which for the purposes of
this Section 11.5 shall mean any corporation or association which is directly or
indirectly controlled by or is under direct or indirect common control with any
corporation or association which directly or indirectly controls such Bank) of
such Bank to have made, maintained or funded any Loan to which the Euro-Rate
Option applies at any time, provided that immediately following (on the
--------
assumption that a payment were then due from any Borrower to such other office),
and as a result of such change, no Borrower would be under any greater financial
obligation pursuant to Section 5.5 [Additional Compensation in Certain
Circumstances] than it would have been in the absence of such change. Notional
funding offices may be selected by each Bank without regard to such Bank's
actual methods of making, maintaining or funding the Loans or any sources of
funding actually used by or available to such Bank.
11.5.2 Actual Funding.
--------------
Each Bank shall have the right from time to time to make or maintain any
Loan by arranging for a branch, Subsidiary or Affiliate of such Bank to make or
maintain such Loan subject to the last sentence of this Section 11.5.2. If any
Bank causes a branch, Subsidiary or Affiliate to make or maintain any part of
the Loans hereunder, all terms and conditions of this Agreement shall, except
where the context clearly requires otherwise, be applicable to such part of the
Loans to the same extent as if such Loans were made or maintained by such Bank,
but in no event shall any Bank's use of such a branch, Subsidiary or Affiliate
to make or maintain any part of the Loans hereunder cause such Bank or such
branch, Subsidiary or Affiliate to incur any cost or expenses payable by the
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CREDIT AGREEMENT
compensation to any Bank (including any expenses incurred or payable pursuant to
Section 5.5 [Additional Compensation in Certain Circumstances]) which would
otherwise not be incurred.
11.6 ICG as Agent for Loan Parties.
-----------------------------
Each Loan Party hereby irrevocably appoints ICG as the borrowing agent and
attorney-in-fact for the Loan Parties (the "Administrative Borrower") which
appointment shall remain in full force and effect unless and until the
Administrative Agent shall have received prior written notice signed by all of
the Loan Parties that such appointment has been revoked and that another Loan
Party has been appointed Administrative Borrower. Each Loan Party hereby
irrevocably appoints and authorizes the Administrative Borrower (i) to provide
the Administrative Agent with all notices with respect to Loans obtained for the
benefit of any Loan Party and all other notices and instructions under this
Agreement and (ii) to take such action as the Administrative Borrower deems
appropriate on its behalf to obtain Loans and to exercise such other powers as
are reasonably incidental thereto to carry out the purposes of this Agreement.
Each Loan Party hereby irrevocably appoints and authorizes the Administrative
Borrower to provide the Administrative Agent with all notices and to take all
action as the Administrative Borrower deems appropriate with respect to all
Letters of Credit under this Agreement. It is understood that the handling of
the loan account and Collateral of the Loan Parties in a combined fashion, as
more fully set forth herein, is done solely as an accommodation to the Loan
Parties in order to utilize the collective borrowing powers of the Loan Parties
in the most efficient and economical manner and at their request, and that
neither the Administrative Agent, any Agent nor any Bank shall incur liability
to the Loan Parties as a result hereof. Each of the Loan Parties expects to
derive benefit, directly or indirectly, from the handling of the loan account
and the Collateral in a combined fashion since the successful operation of each
Loan Party is dependent on the continued successful performance of the
integrated group. To induce the Administrative Agent, each Agent and the Banks
to do so, and in consideration thereof, each of the Loan Parties hereby jointly
and severally agrees to indemnify the Administrative Agent, each Agent and the
Banks and hold the Administrative Agent, each Agent and the Banks harmless
against any and all liability, expense, loss or claim of damage or injury, made
against the Administrative Agent, any Agent or such Banks by any of the Loan
Parties or by any third party whosoever, arising from or incurred by reason of
(a) the handling of the loan account and Collateral of the Loan Parties as
herein provided, (b) the Administrative Agent, any Agent and the Banks relying
on any instructions of the Administrative Borrower, or (c) any other action
taken by the Administrative Agent, any Agent or any Bank hereunder or under the
other Loan Documents.
11.7 Notices.
-------
Any notice, request, demand, direction or other communication (for purposes
of this Section 11.7 only, a "Notice") to be given to or made upon any party
hereto under any provision of this Agreement shall be given or made by telephone
or in writing (which includes by means of electronic transmission (i.e.,
"e-mail") or facsimile transmission or by setting forth such Notice on a site on
the World Wide Web (a "Website Posting") if Notice of such Website Posting
(including the information necessary to access such site) has previously been
delivered to the applicable parties hereto by another means set forth in this
Section 11.7) in accordance with this Section 11.7; provided, however, that no
requests or notices with respect to funding or utilization of the facilities, no
payment notices, no notices of Events of Default and no requests for waivers
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CREDIT AGREEMENT
or consents shall be valid if transmitted by email or Website Posting. Any such
Notice must be delivered to the applicable parties hereto at the addresses and
numbers set forth under their respective names on Schedule 11.7 hereof or in
-------------
accordance with any subsequent unrevoked Notice from any such party that is
given in accordance with this Section 11.7. Any Notice shall be effective:
(i) In the case of hand-delivery, when delivered;
(ii) If given by mail, four days after such Notice is deposited with the
United States Postal Service, with first-class postage prepaid, return receipt
requested;
(iii) In the case of a telephonic Notice, when a party is contacted by
telephone, if delivery of such telephonic Notice is confirmed no later than the
next Business Day by hand delivery, a facsimile or electronic transmission, a
Website Posting or an overnight courier delivery of a confirmatory Notice
(received at or before noon on such next Business Day);
(iv) In the case of a facsimile transmission, when sent to the applicable
party's facsimile machine's telephone number, if the party sending such Notice
receives confirmation of the delivery thereof from its own facsimile machine;
(v) In the case of electronic transmission, when actually received;
(vi) In the case of a Website Posting, upon delivery of a Notice of such
posting (including the information necessary to access such site) by another
means set forth in this Section 11.7; and
(vii) If given by any other means (including by overnight courier), when
actually received.
Any Bank giving a Notice to a Loan Party shall concurrently send a copy thereof
to the Administrative Agent and each Agent, and the Administrative Agent and
each Agent shall promptly notify the other Banks of its receipt of such Notice.
11.8 Severability.
------------
The provisions of this Agreement are intended to be severable. If any
provision of this Agreement shall be held invalid or unenforceable in whole or
in part in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof in any jurisdiction.
11.9 Governing Law.
-------------
Each Letter of Credit and Section 2.8 [Letter of Credit Subfacility]
shall be subject to the Uniform Customs and Practice for Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500, as the
same may be revised or amended from time to time, and to the extent not
inconsistent therewith, the internal laws of the Commonwealth of
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CREDIT AGREEMENT
Pennsylvania without regard to its conflict of laws principles and the balance
of this Agreement shall be deemed to be a contract under the Laws of the
Commonwealth of Pennsylvania and for all purposes shall be governed by and
construed and enforced in accordance with the internal laws of the Commonwealth
of Pennsylvania without regard to its conflict of laws principles.
11.10 Prior Understanding.
-------------------
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments.
11.11 Duration; Survival.
------------------
All representations and warranties of the Loan Parties contained herein or
made in connection herewith shall survive the making of Loans and issuance of
Letters of Credit and shall not be waived by the execution and delivery of this
Agreement, any investigation by the Administrative Agent, any Agent or the
Banks, the making of Loans, issuance of Letters of Credit, or payment in full of
the Loans. All covenants and agreements of the Loan Parties contained in
Sections 8.1 [Affirmative Covenants], 8.2 [Negative Covenants] and 8.3
[Reporting Requirements] herein shall continue in full force and effect from and
after the date hereof so long as any Borrower may borrow or request Letters of
Credit hereunder and until termination of the Commitments and payment in full of
the Loans and expiration or termination of all Letters of Credit. All covenants
and agreements of any Borrower contained herein relating to the payment of
principal, interest, premiums, additional compensation or expenses and
indemnification, including those set forth in the Notes, Section 5 [Payments]
and Sections 10.5 [Reimbursement of Agents by Borrowers, Etc.], 10.7
[Reimbursement of Agents by Banks] and 11.3 [Reimbursement of Banks by
Borrowers; Etc.], shall survive payment in full of the Loans, expiration or
termination of the Letters of Credit and termination of the Commitments.
11.12 Successors and Assigns.
----------------------
(i) This Agreement shall be binding upon and shall inure to the benefit of
the Banks, the Administrative Agent, the Agents, the Loan Parties and their
respective successors and assigns, except that none of the Loan Parties may
assign or transfer any of its rights and Obligations hereunder or any interest
herein. Each Bank may, at its own cost, make assignments of or sell
participations in all or any part of its Commitments and the Loans made by it to
one or more banks or other entities, subject to the consent of the
Administrative Borrower and the Administrative Agent with respect to any
assignee, such consent not to be unreasonably withheld, provided that (1) no
consent of any Borrower shall be required (A) if an Event of Default exists and
is continuing, or (B) in the case of an assignment by a Bank to an Affiliate of
such Bank, and (2) any assignment by a Bank to a Person other than an Affiliate
of such Bank may not be made in amounts less than the lesser of $2,500,000 or
the amount of the assigning Bank's Commitment. In the case of an assignment,
upon receipt by the Administrative Agent of the Assignment and Assumption
Agreement, the assignee shall have, to the extent of such assignment (unless
otherwise provided therein), the same rights, benefits and obligations as it
would have if it had been a signatory Bank hereunder, the Commitments shall be
adjusted
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accordingly, and upon surrender of any Note subject to such assignment, the
Borrowers shall execute and deliver a new Note to the assignee in an amount
equal to the amount of the Revolving Credit Commitment assumed by it and a new
Revolving Credit Note to the assigning Bank in an amount equal to the Revolving
Credit Commitment retained by it hereunder. Any Bank which assigns any or all of
its Commitment or Loans to a Person other than an Affiliate of such Bank shall
pay to the Administrative Agent a service fee in the amount of $3,500 for each
assignment. In the case of a participation, the participant shall only have the
rights specified in Section 9.2.3 [Set-off] (the participant's rights against
such Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating thereto and
not to include any voting rights except with respect to changes of the type
referenced in Sections 11.1.1 [Increase of Commitment, Etc.], 11.1.2 [Extension
of Payment, Etc.], or 11.1.3 [Release of Collateral or Guarantor]), all of such
Bank's obligations under this Agreement or any other Loan Document shall remain
unchanged, and all amounts payable by any Loan Party hereunder or thereunder
shall be determined as if such Bank had not sold such participation.
(ii) Any assignee or participant which is not incorporated under the Laws
of the United States of America or a state thereof shall deliver to the
Administrative Borrower and the Administrative Agent the form of certificate
described in Section 11.18 [Tax Withholding Clause] relating to federal income
tax withholding. Each Bank may furnish any publicly available information
concerning any Loan Party or its Subsidiaries and any other information
concerning any Loan Party or its Subsidiaries in the possession of such Bank
from time to time to assignees and participants (including prospective assignees
or participants), provided that such assignees and participants agree to be
bound by the provisions of Section 11.13 [Confidentiality].
(iii) Notwithstanding any other provision in this Agreement, any Bank may
at any time pledge or grant a security interest in all or any portion of its
rights under this Agreement, its Note and the other Loan Documents to any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR Section 203.14 without notice to or consent of any Borrower or
the Administrative Agent. No such pledge or grant of a security interest shall
release the transferor Bank of its obligations hereunder or under any other Loan
Document.
11.13 Confidentiality.
---------------
11.13.1 General.
-------
The Administrative Agent, each Agent and the Banks each agree to keep
confidential all information obtained from any Loan Party or its Subsidiaries
which is nonpublic and confidential or proprietary in nature (including any
information any Borrower specifically designates as confidential), except as
provided below, and to use such information only in connection with their
respective capacities under this Agreement and for the purposes contemplated
hereby. The Administrative Agent, each Agent and the Banks shall be permitted to
disclose such information (i) to outside legal counsel, accountants and other
professional advisors who need to know such information in connection with the
administration and enforcement of this Agreement, subject to agreement of such
Persons to maintain the confidentiality, (ii) to assignees and participants as
contemplated by Section 11.12, and prospective assignees and participants,
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<PAGE>
CREDIT AGREEMENT
(iii) to the extent requested by any bank regulatory authority or, with notice
to the Administrative Borrower, as otherwise required by applicable Law or by
any subpoena or similar legal process, or in connection with any investigation
or proceeding arising out of the transactions contemplated by this Agreement,
(iv) if it becomes publicly available other than as a result of a breach of this
Agreement or becomes available from a source not known to be subject to
confidentiality restrictions, or (v) if the Administrative Borrower shall have
consented to such disclosure.
11.13.2 Sharing Information With Affiliates of the Banks.
------------------------------------------------
Each Loan Party acknowledges that from time to time financial advisory,
investment banking and other services may be offered or provided to any Borrower
or one or more of its Affiliates (in connection with this Agreement or
otherwise) by any Bank or by one or more Subsidiaries or Affiliates of such Bank
and each of the Loan Parties hereby authorizes each Bank to share any
information delivered to such Bank by such Loan Party and its Subsidiaries
pursuant to this Agreement, or in connection with the decision of such Bank to
enter into this Agreement, to any such Subsidiary or Affiliate of such Bank, it
being understood that any such Subsidiary or affiliate of any Bank receiving
such information shall be bound by the provisions of Section 11.13.1 as if it
were a Bank hereunder. Such authorization shall survive the repayment of the
Loans and other Obligations and the termination of the Commitments.
11.14 Counterparts.
------------
This Agreement may be executed by different parties hereto on any number of
separate counterparts, each of which, when so executed and delivered, shall be
an original, and all such counterparts shall together constitute one and the
same instrument.
11.15 Agent's or Bank's Consent.
-------------------------
Whenever the Administrative Agent's, any Agent's or any Bank's consent is
required to be obtained under this Agreement or any of the other Loan Documents
as a condition to any action, inaction, condition or event, the Administrative
Agent, each Agent and each Bank shall be authorized to give or withhold such
consent in its sole and absolute discretion and to condition its consent upon
the giving of additional collateral, the payment of money or any other matter.
11.16 Exceptions.
----------
The representations, warranties and covenants contained herein shall be
independent of each other, and no exception to any representation, warranty or
covenant shall be deemed to be an exception to any other representation,
warranty or covenant contained herein unless expressly provided, nor shall any
such exceptions be deemed to permit any action or omission that would be in
contravention of applicable Law.
11.17 CONSENT TO FORUM; WAIVER OF JURY TRIAL.
--------------------------------------
EACH LOAN PARTY HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF
-95-
<PAGE>
CREDIT AGREEMENT
CHESTER COUNTY PENNSYLVANIA AND THE UNITED STATES DISTRICT COURT FOR THE EASTERN
DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR
REGISTERED MAIL DIRECTED TO SUCH LOAN PARTY AT THE ADDRESSES PROVIDED FOR IN
SECTION 11.7 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL
RECEIPT THEREOF. EACH LOAN PARTY WAIVES ANY OBJECTION TO JURISDICTION AND VENUE
OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT
ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. EACH LOAN PARTY, THE
ADMINISTRATIVE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT
PERMITTED BY LAW.
11.18 Tax Withholding Clause.
----------------------
Each Bank or assignee or participant of a Bank that is not incorporated
under the Laws of the United States of America or a state thereof agrees that it
will deliver to each of the Administrative Borrower and the Administrative Agent
two (2) duly completed copies of the following: (i) Internal Revenue Service
Form W-9, 4224 or 1001, or other applicable form prescribed by the Internal
Revenue Service, certifying that such Bank, assignee or participant is entitled
to receive payments under this Agreement and the other Loan Documents without
deduction or withholding of any United States federal income taxes, or is
subject to such tax at a reduced rate under an applicable tax treaty, or (ii)
Internal Revenue Service Form W-8 or other applicable form or a certificate of
such Bank, assignee or participant indicating that no such exemption or reduced
rate is allowable with respect to such payments. Each Bank, assignee or
participant required to deliver to the Borrower and the Administrative Agent a
form or certificate pursuant to the preceding sentence shall deliver such form
or certificate as follows: (A) each Bank which is a party hereto on the Closing
Date shall deliver such form or certificate at least five (5) Business Days
prior to the first date on which any interest or fees are payable by the
Borrower hereunder for the account of such Bank; (B) each assignee or
participant shall deliver such form or certificate at least five (5) Business
Days before the effective date of such assignment or participation (unless the
Administrative Agent in its sole discretion shall permit such assignee or
participant to deliver such form or certificate less than five (5) Business Days
before such date in which case it shall be due on the date specified by the
Administrative Agent). Each Bank, assignee or participant which so delivers a
Form W-8, W-9, 4224 or 1001 further undertakes to deliver to each of the
Administrative Borrower and the Administrative Agent two (2) additional copies
of such form (or a successor form) on or before the date that such form expires
or becomes obsolete or after the occurrence of any event requiring a change in
the most recent form so delivered by it, and such amendments thereto or
extensions or renewals thereof as may be reasonably requested by the
Administrative Borrower or the Administrative Agent, either certifying that such
Bank, assignee or participant is entitled to receive payments under this
Agreement and the other Loan Documents without deduction or withholding of any
United States federal income taxes or is subject to such tax at a reduced rate
under an applicable tax treaty or
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<PAGE>
CREDIT AGREEMENT
stating that no such exemption or reduced rate is allowable. The Administrative
Agent shall be entitled to withhold United States federal income taxes at the
full withholding rate unless the Bank, assignee or participant establishes an
exemption or that it is subject to a reduced rate as established pursuant to the
above provisions. The Borrowers shall not be required to increase any amounts
payable pursuant to Section 5.5 hereof to any Bank that is not organized under
the laws of the United States of America or a state thereof if such Bank fails
to comply with requirements of this Section 11.18.
11.19 Joinder of Guarantors and Pledgors.
----------------------------------
Any Subsidiary of any Borrower which is required to join this Agreement as
a Guarantor or Pledgor pursuant to Section 8.2.9 [Subsidiaries, Partnerships and
Joint Ventures] shall execute and deliver to the Administrative Agent (i) a
Guarantor Joinder in substantially the form attached hereto as Exhibit 1.1(G)(1)
-----------------
pursuant to which it shall join as a Guarantor each of the documents to which
the Guarantors are parties; (ii) a Security Agreement Joinder in substantially
the form attached hereto as Exhibit 1.1(U)(2) pursuant to which it shall join as
-----------------
a Pledgor each of the documents to which the Pledgors are parties; (iii)
documents in the forms described in Section 7.1 [First Loans] modified as
appropriate to relate to such Subsidiary; and (iv) documents necessary to grant
and perfect Prior Security Interests to the Administrative Agent for the benefit
of the Banks in all Collateral held by such Subsidiary. The Loan Parties shall
deliver such Guarantor Joinder, such Security Agreement Joinder and related
documents to the Administrative Agent within fifteen (15) days after the date of
the filing of such Subsidiary's articles of incorporation if the Subsidiary is a
corporation, the date of the filing of its certificate of limited partnership if
it is a limited partnership or the date of its organization if it is an entity
other than a limited partnership or corporation.
11.20 Joint and Several Obligations of Borrowers; Additional Waivers.
--------------------------------------------------------------
The Obligations and additional liabilities of the Borrowers under this
Agreement are joint and several obligations of the Borrowers, and each Borrower
hereby waives to the full extent permitted by law any defense it may otherwise
have to the payment and performance of the Obligations that its liability
hereunder is limited and not joint and several. Each Borrower acknowledges and
agrees that the foregoing waivers and those set forth below serve as a material
inducement to the agreement of the Banks to make the Loans, and that the
Administrative Agent, each Agent and the Banks are relying on each specific
waiver and all such waivers in entering into this Agreement. The undertakings of
each Borrower hereunder secure the obligations of itself and the other
Borrowers. Each Borrower further agrees that:
(a) the Administrative Agent, each Agent and the Banks may do any of the
following without notice to any Borrower and without adversely affecting the
validity or enforceability of this Agreement or any of the Obligations: (i)
release, surrender, exchange, compromise or settle the Obligations or any part
thereof with respect to any other Borrowers; (ii) change, renew or waive the
terms of the Obligations, or any part thereof with respect to any other
Borrowers; (iii) change, renew or waive the terms of any of the Loan Documents
or any other agreements relating to the Obligations with respect to any other
Borrowers; (iv) grant any extension or indulgence with respect to the payment or
performance of the Obligations or any part thereof with respect to the other
Borrowers; (v) enter into any agreement of forbearance with
-97-
<PAGE>
CREDIT AGREEMENT
respect to the Obligations or any part thereof with respect to the other
Borrowers; and (vi) release, surrender, exchange, impair or compromise any
security of the other Borrowers held by the Administrative Agent, each Agent or
the Banks for any of the Obligations. Each Borrower agrees that the
Administrative Agent, each Agent and any Bank may do any of the above as the
Administrative Agent, each Agent or any Bank deems necessary or advisable, in
the Administrative Agent's, each Agent's or such Bank's sole discretion, without
giving notice to the other Borrowers, and that the other Borrowers will remain
liable for full payment and performance of the Obligations.
(b) Each Borrower waives and agrees not to enforce any of the rights of the
Administrative Agent, any Agent or any Bank against any other Borrower or any
Guarantor or any other obligor of any of the Obligations or any Collateral
securing the same unless and until all Obligations shall have been indefeasibly
paid in full and the Borrowers' right to borrow hereunder have terminated,
including but not limited to any right of such Borrower to be subrogated in
whole or in part to any right or claim of the Administrative Agent, any Agent or
any Bank with respect to any of the Obligations or any portion thereof. Each
Borrower hereby irrevocably agrees that following the occurrence and during the
continuance of any Event of Default which has not been waived by the
Administrative Agent, each Agent or the Banks, each Borrower shall not enforce
any rights of contribution from the other Borrowers on account of such
Borrower's payment of the obligations unless and until all Obligations shall
have been indefeasibly paid in full and the Borrowers' rights to borrower
hereunder have terminated. Each of the Borrowers hereby waives any defenses
based on suretyship or impairment of the collateral or the like.
11.21 Effect on Existing Agreement; Ratification.
------------------------------------------
The Borrowers, the Administrative Agent, and the Banks agree that, on the
Closing Date, all indebtedness, liabilities and obligations of the Borrowers to
the Existing Banks outstanding under the Existing Agreement and the promissory
notes delivered under the Existing Agreement has been paid on such date, and any
commitments of the Existing Banks thereunder have been terminated. Any
indemnification obligations of the borrowers under the Existing Agreement and in
any document, certificate or statement delivered pursuant thereto or in
connection therewith shall survive the execution and delivery of this Agreement
and the Notes. Each Existing Bank shall, promptly after receipt of its Note
under this Agreement, return to the Administrative Borrower the promissory note
received by it in connection with the Existing Agreement. By its execution of
this Agreement and in consideration of the undertakings set forth herein and
other good and valuable consideration, the receipt of which is hereby
acknowledged, each Bank that is not an Existing Bank (each such Bank a "New
Bank") hereby assumes and covenants and agrees fully, completely and timely to
perform, comply with, and discharge each and all of the obligations, duties, and
liabilities of a Bank under this Agreement and shall as of the Closing Date be
deemed a Bank for all purposes under this Agreement. The Borrowers, the
Administrative Agent, the Agents and the Banks agree that (i) all terms and
conditions of the Existing Agreement which are amended and restated by this
Agreement shall remain effective until such amendment and restatement becomes
effective under this Agreement, (ii) the representations, warranties and
covenants set forth herein shall become effective concurrently with the
occurrence of the Closing Date, and (iii) as of the Closing Date each reference
in any
-98-
<PAGE>
CREDIT AGREEMENT
Loan Document to the "Agreement" or "Credit Agreement" shall be deemed to
be a reference to the Existing Agreement as amended and restated in the form of
this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-99-
<PAGE>
CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed this Agreement as of the day and year first above
written.
ATTEST: BORROWERS:
INTERNET CAPITAL GROUP, INC.
By: By: /s/ John N. Nickolas
---------------------------------
Name: Name: John N. Nickolas
--------------------------
Title: Title: Managing Director, Finance and
-------------------------
Assistant Treasurer
ATTEST: ICG HOLDINGS, INC.
By: By: /s/ John N. Nickolas
---------------------------------
Name: Name: John N. Nickolas
--------------------------
Title: Title: Managing Director, Finance and
-------------------------
Assistant Treasurer
<PAGE>
CREDIT AGREEMENT
PNC BANK, NATIONAL ASSOCIATION,
individually and as Administrative Agent
By: /s/ John T. Freyhof
Title: Managing Director
BANK OF AMERICA, N.A., individually and as
Co-Syndication Agent
By: /s/ Jouni Korhonen
Title: Managing Director
DEUTSCHE BANK AG NEW YORK BRANCH/CAYMAN ISLAND
BRANCH, individually and as Co-Syndication Agent
By: /s/ Sheryl L. Paynter
Title: Vice-President
By: /s/ David Wagstaff IV
Title: Director
PNC CAPITAL MARKETS, INC.
as Lead Arranger
By: /s/ Douglas O. Winters
Title: Managing Director
COMERICA BANK - CALIFORNIA
By: /s/ Alan Jepsen
Title: Vice-President
FIRST UNION INVESTORS, INC.
By: /s/ Jim Redman
Title: Senior Vice-President
<PAGE>
CREDIT AGREEMENT
MERRILL LYNCH BUSINESS FINANCIAL SERVICES, INC.
By: /s/ Frank Pawlowski
Title: Vice President
IMPERIAL BANK
By: /s/ James N. Reddish
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/ Todd S. Meller
Title: Managing Director
PROGRESS BANK
By: /s/ Liz Lambert
Title: Vice-President
<PAGE>
CREDIT AGREEMENT
SCHEDULE 1.1(A-1)
PLEDGED IN-REGISTRATION COMPANY SECURITIES
(i) Arbinet Holdings, Inc. (d/b/a Arbinet Communications)
(ii) Clear Commerce Corporation
(iii) CommerX, Inc.
(iv) Context Integration, Inc.
(v) Deja.com, Inc.
(vi) iSky, Inc. (f/k/a SkyAlland)
(vii) Linkshare Corporation
(viii) PaperExchange.com
(ix) ServiceSoft Technologies, Inc.
<PAGE>
CREDIT AGREEMENT
SCHEDULE 1.1(A-2)
PLEDGED PRIVATE COMPANY RESTRICT SECURITIES
(i) Applied Internet Technologies, inc. (f/k/a Animated Images, Inc.)
(ii) asseTrade.com, Inc.
(iii) AutoVia Corporation (f/k/a RapidAutoNet)
(iv) Benchmarking Partners, Inc.
(v) BidCom, Inc.
(vi) Blackboard, Inc.
(vii) Collabria, Inc.
(viii) CommerceQuest, Inc. (f/k/a MessageQuest)
(ix) ComputerJobs.com, Inc.
(x) CyberCrop.com, Inc. (f/k/a AG Producer Network)
(xi) Data West Corporation (d/b/a Courtlink)
(xii) e-chemicals, Inc.
(xiii) e-MarketWorld, Inc.
(xiv) EmployeeLife.com (f/k/a Pointment)
(xv) Entegrity Solutions Corporation
(xvi) ICG Commerce, Inc. (f/k/a Purchasing Solutions, Inc.)
(xvii) Internet Commerce Systems, Inc.
(xviii) iParts, Inc.
(xix) Jamcracker, Inc. (f/k/a VitalTone)
(xx) JusticeLink, Inc.
(xxi) Logistics.com
(xxii) MetalSite, L.P.
(xxiii) NetVendor, Inc.
<PAGE>
CREDIT AGREEMENT
(xxiv) Investor Force f/k/a PlanSponsor Exchange, Inc.
(xxv) Privaseek, Inc.
(xxvi) Residential Delivery Services, Inc.
(xxvii) Retail Exchange.com, Inc.
(xxviii) Sagemaker, Inc. (f/k/a E-volve)
(xxix) StarCite! Solutions, Inc.
(xxx) Syncra Systems, Inc.
(xxxi) traffic.com, Inc.
(xxxii) United Messaging, Inc.
(xxxiii) Usgift.com Corporation
(xxxiv) Vivant! Corporation
(xxxv) Who?Vision Systems, Inc.
<PAGE>
CREDIT AGREEMENT
SCHEDULE 1.1(A-3)
PUBLIC COMPANY RESTRICTED SECURITIES
(i) Ariba (f/k/a TRADEX Technologies, Inc.)
(ii) BreakAway Solutions, Inc.
(iii) US Interactive, Inc.
(iv) eMerge Interactive, Inc.
(v) Onvia.com, Inc. (f/k/a MegaDepot)
(vi) Universal Access, Inc.
<PAGE>
CREDIT AGREEMENT
SCHEDULE 1.1(A-4)
PUBLIC COMPANY UNRESTRICTED SECURITIES
(i) VerticalNet, Inc.
<PAGE>
CREDIT AGREEMENT
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 1 of 2
Part 1 - Commitments of Banks and Addresses for Notices to Banks
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Amount of
Commitment for Amount of
Revolving Commitment for Line Total Ratable
Bank Credit Loan of Credit Loans Commitment Share
---- -------------- ------------------- ---------- --------
<S> <C> <C> <C> <C> <C>
Name: PNC Bank, N.A. $ 20,000,000 $ 20,000,000 $ 40,000,000 16%
Address: One PNC Plaza - 22nd Floor
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Ms. Lisa Pierce
Telephone: (412) 762-6442
Telecopy: (412) 762-8672
With a copy to:
Name: VentureBank @ PNC
Address: 1000 Westlakes Drive
Suite 200
Berwyn, Pennsylvania 19312
Attention: Mr. John Freyhof
Telephone: (610) 725-5752
Telecopy: (610) 725-5799
Name: Bank of America, N.A. $ 17,500,000 $ 17,500,000 $ 35,000,000 14%
Address: 555 California Street
41st Floor
San Francisco, CA 94104
Attention: Mr. Jouni Korhonen
Telephone: (415) 622-7293
Telecopy: (415) 622-0632
With a copy to:
Name: Bank of America, N.A.
Address: 1850 Gateway Blvd.
Concord, CA 94520-3282
Attention: Ms. Soo Lee
Telephone: (925) 675-8204
Telecopy: (925) 675-2853
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount of
Commitment for Amount of
Revolving Commitment for Line Total Ratable
Bank Credit Loan of Credit Loans Commitment Share
---- -------------- -------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Name: Deutsche Bank AG New York $ 17,500,000 $ 17,500,000 $ 35,000,000 14%
Branch/Cayman Island Branch
Address: 31 W. 52nd Street
New York, NY 10019
Attention: Ms. Sheryl Paynter
Telephone: (212) 469-3829
Telecopy: (212) 469-8212
Name: Comerica Bank - California $ 17,000,000 $ 17,000,000 $ 34,000,000 13.6%
Address: 55 Almeden Blvd.
San Jose, CA 95113
Attention: Mr. Alan Jepsen
Telephone: (408) 556-5877
Telecopy: (408) 556-5889
With a copy to:
Name: Gary Cary Ware Freidenrich
Address: 400 Hamilton
Palo Alto, CA 94301
Attention: Mr. Craig Tighe
Telephone: (650) 833-2362
Telecopy: (650) 327-3699
Name: First Union Investors, Inc. $ 17,000,000 $ 17,000,000 $ 34,000,000 13.6%
Address: 201 South College Street
NC 0760
Charlotte, NC 28288-0760
Attention: Mr. Brand Hosford
Telephone: (704) 374-6355
Telecopy: (704) 374-4793
Name: Merrill Lynch Business Financial $ 12,500,000 $ 12,500,000 $ 25,000,000 10%
Securities, Inc.
Address: 222 North LaSalle Street
17th Floor
Chicago, IL 60601
Attention: Mr. Thaddeus Murphy
Telephone: (312)
Telecopy: (312) 368-1387
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount of
Commitment for Amount of
Revolving Commitment for Line Total Ratable
Bank Credit Loan of Credit Loans Commitment Share
---- ----------- ------------------ ---------- -------
<S> <C> <C> <C> <C> <C>
Name: Imperial Bank $ 10,000,000 $ 10,000,000 $ 20,000,000 8%
Address: 11921 Freedom Drive
Suite 920
Reston, VA 20190-5608
Attention: Ms. Lynn Hough
Telephone: (703) 689-3768
Telecopy: (703) 467-9308
With a copy to:
Name: Imperial Bank
Address: 9920 South Lacienega Blvd.
Suite 636
Englewood, CA 90301
Attention: General Counsel
Telephone: (310) 417-5929
Telecopy: (310) 417-5695
Name: The Bank of Nova Scotia $ 10,000,000 $ 10,000,000 $ 20,000,000 8%
Address: One Liberty Plaza
New York, NY 10006
Attention: Mr. Phil Adsetts
Telephone: (212) 225-5010
Telecopy: (212) 225-5096
Name: Progress Bank $ 3,500,000 $ 3,500,000 $ 7,000,000 2.8%
Address: 4 Sentry Parkway
Suite 200
Blue Bell, PA 19422
Attention: Ms. Liz A. Lambert
Telephone: (610) 941-2202
Telecopy: (610) 941-4827
TOTAL $125,000,000 $125,000,000 $250,000,000 100%
=============== ================== ============== ====
</TABLE>
<PAGE>
SCHEDULE 1.1(B)
COMMITMENTS OF BANKS AND ADDRESSES FOR NOTICES
Page 1 of 2
Part 2 - Addresses for Notices to Borrower and Guarantors:
BORROWERS:
Name: Internet Capital Group, Inc.
Address: 103 The Springer Building
3411 Silverside Road
Wilmington, DE 19801
Attention: Vice President Finance Operation
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
With a copy to: Internet Capital Group Operations, Inc.
Address: 800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
Name: ICG Holdings, Inc.
Address: 103 The Springer Building
3411 Silverside Road
Wilmington, DE 19801
Attention: Vice President Finance Operation
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
With a copy to: Internet Capital Group Operations, Inc.
Address: 800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
<PAGE>
SCHEDULE 1.1(P)
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ICG Holdings, Inc. Massachusetts Secretary of March 14, 2000 Clear
State UCC
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Massachusetts State Tax March 14, 2000 Clear
Lien
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Suffolk County UCC March 16, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Suffolk County Local March 16, 2000 Clear
Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Pennsylvania Secretary of March 9, 2000 Clear
State UCC
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Delaware County March 10, 2000 Clear
Prothonotary UCC
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Delaware County February 8, 2000 Clear
Prothonotary Federal Tax
Lien
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Delaware County February 8, 2000 Clear
Prothonotary State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ICG Holdings, Inc. Delaware County Prothonotary Local February 8, 2000 Clear
Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Washington Secretary of State UCC February 1, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Washington Federal Tax Lien February 1, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. King County Washington UCC February 29, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. King County Washington Federal Tax February 29, 2000 Clear
Lien
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. King County Washington State Tax Lien February 29, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. King County Washington Local Judgment February 29, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Delaware Secretary of State UCC March 9, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. Delaware Secretary of State Federal March 9, 2000 Clear
Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ICG Holdings, Inc. New Castle County Prothonotory State March 10, 2000 Clear
Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. New Castle County Prothonotory Local March 10, 2000 Clear
Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. California Secretary of State February 29, 2000 Clear
Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. California Secretary of State State February 29, 2000 Clear
Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. California Secretary of State Local February 29, 2000 Clear
Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity
ICG Holdings, Inc. Leasing Inc. California Secretary of State UCC October 1, 1997 9729061029 Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. San Francisco County UCC March 10, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. San Francisco County Federal Tax Lien March 10, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
ICG Holdings, Inc. San Francisco County State Tax Lien March 10, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation Collateral or
Entity Searched Secured Party Location of Search of Filing Number Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ICG Holdings, Inc. San Francisco County Local Judgment March 10, 2000 Clear
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Washington Secretary of State UCC February 1, 2000 Clear
Group Operations,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Washington Secretary of State February 1, 2000 Clear
Group Operations, Federal Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital King County Washington UCC February 29, 2000 Clear
Group Operations,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital King County Washington Federal Tax February 29, 2000 Clear
Group Operations, Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital King County Washington State Tax Lien February 29, 2000 Clear
Group Operations,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital King County Washington Local Judgment February 29, 2000 Clear
Group Operations,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital PNC Bank Delaware Secretary of State UCC 6/16/99 9930002 Debtor's right
Group Operations, title and interest
Inc. in shares of
stock, stock
warrants, general
intangibles,
accounts,
inventory, chattel
paper, investment
property,
equipment,
fixtures,
documents and
other property.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
other property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware Secretary of State Federal March 9, 2000 Clear
Group Operations, Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital New Castle County Prothonotory State March 10, 2000 Clear
Group Operations, Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital New Castle County Prothonotory Local March 10, 2000 Clear
Group Operations, Judgment
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital PNC Bank Pennsylvania Secretary of State UCC 6/16/99 30381060 Debtor's right
Group Operations, title and interest
Inc. in shares of stock,
stock warrants,
general
intangibles,
accounts,
inventory, chattel
paper, investment
property,
equipment,
fixtures, documents
and other property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware County Prothonotary UCC March 10, 2000 Clear
Group Operations,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware County Prothonotary Federal February 8, 2000 Clear
Group Operations, Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation Collateral or
Entity Searched Secured Party Location of Search of Filing Number Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Internet Capital Delaware County Prothonotary February 8, 2000 Clear
Group Operations, State Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware County Prothonotary February 8, 2000 Clear
Group Operations, Local Judgment
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital California Secretary of State February 29, 2000 Clear
Group Operations, Federal Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital California Secretary of State February 29, 2000 Clear
Group Operations, State Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital California Secretary of State February 29, 2000 Clear
Group Operations, Local Judgment
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital PNC Bank California Secretary of State 6/16/99 9917360085 Debtor's right
Group Operations, UCC title and interest
Inc. in shares of
stock, stock
warrants, general
intangibles, accounts,
inventory, chattel
paper, investment
property, equipment,
fixtures, documents
and other property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital PNC Bank NA San Francisco County UCC 6/21/99 99-G608013-00 Debtor's right
Group Operations, title and interest
Inc. in shares of
stock, stock
warrants, general
intangibles,
accounts,
inventory,
chattel paper,
investment
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
property, equipment,
fixtures, documents and
other property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital San Francisco County Federal March 10, 2000 Clear
Group Operations, Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital San Francisco County State March 10, 2000 Clear
Group Operations, Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital San Francisco County Local March 10, 2000 Clear
Group Operations, Judgment
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Massachusetts Secretary of March 14, 2000 Clear
Group Operations, State State Tax Lien
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital PNC Bank Massachusetts Secretary of 6/18/99 640024 Debtor's right title and
Group Operations, State UCC interest in shares of
Inc. stock, stock warrants,
general intangibles,
accounts, inventory,
chattel paper, investment
property, equipment,
fixtures, documents and
other property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Suffolk County Registry UCC March 16, 2000 Clear
Group Operations,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Internet Capital Suffolk County Registry Local March 16, 2000 Clear
Group Operations, Judgment
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Washington Secretary of State February 1, 2000 Clear
Group, Inc. UCC
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Washington Secretary of State February 1, 2000 Clear
Group, Inc. Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital King County UCC February 29, 2000 Clear
Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital King County Federal Tax Lien February 29, 2000 Clear
Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital King County State Tax Lien February 29, 2000 Clear
Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital King County Local Judgment February 29, 2000 Clear
Group, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital New Castle County Prothonotory March 10, 2000 Clear
Group, Inc. State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital New Castle County Prothonotory March 10, 2000 Clear
Group, Inc. Local Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Internet Capital PNC Bank Pennsylvania Secretary of June 16, 1999 30381064 Debtor's right title and
Group, Inc. NA as State UCC interest in shares of stock,
agent stock warrants, general
intangibles, accounts,
inventory, chattel paper,
investment property,
equipment, fixtures,
documents and other
property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Advanta Bank Corp Pennsylvania Secretary of July 2, 1999 30441037 Equipment
Group, Inc. State UCC
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Newcourt Pennsylvania Secretary of 12/31/99 31121192 Equipment
Group, Inc. Communications State UCC
Finance
Corp
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware County Prothonotary March 10, 2000 Clear
Group, Inc. UCC
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware County Prothonotary February 8, 2000 Clear
Group, Inc. Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware County Prothonotary February 8, 2000 Clear
Group, Inc. State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware County Prothonotary February 8, 2000 Clear
Group, Inc. Local Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Internet Capital PNC Bank Delaware Secretary of State 6/16/99 9930007 Debtor's right title and
Group, Inc. UCC interest in shares of stock,
stock warrants, general
intangibles, accounts,
inventory, chattel paper,
investment property,
equipment, fixtures,
documents and other property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Delaware Secretary of State March 9, 2000 Clear
Group, Inc. Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Massachusetts Secretary of March 14, 2000 Clear
Group, Inc. State State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital PNC Bank Massachusetts Secretary of 6/18/99 640025 Debtor's right title and
Group, Inc. as agent State UCC interest in shares of stock,
stock warrants, general
intangibles, accounts,
inventory, chattel paper,
investment property,
equipment, fixtures,
documents and other property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Newcourt Massachusetts Secretary of 12/31/99 685728 Equipment
Group, Inc. Communications State UCC
Finance
Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation
Entity Searched Secured Party Location of Search of Filing Number Collateral or Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Internet Capital Suffolk County Registry March 16, 2000 Clear
Group, Inc. UCC
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Suffolk County Registry March 16, 2000 Clear
Group, Inc. Local Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital California Secretary of February 29, 2000 Clear
Group, Inc. State Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital California Secretary of February 29, 2000 Clear
Group, Inc. State State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital California Secretary of February 29, 2000 Clear
Group, Inc. State Local Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital PNC Bank California Secretary of 6/16/99 9917360079 Debtor's right title and
Group, Inc. as agent State UCC interest in shares of stock,
stock warrants, general
intangibles, accounts,
inventory, chattel paper,
investment property,
equipment, fixtures,
documents and other
property.
- ------------------------------------------------------------------------------------------------------------------------------------
Internet Capital Pac-West California Secretary of 8/5/99 9923060439 Equipment
Group, Inc. Telecom, Inc. State UCC
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation Collateral or
Entity Searched Secured Party Location of Search of Filing Number Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Internet Capital Newcourt California Secretary of 12/31/99 0000560327 Equipment
Group, Inc. Communications State UCC
Finance
Corp
- ---------------------------------------------------------------------------------------------------------------------------------
Internet Capital San Francisco County Federal March 10, 2000 Clear
Group, Inc. Tax Lien
- ---------------------------------------------------------------------------------------------------------------------------------
Internet Capital San Francisco County State March 10, 2000 Clear
Group, Inc. Tax Lien
- ---------------------------------------------------------------------------------------------------------------------------------
Internet Capital San Francisco County Local March 10, 2000 Clear
Group, Inc. Judgment
- ---------------------------------------------------------------------------------------------------------------------------------
Internet Capital PNC Bank NA San Francisco County UCC 6/21/99 99-G608013-00 Debtor's right title and
Group, Inc. interest in shares of stock,
stock warrants, general
intangibles, accounts,
inventory, chattel paper,
investment property,
equipment, fixtures,
documents and other property.
- ---------------------------------------------------------------------------------------------------------------------------------
1999 Internet Massachusetts Secretary of March 14, 2000 Clear
Capital L.P. State UCC
- ---------------------------------------------------------------------------------------------------------------------------------
1999 Internet Massachusetts Secretary of March 14, 2000 Clear
Capital L.P. State State Tax Lien
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation Collateral or
Entity Searched Secured Party Location of Search of Filing Number Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Internet Suffolk County UCC March 16, 2000 Clear
Capital L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Suffolk County Local March 16, 2000 Clear
Capital L.P. Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Pennsylvania Secretary of March 9, 2000 Clear
Capital L.P. State UCC
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Delaware County Prothonotary March 10, 2000 Clear
Capital L.P. UCC
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Delaware County Prothonotary February 8, 2000 Clear
Capital L.P. Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Delaware County Prothonotary February 8, 2000 Clear
Capital L.P. State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Delaware County Prothonotary February 8, 2000 Clear
Capital L.P. Local Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet California Secretary of State February 29, 2000 Clear
Capital L.P. UCC
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet California Secretary of State February 29, 2000 Clear
Capital L.P. Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation Collateral or
Entity Searched Secured Party Location of Search of Filing Number Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Internet California Secretary of February 29, 2000 Clear
Capital L.P. State State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet California Secretary of February 29, 2000 Clear
Capital L.P. State Local Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet San Francisco County UCC March 10, 2000 Clear
Capital L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet San Francisco County March 10, 2000 Clear
Capital L.P. Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet San Francisco County March 10, 2000 Clear
Capital L.P. State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet San Francisco County March 10, 2000 Clear
Capital L.P. Local Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Washington Secretary February 1, 2000 Clear
Capital L.P. of State UCC
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Washington Secretary February 1, 2000 Clear
Capital L.P. of State Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet King County Washington UCC February 29, 2000 Clear
Capital L.P.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
INTERNET CAPITAL GROUP SEARCHES
MARCH 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Through Date/Date Recordation Collateral or
Entity Searched Secured Party Location of Search of Filing Number Clear
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 Internet King County Washington February 29, 2000 Clear
Capital L.P. Federal Tax Lien
- ---------------------------------------------------------------------------------------------------------------------------------
1999 Internet King County Washington February 29, 2000 Clear
Capital L.P. State Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet King County Washington February 29, 2000 Clear
Capital L.P. Local Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Delaware Secretary of March 9, 2000 Clear
Capital L.P. State UCC
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet Delaware Secretary of March 9, 2000 Clear
Capital L.P. State Federal Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet New Castle County March 10, 2000 Clear
Capital L.P. Prothonotary State
Tax Lien
- ------------------------------------------------------------------------------------------------------------------------------------
1999 Internet New Castle County March 10, 2000 Clear
Capital L.P. Prothonotary Local
Judgment
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Schedule 2.9
"This schedule does not exist"
<PAGE>
CREDIT AGREEMENT
SCHEDULE 2.4
Set forth below are the Revolving Credit Closing Fees for each Bank
Bank Closing Fee
---- -----------
PNC Bank, N.A. $100,000
Bank of America, N.A. $87,500
Deutsche Bank AG New York Branch/Cayman Island Branch $87,500
Comerica Bank - California $85,000
First Union Investors, Inc. $85,000
Merrill Lynch Business Financial Investors, Inc. $46,875
Imperial Bank $37,500
The Bank of Nova Scotia $37,500
Progress Bank $8,750
<PAGE>
CREDIT AGREEMENT
SCHEDULE 3.4
Set forth below are the Line of Credit Closing Fees for each Bank
Bank Closing Fee
---- -----------
PNC Bank, N.A. $100,000
Bank of America, N.A. $87,500
Deutsche Bank AG New York Branch/Cayman Island Branch $87,500
Comerica Bank - California $85,000
First Union Investors, Inc. $85,000
Merrill Lynch Business Financial Investors, Inc. $46,875
Imperial Bank $37,500
The Bank of Nova Scotia $37,500
Progress Bank $8,750
<PAGE>
SCHEDULE 6.1.1
QUALIFICATIONS TO DO BUSINESS
Internet Capital Group, Inc.
Delaware (by way of incorporation)
Internet Capital Group Operations, Inc.
California
Delaware (by way of incorporation)
Massachusetts
Pennsylvania
ICG Holdings, Inc.
Delaware (by way of incorporation)
1999 Internet Capital L.P.
Delaware (by way of formation)
<PAGE>
SCHEDULE 6.1.2
CAPITALIZATION
(as of March 1, 2000)
<TABLE>
<CAPTION>
Stock Options and Options and
Stock Authorized Outstanding Warrants Authorized Warrants Granted
- ----- ---------- ----------- ------------------- ----------------
<S> <C> <C> <C> <C>
Common
Stock, $.001
per share 300,000,000 264,283,685 63,400,000 44,564,300
Preferred
Stock 10,000,000 0 N/A N/A
</TABLE>
<PAGE>
SCHEDULE 6.1.3
SUBSIDIARIES
See attached organizational chart.
<PAGE>
<TABLE>
<CAPTION>
Internet Capital Group
Pending Final
Corporate Structure
<S> <C> <C> <C>
Internet Capital Group ICG (VNE) III, Inc. Internet Capital Group, Inc. Internet Capital Group (Europe) Limited
Operations, Inc. Delaware corp. Holding Company (formerly known as IBIS (505) Limited)
Houses US Employees ------------- Delaware corp. Houses UK Employees, Operations &
Operations & Operating (not formed) ------------- Operating Assets
Assets Will issue Directors: UK Entity
Delaware corp. redeemable Buckley, Brodsky, Fox, Gerrity, Keith ---------
------------- preferred stock Musser, Solvik Directors:
Directors: Allgaier, Duckett, Nassau
(Same as Parent) Officers: Nassau - Secretary
ICG Holdings, Inc.
Holds Pre-IPO Acquisition Assets and Cash
Delaware corp.
-------------
Directors:
Buckley, Fox, Gathman, Nassau
Officers:
Buckley - President, Fox - VP,
Pollan - VP, Nassau - Secretary, Gathman - CFO
CapSpan Services LLC PE.com Holdings, LLC 1999 Internet Capital L.P. Satori, Inc.
Delaware LLC Holds common stock and Delaware L.P. Holds intellectual properties for
------------ warrants for Holds US 1999 Post-IPO Acquisition RightWorks
33% owned PaperExchange.com, Inc. Assets Delaware corp.
Delaware LLC U.S. Partnership -------------
------------ Directors:
50% owned Bunker, Nassau, Gathman
Officers:
Bunker - President, Gathman - Treasurer,
Nassau - Secretary
TX.com Holdings Inc. IHG Holdings Corporation 1999 Internet Capital (Europe) L.P. CapSpan LLC ICG Industrial America,
Delaware corp. Blocker corp. for Internet Healthcare Delaware L.P. Delaware LLC Inc.
------------- Group L.L.C. ------------- ------------ Blocker corp. for
Directors: Delaware.com Holds European Acquisition Assets 33% owned Industrial America
Gathman, Nassau ------------ U.S. Partnership Delaware corp.
Officers: Directors: -------------
Nassua - President & Buckley, Gathman, Nassau Directors:
Secretary Gathman - CFO Gathman - VP and Treasurer, ICG (VNE) ILLC ICG Eumedix Holdings, LLC Buckley, Alexander
Nassau - VP and Secretary for VerdicalNet Delaware LLC Officers:
Slaats - VP Transactions ------------ Buckley - President,
Delaware LLC Managers: Alexander - VP
------------ Gathman, Nassau Gathman - Secretary
Officers:
ICG (VNE) II B.V. Buckley - President Name: To be determined
Dutch BV Gathman - CFO Delaware L.P
-------- Nassau - Secretary ------------
for VerticalNet Holds CapSpan Year 2000
transactions Acquistion
Director: Allgaier (not formed)
(not formed)
VerticalNet
Europe B.V.
Dutch BV
--------
Director: Algaier
(not formed)
___% owned
</TABLE>
<PAGE>
SCHEDULE 6.1.8
OWNED AND LEASED REAL PROPERTY
Owned property:
None
Leased Property:
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
103 The Springer Building
3411 Siverside Road
Wilmington, DE 19801
44 Montgomery Street
Floor 37, Suite 3700
San Francisco, CA 94104
45 Milk Street
7th Floor
Boston, MA 02109
2415 Carillon Point
Kirkland, WA 98033
Cassini House
57/58 St. James's Street
London
SW1A 1LD
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 6.1.15
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
SCHEDULE OF FILED TRADEMARKS
- -------------------------------------------------------------------------------------------------------------------------------
MARK COUNTRY CLASS SERIAL NO. FILING DATE
(Registration No.) (Registration Date)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNET CAPITAL GROUP United States 35, 36 Not Yet Provided 01/18/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Argentina 35 Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Australia 35, 36 Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Brazil 35 Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Canada N/A Not Yet Provided 02/11/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Switzerland 35, 36 00989/2000 02/01/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Chile 35 Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP China 42 2000013012 01/28/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Czech Not Yet Provided Not Yet Provided
Republic
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP European 9, 35, 1479567 01/27/00
Community 36
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Hong Kong 35 03316/2000 02/18/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Israel Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Japan 35 13151/2000 02/17/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Korea 35 Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Mexico Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP New Zealand 36 607080 01/26/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Peru 35 100028 01/31/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Poland 35, 36 Z-214446 02/28/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Russian Not Yet Provided Not Yet Provided
Federation
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Singapore 35 1382/00 01/31/00
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Turkey Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Taiwan 35 Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Venezuela Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Africa 35 Not Yet Provided Not Yet Provided
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP United States Not Yet Provided 01/18/00
& Design
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Argentina 35 Not Yet Provided Not Yet Provided
& Design
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Australia 35, 36 Not Yet Provided Not Yet Provided
& Design
- -------------------------------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Brazil 35 Not Yet Provided Not Yet Provided
& Design
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
MARK COUNTRY CLASS SERIAL NO. FILING DATE
(Registration No.) (Registration Date)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNET CAPITAL GROUP & Design Canada N/A Not Yet Provided 02/11/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Switzerland 35,36 00990/2000 02/01/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Chile 35 Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design China 42 2000013010 01/28/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Czech Republic Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design European Community 9, 35, 36 1479401 01/27/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Hong Kong 35 03314/2000 2/18/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Israel Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Japan 35 13152/2000 02/17/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design South Korea 35 Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Mexico Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Norway 35, 36 200001002 02/02/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design New Zealand 36 607081 01/26/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Peru 35 100912 02/14/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Poland 35, 36 Z-214447 02/28/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Russian Federation Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Singapore 35 1384/00 01/31/00
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Turkey Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Taiwan 35 Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Design Venezuela Not Yet Provided Not Yet Provided
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
MARK COUNTRY CLASS SERIAL NO. FILING DATE
(Registration No.) (Registration Date)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNET CAPITAL GROUP South Africa 35 Not Yet Provided Not Yet Provided
& Design
- -----------------------------------------------------------------------------------------------------
MISCELLANEOUS DESIGN United States Not Yet Provided 01/18/00
(Orbiting Spheres)
- -----------------------------------------------------------------------------------------------------
MARKET MAKER IN A BOX United States Not Yet Provided 01/18/00
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP United States 35, 36 75/259,155 03/18/97
(2,293,722) (11/16/99)
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Argentina 36 Not Yet Provided Not Yet Provided
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Brazil 36 Not Yet Provided Not Yet Provided
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Hong Kong 36 03315/2000 2/18/00
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP China 9 2000013011 01/28/00
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Korea 36 Not Yet Provided Not Yet Provided
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Singapore 36 1383/00 01/31/00
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Taiwan 36 Not Yet Provided Not Yet Provided
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Africa 36 Not Yet Provided Not Yet Provided
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Argentina 36 Not Yet Provided Not Yet Provided
& Design
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Brazil 36 Not Yet Provided Not Yet Provided
& Design
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP China 9 2000013009 01/28/00
& Design
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Hong Kong 36 03317/2000 2/18/00
& Design
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Korea 36 Not Yet Provided Not Yet Provided
& Design
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Singapore 36 1385/00 01/31/00
& Design
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Taiwan 36 Not Yet Provided Not Yet Provided
& Design
- -----------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Africa 36 Not Yet Provided Not Yet Provided
& Design
- -----------------------------------------------------------------------------------------------------
</TABLE>
SCHEDULE OF MISCELLANEOUS INTELLECTUAL PROPERTY
Internet Capital Group also has common law rights both domestically and
abroad in several other trademarks including ICG.
Internet Capital Group also owns copyrights in a wide variety of works
including its website and publications.
<PAGE>
In a letter dated July 27, 1999 from the law firm of Niro, Scavone, Haller
& Niro, (the "Firm") to Internet Capital Group, Inc. ("ICG"), the Firm claims
---- ---
that Tech Search L.L.C. (the "Company") owns and has the exclusive right to
-------
license a patent entitled "Remove Query Communication Systems" (the "Patent").
------
The Patent claims methods and systems for retrieving and presenting graphical
and/or audio data from a remote server in response to a query from the end user.
The Firm believes that ICG's website (www.icge.com) induces the infringement by
others of one or more claims of the Patent.
The Company has filed suit against three other companies in federal
district court seeking a judgment of infringement of the Patent and damages. The
Company has offered to grant ICG a license in exchange for a one-time payment.
The payment would vary depending upon ICG's expected volume of use, but would
not be more than $150,000. The Company will also grant ICG a full release of any
past infringement.
ICG does not believe that this claim could result in a material adverse
change.
<PAGE>
SCHEDULE 6.1.17
OWNERS OF PLEDGED COLLATERAL
(i) Internet Capital Group, Inc.
(ii) ICG Holdings, Inc.
(iii) 1999 Internet Capital L.P.
<PAGE>
SCHEDULE 6.1.18
INSURANCE POLICIES
Commercial General Liability Insurance Policy No. TE06401092 from Aon Risk
Services, Inc. of PA for the period February 1, 2000 to February 1, 2001.
Automobile Liability Insurance Policy No. TE06401092 from Aon Risk Services,
Inc. of PA for the period February 1, 2000 to February 1, 2001.
Excess Liability Insurance Umbrella Form Policy No. XLB9154054 from Aon Risk
Services, Inc. of PA for the period February 1, 2000 to February 1, 2001.
Workers Compensation and Employers' Liability Insurance Policy No. WVA6402290
from Aon Risk Services, Inc. of PA for the period February 1, 2000 to February
1, 2001.
International Management Workers Compensation Insurance Policy No. WVA6402292
from Aon Risk Services, Inc. of PA for the period February 1, 2000 to February
1, 2001.
Workers Compensation Insurance for Internet Capital Policy No. WVA6402293 from
Aon Risk Services, Inc. of PA for the period February 1, 2000 to February 1,
2001.
Property and Crime Insurance Policy No. LR034 from Factory Mutual Insurance
Company for the period January 1, 2000 to December 31, 2000.
Personal Property All Risk Insurance Policy No. 06020511 from Arkwright Mutual
Insurance Company for the period January 1, 1998 to January 1, 2001.
<PAGE>
SCHEDULE 6.1.22
EMPLOYEE BENEFIT PLAN DISCLOSURES
Membership Profit Interest Program: As of December 31, 1999, a total of
- ----------------------------------
13,567,250, adjusted for a two-for-one stock split shares of common stock have
been reserved for issuance under the Membership Profit Interest Program, of
which 13,080,718 shares were outstanding, leaving 486,532 shares available for
future grant. The board has the power, subject to limitations contained in the
Membership Profit Interest Program, to prescribe the terms and conditions of any
award granted under the Membership Profit Interest Program, including the total
number of shares awarded to each grantee and any applicable vesting schedule.
Internet Capital Group 1999 Equity Compensation Plan: On February 2, 1999,
- ----------------------------------------------------
Internet Capital Group, L.L.C. merged with and into Internet Capital Group, Inc.
and Internet Capital Group, L.L.C.'s 1998 Equity Compensation Plan and
Director's Option Plan (collectively, the "1998 Plan") were terminated and the
1999 Equity Compensation Plan (the "1999 Plan") was adopted. The 1999 Plan
combines two components of the 1998 Plan into a single plan which is
substantially the same as the 1998 Plan. The 1999 Plan provides that options
outstanding under the 1998 Plan will be considered options issued under the 1999
Plan. As of December 31, 1999, a total of 42,000,000, adjusted for a two-for-one
stock split shares of common stock have been reserved for issuance under the
1999 Plan. As of December 31, 1999, nonqualified options to purchase 41,164,500
were outstanding, leaving 835,500 shares available for future grant because no
incentive stock options, restricted stock, SARs, performance awards, dividend
equivalent rights or cash awards under the 1998 Plan or the 1999 Plan were
outstanding. In February, 2000, the Board of Directors reserved an additional
18,000,000 shares for future grants. The Compensation Committee of the Board of
Directors (the "Committee") has the power, subject to limitations contained in
the 1999 Plan, to prescribe the terms and conditions of any award granted under
the 1999 Plan, including the total number of shares and SARs to be offered to
each grantee. In the event of a Change of Control (as defined in the 1999 Plan),
all of the options granted under the 1999 Plan will become immediately vested
and exercisable, restrictions on restricted shares will lapse and payments with
respect to other awards will be accelerated unless otherwise determined by the
Committee. Our board of directors may amend the 1999 Plan at any time, except
that certain amendments require stockholder approval. The 1999 plan will
terminate on February 2, 2009, unless terminated earlier by our board of
directors.
Internet Capital Group 401(k) Plan: The Internet Capital Group 401(k) Plan is a
- ----------------------------------
defined contribution plan that is intended to qualify under Section 401(a) of
the Code. All employees who are at least 21 years old and have been employed for
one month are eligible to participate in the 401(k) Plan. An eligible employee
of the Company may begin to participate in the 401(k) Plan on the first day of
the plan quarter after satisfying the 401(k) Plan's eligibility requirements. A
participating employee may make pre-tax contributions of a percentage (not less
than 1% and not more than 15%) of his or her eligible compensation, subject to
the limitations under the
<PAGE>
federal tax laws. Employee contributions and the investments earnings thereon
are fully vested at all times. We do not make mating or profit-sharing
contributions.
Internet Capital Group, Inc. Long-Term Incentive Plan: The long-term incentive
- -----------------------------------------------------
plan allocates up to 12% of each partner company acquisition made during the
year for the benefit of the participants in long-term incentive plan. The
Committee awards grants in the form of interests in limited partnerships
established by the Company to hold the interests in partner companies acquired
during the course of a given year. All employees are eligible to participate.
Any payout with respect to a grant is conditioned on the attainment of specific
performance thresholds, but the Committee may accelerate payout.
<PAGE>
SCHEDULE 8.2.1
PERMITTED INDEBTEDNESS
$23 Million note payable to e-Merge Interactive, Inc. due in 2000.
$7 Million funding commitment to Usgift.com due in 2000.
$3,236,900 note payable to American Incubators for Internet Capital Group's
interest in PaperExchange.com LLC. Note due in August 2000. American Incubators
has the option to covert this note into 599,426 shares of ICG common stock.
<PAGE>
SCHEDULE 8.2.3
PERMITTED GUARANTIES
Guaranty in favor of Silicon Valley Bank (East) in respect of E-Chemicals, Inc.
$2.0 Million Revolving Credit Facility.
$3 Million Note Purchase Agreement, dated July 6, 1998, between e-Chemicals,
Inc. and Internet Capital Group, L.L.C. with a maturity date of July 2, 2008.
Deed of Guarantee, dated March 1, 2000, by and between Internet Capital Group,
Inc. and Friends' Provident Life Office for the maximum liability of $2,983,987
(1,877,546 British pounds).
Guaranty in favor of BlackBoard, Inc. in respect to $2,480,502 of BlackBoard,
Inc.'s $5 million Line of Credit.
<PAGE>
SCHEDULE 11.7
ADDRESSES FOR NOTICE'S
BANKS:
Name: PNC Bank, N.A.
Address: One PNC Plaza - 22nd Floor
249 Fifth Avenue
Pittsburg, PA 15222-2707
Attention: Ms. Lisa Pierce
Telephone: (412) 762-6442
Telecopy: (412) 762-8672
With a copy to:
Name: VentureBank@PNC
Address: 1000 Westlakes Drive
Suite 200
Berwyn, Pennsylvania 19312
Attention: Mr. John Freyhof
Telephone: (610) 725-5752
Telecopy: (610) 725-5799
Name: Bank of America, N.A.
Address: 555 California Street
41st Floor
San Francisco, CA 94104
Attention: Mr. Jouni Korhonen
Telephone: (415) 622-7293
Telecopy: (415) 622-0632
With a copy to:
Name: Bank of America, N.A.
Address: 1850 Gateway Blvd.
Concord, CA 94520-3282
Attention: Ms. Soo Lee
Telephone: (925) 675-8204
Telecopy: (925) 675-2853
Name: Deutsche Bank AG New York
Branch/Cayman Island Branch
Address: 31 W. 52nd Street
New York, NY 10019
Attention: Ms. Sheryl Paynter
Telephone: (212) 469-3829
Telecopy: (212) 469-8212
Name: Comerica Bank - California
Address: 55 Almeden Blvd.
San Jose, CA 95113
Attention: Mr. Alan Jepsen
Telephone: (408) 556-5877
Telecopy: (408) 556-5889
With a copy to:
Name: Gary Cary Ware Freidenrich
Address: 400 Hamilton
Palo Alto, CA 94301
Attention: Mr. Craig Tighe
Telephone: (650) 833-2362
Telecopy: (650) 327-3699
Name: First Union Investors, Inc.
Address: 201 South College Street
NC 0760
Charlotte, NC 28288-0760
Attention: Mr. Brand Hosford
Telephone: (704) 374-6355
Telecopy: (704) 374-4793
Name: Merrill Lynch Business
Financial Securities, Inc.
Address: 222 North LaSalle Street
17th Floor
Chicago, IL 60601
Attention: Mr. Thaddeus Murphy
Telephone: (312)
Telecopy: (312) 368-1387
Name: Imperial Bank
Address: 11921 Freedom Drive
Suite 920
Reston, VA 20190-5608
Attention: Ms. Lynn Hough
Telephone: (703) 689-3768
Telecopy: (703) 467-9308
With a copy to:
Name: Imperial Bank
Address: 9920 South Lacienega Blvd.
Suite 636
Englewood, CA 90301
Attention: General Counsel
Telephone: (310) 417-5929
Telecopy: (310) 417-5695
Name: The Bank of Nova Scotia
Address: One Liberty Plaza
New York, NY 10006
Attention: Mr. Phil Adsetts
Telephone: (212) 225-5010
Telecopy: (212) 225-5096
Name: Progress Bank
Address: 4 Sentry Parkway
Suite 200
Blue Bell, PA 19422
Attention: Ms. Liz A. Lambert
Telephone: (610) 941-2202
Telecopy: (610) 941-4827
BORROWERS:
Name: Internet Capital Group, Inc.
Address: 103 The Springer Building
3411 Silverside Road
Wilmington, DE 19801
Attention: Vice President Finance Operation
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
With a copy to:
Name: Internet Capital Group Operations, Inc.
Address: 800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
Name: ICG Holdings, Inc.
Address: 103 The Springer Building
3411 Silverside Road
Wilmington, DE 19801
Attention: Vice President Finance Operation
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
With a copy to:
Name: Internet Capital Group Operations, Inc.
Address: 800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
<PAGE>
EXHIBIT 1.1(A)
form of
ASSIGNMENT AND ASSUMPTION AGREEMENT
Reference is made to the Amended and Restated Credit Agreement dated as of
March 28, 2000, (as amended, supplemented or modified from time to time, the
"Credit Agreement") among INTERNET CAPITAL GROUP, INC., a Delaware
----------------
corporation ("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG Holdings";
--- ------------
ICG and ICG Holdings being hereinafter referred to individually as a "Borrower"
and collectively as the "Borrowers"), the BANKS (as defined in the Credit
Agreement), PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative
agent for the Banks (the "Administrative Agent") and the AGENTS (as defined in
--------------------
the Credit Agreement). Unless otherwise defined herein, terms defined in the
Credit Agreement are used herein with the same meanings.
______________________________ (the "Assignor") and
--------
_______________________________ (the "Assignee"), intending to be legally bound
--------
hereby, make this Assignment and Assumption Agreement this ___ day of
___________, _____ and hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, WITHOUT RECOURSE to the
Assignor, a ________ percent (____%) interest in and to all of the Assignor's
rights and obligations under the Credit Agreement as of the Effective Date (as
defined below), including without limitation, such percentage interest in the
Assignor's Revolving Credit Commitment and Revolving Credit Loans, as in effect
or owing to the Assignor on the Effective Date and the Notes evidencing the
outstanding Loans held by the Assignor.
2. The Assignor: (i) represents and warrants that, as of the date hereof,
its Revolving Credit Commitment is $_________, the unpaid principal amount of
the Revolving Credit Loans owing to the Assignor is $_________; (ii) represents
and warrants that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any adverse
claim; (iii) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with the Credit Agreement or any of the Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement or any of the Loan Documents or any other instrument or
document furnished pursuant thereto; (iv) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of any
Borrower or the performance or observance by any Borrower of any of its
obligations under the Credit Agreement or any of the Loan Documents or any other
instrument or document furnished pursuant thereto; and (v) attaches the Notes
referred to in paragraph 1 above and requests that the Administrative Agent
exchange such Notes for new Notes as follows:
[INSERT LIST OF NEW NOTES]
<PAGE>
3. The Assignee: (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements (if any) referred to
in Sections 6.1.9 and 8.3.1 of the Credit Agreement and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Assumption; (ii) agrees that it will,
independently and without reliance upon the Administrative Agent, the Assignor
or any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement; (iii) appoints and authorizes the
Administrative Agent to take such actions on its behalf and to exercise such
powers under the Loan Documents as are delegated to such Administrative Agent by
the terms thereof; (iv) agrees that it will become a party to and be bound by
the Credit Agreement on the Effective Date (including without limitation the
provisions of Section 11.11 and Section 11.12) as if it were an original Bank
thereunder and will have the rights and obligations of a Bank thereunder and
will perform in accordance with their terms all of the obligations which by the
terms of the Credit Agreement are required to be performed by it as a Bank; and
(v) specifies as its address for notices the office set forth beneath its name
on the signature pages hereof.
4. The effective date of this Assignment and Assumption shall be
_____________, _____ (the "Effective Date"). Following the execution of this
--------------
Assignment and Assumption, it will be delivered to the Administrative Agent for
acceptance and recording by the Administrative Agent.
5. Upon such acceptance and recording, as of the Effective Date, (i) the
Assignee shall be a party to the Credit Agreement and, to the extent provided in
this Assignment and Assumption, have the rights and obligations of a Bank
thereunder and under the Loan Documents and (ii) the Assignor shall, to the
extent provided in this Assignment and Assumption, relinquish its rights and be
released from its obligations under the Credit Agreement and the Revolving
Credit Commitment of the Assignor and the Assignee shall be as set forth in
Schedule I hereto.
6. Upon such acceptance and recording, from and after the Effective Date,
the Administrative Agent shall make all payment under the Credit Agreement and
the Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest, Commitment Fees and Letter of
Credit Fees with respect thereto) to the Assignee. The Assignor and Assignee
shall make all appropriate adjustments in payments under the Credit Agreement
and the Notes for periods prior to the Effective Date directly between
themselves.
7. The Assignor makes this assignment to the Assignee in consideration of
the payment by the Assignee to the Assignor of $__________, receipt of which is
hereby acknowledged by the Assignee.
8. This Assignment and Assumption shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania.
-2-
<PAGE>
9. Assignor has paid to the Administrative Agent the fee of $3,500 referred
to in Section 11.12 of the Credit Agreement.
10. [This section is applicable only if the Assignee is incorporated
outside of the United States.] Assignee has delivered at least five (5) Business
Days prior to the Effective Date two duly completed copies of Internal Revenue
Service Form W-9, 4224 or 1001, or other applicable form prescribed by the
Internal Revenue Service, certifying that such Assignee is entitled to receive
payments under the Credit Agreement and the other Loan Documents without
deduction or withholding of any United States federal income taxes, or is
subject to such tax at a reduced rate under an applicable tax treaty.
[Alternative: Assignee has delivered at least five (5) Business Days prior to
the Effective Date two duly completed copies of Internal Revenue Service Form W-
8 of Assignee indicating that Assignee is subject to withholding of United
States federal income taxes.]
[NAME OF ASSIGNOR]
By:___________________________________
Name:______________________________
Title:_____________________________
[NAME OF ASSIGNEE]
By:___________________________________
Name:______________________________
Title:_____________________________
Notice Address:
______________________________________
______________________________________
______________________________________
Telephone No.:________________________
Telecopier No.:_______________________
Attn:_________________________________
CONSENTED TO this _____
day of __________, _____.
PNC BANK, NATIONAL
ASSOCIATION, as Administrative Agent
By:_________________________________
Name:_______________________________
Title:______________________________
INTERNET CAPITAL GROUP, INC.
-3-
<PAGE>
By:________________________________
Name:______________________________
Title:_____________________________
*If applicable
(140889-3)
SCHEDULE I
Amount of Commitment for Amount of Revolving Credit
Revolving Credit Loans as of Loans as of the Effective
the Effective Date Date
[Assignor] $_________________ $_________________
[Assignee] $_________________ $_________________
-4-
<PAGE>
EXHIBIT 1.1 (B)
---------------
FORM OF
-------
BORROWING BASE CERTIFICATE
--------------------------
(Internet Capital Group, Inc.)
[Date]
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent for the Banks Party to the
Credit Agreement Referred to Below
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attention: Ms. Lisa Pierce
Ladies and Gentlemen:
I refer to Section 8.3.4 of the Amended and Restated Credit Agreement,
dated as of March 28, 2000 (the "Credit Agreement"), among INTERNET CAPITAL
GROUP, INC., a Delaware corporation ("ICG"), ICG HOLDINGS, INC., a Delaware
corporation ("ICG Holdings"; ICG and ICG Holdings being hereinafter referred to
individually as a "Borrower" and collectively as the "Borrowers"), the Banks
party thereto, the Guarantors party thereto, PNC BANK, NATIONAL ASSOCIATION, as
Administrative Agent on behalf of the Banks (the "Administrative Agent"), and
the Agents. Unless otherwise defined herein, terms defined in the Credit
Agreement are used herein with the same meanings. I, ________ , [CHIEF EXECUTIVE
OFFICER, PRESIDENT, CHIEF FINANCIAL OFFICER, VICE PRESIDENT FINANCE, TREASURER
OR ASSISTANT TREASURER] of the Administrative Borrower, do hereby certify on
behalf of each Borrower as of the week ended _______ [2000/2001] (the "Report
Date"), that the components of the "Borrowing Base" are as follows:
A. BORROWING BASE
1. (a) the aggregate dollar value (as determined in accordance with the
definition of "Borrowing Base" in the Credit
Agreement) of Qualified Public Company Unrestricted
Securities (See Schedule A attached hereto) $
2. (a) the aggregate dollar value (as determined in accordance
with the definition of "Borrowing Base" in the Credit
Agreement) of Qualified Public Company Restricted
Securities (See Schedule B attached hereto) $
3. 12.5% of the aggregate cost basis (as determined in accordance
with the definition of "Borrowing Base" in the Credit
Agreement) of Qualified In-Registration Company Securities
(See Schedule C
<PAGE>
attached hereto), not to exceed $25,000,000 per Acquisition
Entity and $50,000,000 in the aggregate $
4. 10% of the aggregate cost basis (as determined in accordance
with the definition of "Borrowing Base" in the Credit
Agreement) of Qualified Private Company Restricted
Securities (See Schedule D attached hereto),
not to exceed $50,000,000 in the aggregate $
5. 5% of the aggregate cost basis (as determined in accordance
with the definition of "Borrowing Base" in the Credit
Agreement) of Subject to Pledge Private Company Restricted
Securities (See Schedule E attached hereto), not to exceed
$5,000,000 per Acquisition Entity and $20,000,000 in the
aggregate $
6. The lesser of the Sum of Items A(1), A(2), A(3), A(4) and A(5)
or $250,000,000 = "Borrowing Base" $
B. Outstandings
1. Principal Amount of Loans Outstanding $
2. Letters of Credit Outstanding $
3. Sum of Items B(1) and B(2) = "Facility Usage" $
C. COMPLIANCE
1. Excess of Item A(6) over Item B(3) $
2. If Item C(1) is less than zero ($0), amount of
mandatory prepayment due $
D. OTHER MATTERS
The undersigned further certifies as follows:
1. Each Borrower is in compliance with, and since the most recent prior Report
Date has at all times complied with, the provisions of the Credit Agreement.
2. No event has occurred and is continuing which constitutes an Event of
Default or Potential Default.
3. With respect to all financial statements delivered by or on behalf of any
Borrower contemporaneously herewith, such statements are true and correct.
<PAGE>
4. In accordance with Section 8.2.9 of the Credit Agreement, all of the
Pledged Securities are owned by the Borrowers or a Significant Subsidiary
pursuant to Section 11.19 of the Credit Agreement.
5. The aggregate Profit Percentage is twelve percent (12%).
6. A minimum of 25% of the Borrowing Base set forth in Item a(6) is
attributable to Acquisition Entities that are Qualified Public Company
Unrestricted Securities.
7. Attached as (I) Schedule A hereto with respect to Acquisition Entities that
are Public Company Unrestricted Securities, (II) Schedule B hereto with
respect to Acquisition Entities that are Public Company Restricted
Securities, (III) Schedule C hereto with respect to Acquisition Entities that
are Pledged In-Registration Company Securities, (IV) Schedule D with respect to
Acquisition Entities that are Pledged Private Company Restricted Securities; and
Schedule E with respect to Acquisition Entities that are Subject to Pledge
Private Company Restricted Securities and incorporated by reference herein, is a
true, complete and accurate list containing the name of each Acquisition Entity,
the type and quantity of Pledged Securities, the certificate numbers of Pledged
Securities, the cost basis of the Pledged Securities and the date of investment
in the Pledged Securities.
IN WITNESS WHEREOF, the undersigned has executed this Borrowing Base Certificate
this ___ day of _____, [2000/2001].
INTERNET CAPITAL GROUP, INC.
By:
-----------------
Name:
Title:
<PAGE>
Schedule A
----------
Market Value determined
Name of Issuer of Public in accordance with the
Company Unrestricted Securities Borrowing Base Definition
------------------------------- -------------------------
<PAGE>
Schedule B
----------
Market Value determined
Name of Issuer of Public in accordance with the
Company Restricted Securities Borrowing Base Definition
----------------------------- -------------------------
<PAGE>
Schedule C
----------
Cost Basis determined
Name of Issuer of In-Registration in accordance with the
Company Securities Borrowing Base Definition
------------------ -------------------------
<PAGE>
Schedule D
----------
Cost Basis determined
Name of Issuer of Private Company in accordance with the
Restricted Securities Borrowing Base Definition
--------------------- -------------------------
<PAGE>
Schedule E
----------
Cost Basis determined
Name of Issuer of Subject to Pledge Private in accordance with the
Company Restricted Securities Borrowing Base Definition
----------------------------- -------------------------
<PAGE>
CREDIT AGREEMENT
EXHIBIT 1.1(D)(1)
TERMS OF SUBORDINATION
FOR ISSUANCE OF
SUBORDINATED DEBT
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 September 30, 1999, ICG had no Senior Indebtedness outstanding but ICG's
subsidiaries had approximately $1,600,000 of Senior Indebtedness outstanding and
ICG is party to a $50,000,000 senior revolving credit facility. 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
<PAGE>
CREDIT AGREEMENT
. 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, Change in Control Purchase
Price, any redemption amounts 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.
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
<PAGE>
CREDIT AGREEMENT
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.
<PAGE>
EXHIBIT 1.1(G)(1)
form of
GUARANTOR JOINDER AND ASSUMPTION AGREEMENT
This Guarantor Joinder and Assumption Agreement is made as of __________,
200__, by ___________________________________, a_____________________________
[corporation/partnership] (the "New Guarantor").
-------------
Background
----------
Reference is made to (i) the Amended and Restated Credit Agreement dated
as of March 28, 2000, as the same may be modified, supplemented or amended
(the "Agreement"), by and among INTERNET CAPITAL GROUP, INC., a Delaware
---------
corporation ("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG Holdings";
--- ------------
ICG and ICG Holdings being referred to herein individually as a "Borrower" and
--------
collectively as the "Borrowers"), each of the Guarantors, the Banks who are
---------
parties to the Agreement, and PNC BANK, NATIONAL ASSOCIATION, in its capacity as
Administrative Agent for the Banks under the Agreement, and the Agents, (ii) the
Guaranty and Suretyship Agreement, dated as of March 28, 2000 (the "Guaranty"),
--------
of Guarantors issued to the Banks and the Administrative Agent, as the same may
be modified, supplemented or amended, (iii) the Security Agreement referred to
in the Agreement, as the same may be modified, supplemented or amended, (iv) the
Intercompany Subordination Agreement referred to in the Agreement, as the same
may be modified, supplemented or amended, and (v) the other Loan Documents
referred to in the Agreement, as the same may be modified, supplemented or
amended.
Agreement
---------
Capitalized terms defined in the Agreement are used herein as defined
therein. In consideration of the New Guarantor becoming a Guarantor under the
terms of the Agreement (including, but not limited to Sections 8.2.9 and 11.19
thereof) and in consideration of the value of the synergistic benefits received
by New Guarantor as a result of becoming affiliated with the Borrowers and the
Guarantors, the New Guarantor hereby agrees that effective as of the date hereof
it hereby is, and shall be deemed to be, a Guarantor under the Agreement, and
the Guaranty, and hereby becomes party to the Intercompany Subordination
Agreement, the Security Agreement and each of the other Loan Documents to which
the Guarantors are a party and agrees that from the date hereof and so long as
any Loan or any Commitment of any Bank shall remain outstanding and until the
payment in full of the Loans and the Notes and the performance of all other
obligations of each Borrower under the Loan Documents, New Guarantor has assumed
the obligations of a Guarantor under, and New Guarantor shall perform, comply
with and be subject to and bound by, jointly and severally, each of the terms,
provisions and waivers of the Agreement, the Guaranty, the Intercompany
Subordination Agreement, the Security Agreement and each of the other Loan
Documents which are stated to apply to or are made by a Guarantor. Without
limiting the generality of the foregoing, the New Guarantor hereby represents
and warrants that (i) each of the representations and warranties with respect to
the Guarantors set forth in Article 6 of the Agreement is true and correct as to
New Guarantor on and as of the date hereof as if made on and as of the date
hereof by New Guarantor (except representations and warranties which relate
solely to an earlier date or time which representations and warranties shall be
true and correct in all material respects on and as of the specific date or
times referred to in
-5-
<PAGE>
said representations and warranties) and (ii) New Guarantor has heretofore
received a true and correct copy of the Agreement, the Guaranty, the
Intercompany Subordination Agreement, the Security Agreement and each of the
other Loan Documents (including any modifications thereof or supplements or
waivers thereto) as in effect on the date hereof.
New Guarantor hereby makes, affirms, and ratifies in favor of the Banks and
the Administrative Agent, the Agreement, the Guaranty, the Intercompany
Subordination Agreement, the Security Agreement and each of the other Loan
Documents given by the Guarantors to the Administrative Agent and any of the
Banks.
New Guarantor is simultaneously delivering to the Administrative Agent the
following documents together with the Joinder required under Sections 8.2.9
(Subsidiaries, etc.) and 11.18 (Joinder of Guarantors) and, if applicable, 8.2.6
(Liquidations, Mergers etc.) of the Agreement:
Not
Document Delivered Delivered
Amendment to Patent, Trademark and Copyright Security
Agreement (mandatory)
Security Agreement (Special Collateral Account) Joinder
(mandatory)
Pledge Agreement - parent of New Guarantor pledging Stock
of New Guarantor (mandatory)
Pledge Agreement - New Guarantor pledging stock of its
Subsidiaries (if applicable)
UCC-1 Financing Statement naming New Guarantor as debtor
(mandatory)
Opinion of Counsel (mandatory)
Updated Schedules to Credit Agreement. [Note: updates to
schedules do not cure any breach of warranties].
Not
Schedule No. and Description Delivered Delivered
---------------------------- --------- ---------
Schedule 6.1.1 - Qualification to do
Business (mandatory)
Schedule 6.1.3 - Subsidiaries (mandatory)
-6-
<PAGE>
Schedule 6.1.8 - Owned and Leased Real
Property (if applicable)
Schedule 6.1.15 - Patents, Trademarks,
Copyrights, Licenses,
Etc. (if applicable)
Schedule 6.1.17 - Owners of Pledged
Collateral (if applicable)
Schedule 6.1.18 - Insurance Policies (if
applicable)
Schedule 6.1.22 - Employee Benefit Plan
Disclosures (if applicable)
Schedule 8.2.1 - Permitted Indebtedness
(if applicable)
Not
Schedule No. and Description Delivered Delivered
---------------------------- --------- ---------
Schedules to Security Agreement [Note: updates
to schedules do not cure breach of warranties].
Schedule 1 - List of Grantors; Collateral
Information (mandatory)
-7-
<PAGE>
In furtherance of the foregoing, New Guarantor shall execute and deliver or
cause to be executed and delivered at any time and from time to time such
further instruments and documents and do or cause to be done such further acts
as may be reasonably necessary or proper in the opinion of the Agent to carry
out more effectively the provisions and purposes of this Guarantor Joinder and
Assumption Agreement.
IN WITNESS WHEREOF, the New Guarantor has duly executed this Joinder and
Assumption Agreement and delivered the same to the Agent for the benefit of the
Banks, as of the date and year first above written.
[_____________________________]
By:___________________________________
Title:________________________________
Acknowledged and accepted:
PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent
By:______________________________
Title:___________________________
-8-
<PAGE>
EXHIBIT 1.1 (G)(2)
form of
GUARANTY AND SURETYSHIP AGREEMENT
This Agreement (the "Agreement"), dated as of March 28, 2000, is made
---------
and given by _______________________________________., a _________ corporation,
and each of the other Significant Subsidiaries (as defined in the Credit
Agreement) which become Guarantors from time to time pursuant to a Guarantor
Joinder and Assumption Agreement (collectively the "Guarantors;" and each is
----------
sometimes referred to individually as a "Guarantor" ), INTERNET CAPITAL GROUP,
---------
INC., a Delaware corporation ("ICG"),and ICG HOLDINGS, INC., a Delaware
---
corporation ("ICG Holdings"; ICG and ICG Holdings being referred to herein
------------
individually as a "Borrower" and collectively as the "Borrowers"), in favor of
-------- ---------
the Administrative Agent and the Banks as defined in that certain Amended and
Restated Credit Agreement dated as of even date herewith (as it may hereinafter
from time to time be amended, restated, modified or supplemented, the "Credit
------
Agreement"), by and among ICG, ICG Holdings, the Banks party thereto, the
- ---------
Guarantors and PNC BANK, NATIONAL ASSOCIATION, in its capacity as Administrative
Agent for the Banks (the "Administrative Agent"), and the Agents.
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, this Agreement is made by the Guarantors, among other things,
to induce the Administrative Agent and the Banks to enter into and make loan
advances pursuant to the Credit Agreement, to induce the Administrative Agent
and the Banks to extend credit to the Borrowers from time to time under the
Credit Agreement, and to comply with the requirements of the Credit Agreement;
and
WHEREAS, the respective businesses and investments of the Guarantors
are interdependent and loans made to any Borrower under the Credit Agreement are
with the expectation that the profits and other opportunities from such
investment will directly or indirectly inure to the benefit of each Guarantor
and to all of them taken as an affiliated group.
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound, the Guarantors hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.01. Definitions. Capitalized terms used herein and not otherwise
-----------
defined herein shall have such meanings as given to them in the Credit
Agreement. In addition to the other terms defined elsewhere in this Agreement,
the following terms shall have the following meanings:
"Guaranteed Obligations" shall mean with respect to each Guarantor all
----------------------
obligations from time to time of any Borrower or any other Guarantor to any
of the Administrative
-9-
<PAGE>
Agent or the Banks under or in connection with the Credit Agreement or any
other Loan Document or which arise in any other manner and relate thereto,
whether for principal, interest, fees, indemnities, expenses or otherwise,
and all refinancings or refundings thereof, whether such obligations are
direct or indirect, otherwise secured or unsecured, joint or several,
absolute or contingent, due or to become due, whether for payment or
performance, now existing or hereafter arising (specifically including but
not limited to obligations arising or accruing after the commencement of any
bankruptcy, insolvency, reorganization or similar proceeding with respect to
any Borrower or any Guarantor (a "Person") or which would have arisen or
accrued but for the commencement of such proceeding, even if the claim for
such obligation is not enforceable or allowable in such proceeding). Without
limitation of the foregoing, such obligations include all obligations
arising from any extensions of credit under or in connection with the Loan
Documents from time to time, regardless of whether any such extensions of
credit are in excess of the amount committed under or contemplated by the
Loan Documents or are made in circumstances in which any condition to
extension of credit is not satisfied. Without limitation of the foregoing,
any of the Guaranteed Obligations (including, without limitation, any
Guaranteed Obligations resulting from extension of credit by any other
Person under or in connection with the Loan Documents) shall be and remain
Guaranteed Obligations entitled to the benefit of this Agreement if the
Administrative Agent and the Banks (or any successive assignee or
transferee) from time to time assign or otherwise transfer all of their
respective rights and obligations under the Loan Documents (including,
without limitation, all of any commitment to extend credit), or any other
Guaranteed Obligations, to any other Person.
ARTICLE II
GUARANTY
--------
2.01 Guaranty and Suretyship. The Guarantors jointly and severally
-----------------------
hereby absolutely, unconditionally and irrevocably guarantee and become surety,
as though each Guarantor was a primary obligor, for the full and punctual
payment and performance of the Guaranteed Obligations as and when such payment
or performance shall become due (at scheduled maturity, by acceleration or
otherwise) in accordance with the terms of the Loan Documents. This Agreement
is an agreement of suretyship as well as of guaranty, is a guarantee of payment
and performance and not merely of collectibility, and is in no way conditioned
upon any attempt to collect from or proceed against any Borrower or any other
Person or any other event or circumstance. The obligations of the Guarantors
under this Agreement are direct and primary obligations of each Guarantor and
are independent of the Guaranteed Obligations, and a separate action or actions
may be brought against any one or more of the Guarantors regardless of whether
action is brought against any Borrower, any other Guarantor or any other Person
or whether any Borrower, any other Guarantor or any other Person is joined in
any such action or actions.
-10-
<PAGE>
2.02 Obligations Absolute. The Guarantors agree that the Guaranteed
--------------------
Obligations will be paid and performed strictly in accordance with the terms of
the Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting the Guaranteed Obligations, any of the
terms of the Loan Documents or the rights of the Administrative Agent or the
Banks or any other Person with respect thereto. The obligations of the
Guarantors under this Agreement shall be absolute, unconditional and
irrevocable, irrespective of any of the following:
(a) Any lack of genuineness, legality, validity, enforceability
or allowability (in a bankruptcy, insolvency, reorganization or similar
proceeding, or otherwise), or any avoidance or subordination, in whole or in
part, of any Loan Document or any of the Guaranteed Obligations.
(b) Any increase, decrease or change in the amount, nature, type
or purpose of any of the Guaranteed Obligations (whether or not contemplated by
the Loan Documents as presently constituted); any change in the time, manner,
method or place of payment or performance of, or in any other term of, any of
the Guaranteed Obligations; any execution or delivery of any additional Loan
Documents; or any amendment, modification or supplement to, or refinancing or
refunding of, any Loan Document or any of the Guaranteed Obligations.
(c) Any failure to assert any breach of or default under any Loan
Document or any of the Guaranteed Obligations; any extensions of credit in
excess of the amount committed under or contemplated by the Loan Documents, or
in circumstances in which any condition to such extensions of credit has not
been satisfied; any other exercise or non-exercise, or any other failure,
omission, breach, default, delay or wrongful action in connection with any
exercise or non-exercise, of any right or remedy against any Borrower or any
other Person under or in connection with any Loan Document or any of the
Guaranteed Obligations; any refusal of payment or performance of any of the
Guaranteed Obligations, whether or not with any reservation of rights against
any Guarantor; or any application of collections (including but not limited to
collections resulting from realization upon any direct or indirect security for
the Guaranteed Obligations) to other obligations, if any, not entitled to the
benefits of this Agreement, in preference to Guaranteed Obligations entitled to
the benefits of this Agreement, or if any collections are applied to Guaranteed
Obligations, any application to particular Guaranteed Obligations.
(d) Any taking, exchange, amendment, modification, supplement,
termination, subordination, release, loss or impairment of, or any failure to
--
protect, perfect, or preserve the value of, or any enforcement of, realization
--
upon, or exercise of rights, or remedies under or in connection with, or any
--
failure, omission, breach, default, delay or wrongful action by the
Administrative Agent or the Banks, or any of them, or any other Person in
connection with the enforcement of, realization upon, or exercise of rights or
remedies under or in connection with, or, any other action or inaction by any of
--
the Administrative Agent or the Banks, or any of them, or any other Person in
respect of, any direct or indirect security for any of the Guaranteed
Obligations. As used in this Agreement, "direct or indirect security" for the
Guaranteed
-11-
<PAGE>
Obligations, and similar phrases, includes but is not limited to any collateral
security, guaranty, suretyship, letter of credit, capital maintenance agreement,
put option, subordination agreement or other right or arrangement of any nature
providing direct or indirect assurance of payment or performance of any of the
Guaranteed Obligations, made by or on behalf of any Person.
(e) Any merger, consolidation, liquidation, dissolution,
winding-up, charter revocation or forfeiture, or other change in, restructuring
or termination of the corporate structure or existence of, any Borrower or any
other Person; any bankruptcy, insolvency, reorganization or similar proceeding
with respect to any Borrower or any other Person; or any action taken or
election made by the Administrative Agent or the Banks, or any of them
(including but not limited to any election under Section 1111(b)(2) of the
United States Bankruptcy Code), any Borrower or any other Person in connection
with any such proceeding.
(f) Any defense, setoff or counterclaim (excluding only the
defense of full, strict and indefeasible payment and performance), which may at
any time be available to or be asserted by any Borrower or any other person with
respect to any Loan Document or any of the Guaranteed Obligations; or any
discharge by operation of law or release of any Borrower or any other Person
from the performance or observance of any Loan Document or any of the Guaranteed
Obligations.
(g) Any other event or circumstance, whether similar or
dissimilar to the foregoing, and whether known or unknown, which might otherwise
constitute a defense available to, or limit the liability of, any Guarantor, a
guarantor or a surety, excepting only full, strict and indefeasible payment and
performance of the Guaranteed Obligations in full.
2.03. Waivers, etc. The Guarantors hereby waive any defense to or
-------------
limitation on their obligations under this Agreement arising out of or based on
any event or circumstance referred to in Section 2.02 hereof. Without
limitation and to the full extent permitted by applicable law, the Guarantors
waive each of the following:
(a) All notices, disclosures and demand of any nature which
otherwise might be required from time to time to preserve intact any rights
against any Guarantor, including without limitation the following: any notice of
any event or circumstance described in Section 2.02 hereof; any notice required
by any law, regulation or order now or hereafter in effect in any jurisdiction;
any notice of nonpayment, nonperformance, dishonor, or protest under any Loan
Document or any of the Guaranteed Obligations; any notice of the incurrence of
any Guaranteed Obligation; any notice of any default or any failure on the part
of any Borrower or any other Person to comply with any Loan Document or any of
the Guaranteed Obligations or any direct or indirect security for any of the
Guaranteed Obligations; and any notice of any information pertaining to the
business, operations, condition (financial or otherwise) or prospects of any
Borrower or any other Person.
(b) Any right to any marshalling of assets, to the filing of any
claim against the Borrower or any other Person in the event of any bankruptcy,
insolvency,
-12-
<PAGE>
reorganization or similar proceeding, or to the exercise against any Borrower or
any other Person of any other right or remedy under or in connection with any
Loan Document or any of the Guaranteed Obligations or any direct or indirect
security for any of the Guaranteed Obligations; any requirement of promptness or
diligence on the part of the Administrative Agent or the Banks, or any of them,
or any other Person; any requirement to exhaust any remedies under or in
connection with, or to mitigate the damages resulting from default under, any
Loan Document or any of the Guaranteed Obligations or any direct or indirect
security for any of the Guaranteed Obligations; any benefit of any statute of
limitations; and any requirement of acceptance of this Agreement, and any
requirement that any Guarantor receive notice of such acceptance.
(c) Any defense or other right arising by reason of any law now
or hereafter in effect in any jurisdiction pertaining to election of remedies
(including but not limited to anti-deficiency laws, "one action" laws or the
like), or by reason of any election of remedies or other action or inaction by
the Administrative Agent or the Banks, or any of them (including but not limited
to commencement or completion of any judicial proceeding or nonjudicial sale or
other action in respect of collateral security for any of the Guaranteed
Obligations), which results in denial or impairment of the right of the
Administrative Agent or the Banks, or any of them, to seek a deficiency against
any Borrower or any other Person or which otherwise discharges or impairs any of
the Guaranteed Obligations.
2.04. Reinstatement. This Agreement shall continue to be effective, or
-------------
be automatically reinstated, as the case may be, if at any time payment of any
of the Guaranteed Obligations is avoided, rescinded or must otherwise be
returned by the Administrative Agent and the Banks, or any of them, for any
reason (including, without limitation, by reason of such payment being a
preference, fraudulent transfer or fraudulent conveyance), all as though such
payment had not been made.
2.05. No Stay. Without limitation of any other provision of this
-------
Agreement, if any declaration of default or acceleration or other exercise or
condition to exercise of rights or remedies under or with respect to any
Guaranteed Obligation shall at any time be stayed, enjoined or prevented for any
reason (including but not limited to stay or injunction resulting from the
pendency against any Borrower or any other Person of a bankruptcy, insolvency,
reorganization or similar proceeding), the Guarantors agree that, for the
purposes of this Agreement and their obligations hereunder, the Guaranteed
Obligations shall be deemed to have been declared in default or accelerated, and
such other exercise or conditions to exercise shall be deemed to have been taken
or met.
2.06. Payments. All payments to be made by any Guarantor pursuant to
--------
this Agreement shall be made without setoff, counterclaim, withholding or other
deduction of any nature.
2.07. Continuing Guaranty. This Agreement is a continuing agreement
-------------------
and shall continue in full force and effect (notwithstanding that no Guaranteed
Obligations may be outstanding from time to time, or any other event or
circumstance) until all Guaranteed
-13-
<PAGE>
Obligations and all other amounts payable under this Agreement have been paid
and performed in full, and all commitments to extend credit under the Loan
Documents have terminated, subject in any event to reinstatement in accordance
with Section 2.04 hereof. Any purported termination, revocation or discharge of
this Agreement shall be void and of no effect. For purposes of this Agreement
the Guaranteed Obligations shall not be deemed to have been paid in full until
the Administrative Agent and the Banks shall have indefeasibly received payment
of the Guaranteed Obligations in full and in cash and all commitments to extend
credit under the Loan Documents have terminated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
Each Guarantor hereby represents and warrants to the Administrative
Agent and the Banks with respect to itself as follows:
3.01. No Conditions Precedent. There are no conditions precedent to
-----------------------
the effectiveness of this Guaranty that have not been satisfied or waived.
3.02. No Reliance. The Guarantor has, independently and without
-----------
reliance upon the Administrative Agent and the Banks, or any of them, and based
upon such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement.
3.03. Representations and Warranties Remade at Each Extension of
----------------------------------------------------------
Credit. Each request (including any deemed request) by any Borrower for any
- ------
extension of credit under the Credit Agreement shall be deemed to constitute a
representation and warranty by each Guarantor to the Administrative Agent and
the Banks that the representations and warranties made by each Guarantor in this
Agreement are true and correct on and as of the date of such request with the
same effect as though made on and as of such date. Failure by the
Administrative Agent and the Banks to receive notice from such Guarantor to the
contrary before the Administrative Agent or the Banks make any extension of
credit under any Loan Document shall constitute a further representation and
warranty by such Guarantor to the Administrative Agent and the Banks that the
representations and warranties made by each Borrower are true and correct on and
as of the date of such extension of credit with the same effect as though made
on and as of such date.
ARTICLE IV
MISCELLANEOUS
-------------
4.01. Amendments, etc. No amendment to or waiver of any provision of
----------------
this Agreement, and no consent to any departure by any Guarantor herefrom, shall
in any event be effective unless in a writing manually signed by the applicable
Guarantor and by or on behalf of
-14-
<PAGE>
the Administrative Agent and the Banks. Any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
4.02. No Implied Waiver; Remedies Cumulative. No delay or failure of
--------------------------------------
the Administrative Agent or the Banks, or any of them, in exercising any right
or remedy under this Agreement shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right or remedy preclude any other or
further exercise thereof or the exercise of any other right or remedy. The
rights and remedies of the Administrative Agent and the Banks under this
Agreement are cumulative and not exclusive of any other rights or remedies
available hereunder, under any other agreement or instrument, by law, or
otherwise.
4.03. Notices. Each Guarantor agrees that all notices, statements,
-------
requests, demands and other communications under this Agreement shall be given
to such Guarantor at the address set forth below its name on the signature page
hereof in the manner and with the effect provided in Section 11.7 of the Credit
Agreement. The Administrative Agent and the Banks may rely on any notice
(whether or not made in a manner contemplated by this Agreement) purportedly
made by or on behalf of a Guarantor, and the Administrative Agent and the Banks
shall have no duty to verify the identity or authority of the Person giving such
notice.
4.04. Expenses. Each Guarantor unconditionally agrees to pay all costs
--------
and expenses, including reasonable attorney's fees incurred by the
Administrative Agent and any of the Banks in enforcing this Agreement against
any Guarantor.
4.05. Prior Understandings. This Agreement constitutes the entire
--------------------
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous understandings and agreements.
4.06. Survival. All representations and warranties of the Guarantors
--------
contained in or made in connection with this Agreement shall survive, and shall
not be waived by, the execution and delivery of this Agreement, any
investigation by or knowledge of the Administrative Agent and the Banks, or any
of them, any extension of credit, or any other event or circumstance whatsoever.
4.07. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
4.08. Setoff. In the event that at any time any obligation of the
------
Guarantors now or hereafter existing under this Agreement shall have become due
and payable, the Administrative Agent and the Banks, or any of them, shall have
the right from time to time, without notice to any Guarantor, to set off against
and apply to such due and payable amount any obligation of any nature of the
Administrative Agent and the Banks to any Guarantor, including but not limited
to all deposits (whether time or demand, general or special, provisionally
credited or finally credited, however evidenced) now or hereafter maintained by
any Guarantor with the Administrative Agent
-15-
<PAGE>
or the Banks. Such right shall be absolute and unconditional in all
circumstances and, without limitation, shall exist whether or not the
Administrative Agent and/or the Banks, or any of them, shall have given any
notice or made any demand under this Agreement or under such obligation to the
Guarantor, whether such obligation to the Guarantor is absolute or contingent,
matured or unmatured (it being agreed that the Administrative Agent and the
Banks, or any of them, may deem such obligation to be then due and payable at
the time of such setoff), and regardless of the existence or adequacy of any
collateral, guaranty or other direct or indirect security, right or remedy
available to the Administrative Agent and the Banks. The rights of the
Administrative Agent and the Banks under this Section are in addition to such
other rights and remedies (including, without limitation, other rights of setoff
and banker's lien) which the Administrative Agent and the Banks, or any of them,
may have, and nothing in this Agreement or in any other Loan Document shall be
deemed a waiver of or restriction on the right of setoff or banker's lien of the
Administrative Agent and the Banks, or any of them. The Guarantors hereby agree
that, to the fullest extent permitted by law, any affiliate of the
Administrative Agent and the Banks, or any of them, and any holder of a
participation in any obligation of any Guarantor under this Agreement, shall
have the same rights of setoff as the Administrative Agent and the Banks as
provided in this Section 4.08 (regardless of whether such affiliate or
participant otherwise would be deemed a creditor of the Guarantor).
4.09. Construction. The section and other headings contained in this
------------
Agreement are for reference purposes only and shall not affect interpretation of
this Agreement in any respect. This Agreement has been fully negotiated between
the applicable parties, each party having the benefit of legal counsel, and
accordingly neither any doctrine of construction of guaranties or suretyships in
favor of the guarantor or surety, nor any doctrine of construction of
ambiguities in agreement or instruments against the party controlling the
drafting thereof, shall apply to this Agreement.
4.10. Successors and Assigns. This Agreement shall be binding upon
----------------------
each Guarantor, its successors and assigns, and shall inure to the benefit of
and be enforceable by the Administrative Agent and the Banks, or any of them,
and their successors and assigns. Without limitation of the foregoing, the
Administrative Agent and the Banks, or any of them (and any successive assignee
or transferee), from time to time may assign or otherwise transfer all or any
portion of its rights or obligations under the Loan Documents (including,
without limitation, all or any portion of any commitment to extend credit), or
any other Guaranteed Obligations, to any other person and such Guaranteed
Obligations (including, without limitation, any Guaranteed Obligations resulting
from extension of credit by such other Person under or in connection with the
Loan Documents) shall be and remain Guaranteed Obligations entitled to the
benefit of this Agreement, and to the extent of its interest in such Guaranteed
Obligations such other Person shall be vested with all the benefits in respect
thereof granted to the Administrative Agent and the Banks in this Agreement or
otherwise.
4.11. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
---------------------------------------------------------------
-16-
<PAGE>
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
(b) Certain Waivers. EACH GUARANTOR HEREBY IRREVOCABLY:
---------------
(i) CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON
PLEAS OF DELAWARE COUNTY, PENNSYLVANIA AND THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
CERTIFIED OR REGISTERED MAIL DIRECTED TO THE BORROWER AT THE ADDRESS PROVIDED
FOR IN THE CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
UPON ACTUAL RECEIPT THEREOF;
(ii) WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION
INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE
BASED ON LACK OF JURISDICTION OR VENUE; AND
(iii) WAIVES TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE CREDIT
AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT
PERMITTED BY LAW.
(c) Limitation of Liability. TO THE FULLEST EXTENT PERMITTED BY LAW,
-----------------------
NO CLAIM MAY BE MADE BY ANY GUARANTOR OR ANY OTHER PERSON AGAINST THE
ADMINISTRATIVE AGENT AND THE BANKS, OR ANY OF THEM, OR ANY AFFILIATE, DIRECTOR,
OFFICER, EMPLOYEE, ATTORNEY OR ADMINISTRATIVE AGENT OF THE ADMINISTRATIVE AGENT
AND THE BANKS FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN
RESPECT OF ANY CLAIM ARISING FROM OR RELATING TO THIS AGREEMENT OR ANY
STATEMENT, COURSE OF CONDUCT, ACT, OMISSION, OR EVENT OCCURRING IN CONNECTION
HEREWITH (WHETHER FOR BREACH OF CONTRACT, TORT OR ANY OTHER THEORY OF
LIABILITY); AND EACH GUARANTOR HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE
UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT
KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
4.12. Severability; Modification to Conform to Law.
--------------------------------------------
(a) It is the intention of the parties that this Agreement be
enforceable to the fullest extent permissible under applicable law, but that the
unenforceability (or modification to conform to such Law) of any provision or
provisions hereof shall not render unenforceable, or impair, the
-17-
<PAGE>
remainder hereof. If any provision in this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, this Agreement shall, as
to such jurisdiction, be deemed amended to modify or delete, as necessary, the
offending provision or provisions and to alter the bounds thereof in order to
render it or them valid and enforceable to the maximum extent permitted by
applicable Law, without in any matter affecting the validity or enforceability
of such provision or provisions in any other jurisdiction or the remaining
provisions hereof in any jurisdiction.
(b) Without limitation of the preceding subsection (a), to the extent
that mandatory applicable law (including but not limited to applicable laws
pertaining to fraudulent conveyance or fraudulent transfer) otherwise would
render the full amount of the Guarantor's obligations hereunder invalid or
unenforceable, the Guarantor's obligations hereunder shall be limited to the
maximum amount which does not result in such invalidity or unenforceability.
(c) Notwithstanding anything to the contrary in this Section 4.12 or
elsewhere in this Agreement, this Agreement shall be presumptively valid and
enforceable to its full extent in accordance with its terms, as if this Section
4.12 (and references elsewhere in this Agreement to enforceability to the
fullest extent permitted by Law) were not a part of this Agreement, and in any
related litigation the burden of proof shall be on the party asserting the
invalidity or unenforceability of any provision hereof or asserting any
limitation on any Guarantor's obligations hereunder as to each element of such
assertion.
4.13. Additional Guarantors. At any time after the initial execution
---------------------
and delivery of this Agreement to the Administrative Agent and the Banks,
additional Persons may become parties to this Agreement and thereby acquire the
duties and rights of being Guarantors hereunder by executing and delivering to
the Administrative Agent and the Banks a Joinder and Assumption Agreement in the
form of Exhibit 1.1(G)(1) to the Credit Agreement. No notice of the addition of
-----------------
any Guarantor shall be required to be given to any pre-existing Guarantor.
4.14 Joint and Several Obligations. The obligations of each Guarantor
-----------------------------
under this Agreement are joint and several.
4.15 Receipt of Credit Agreement and Other Loan Documents. Each
----------------------------------------------------
Guarantor hereby acknowledges that it has received a copy of the Credit
Agreement and the other Loan Documents and each Guarantor certifies that the
representations and warranties made therein with respect to such Guarantor are
true and correct. Further, each Guarantor acknowledges and agrees to perform,
comply with and be bound by all of the provisions of the Credit Agreement and
the other Loan Documents including, without limitation, those covenants
contained in Sections 8.1 and 8.2 of the Credit Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
-18-
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO THE GUARANTY AND SURETYSHIP AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed and delivered as of the date first above written.
[INSERT NAME(S) OF GUARANTORS]
By:
-------------------------------
Name
Title
<PAGE>
Exhibit 1.1(I) Intercompany Subordination Agreement
AMENDED AND RESTATED
INTERCOMPANY SUBORDINATION AGREEMENT
THIS AMENDED AND RESTATED SUBORDINATION AGREEMENT is dated as of March 28,
2000 and is made by and among INTERNET CAPITAL GROUP, INC., a Delaware
corporation ("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG Holdings";
--- ------------
ICG and ICG Holdings being referred to herein individually as a "Borrower" and
--------
collectively as the "Borrowers"), and each Significant Subsidiary of the
---------
Borrower as listed on the signature lines hereto (being collectively referred to
herein together with the Borrowers as the "Companies" and individually as a
---------
"Company") and for the benefit of the Administrative Agent (as defined below).
- --------
Each capitalized term used herein shall, unless otherwise defined herein, have
the same meaning given to such term in the Amended and Restated Credit Agreement
of even date herewith (as it may hereafter be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), among the
----------------
Borrowers, the Guarantors party thereto, the Banks party thereto, PNC BANK,
NATIONAL ASSOCIATION, in its capacity as administrative agent for the Banks (the
"Administrative Agent"), and the Agents.
--------------------
WITNESSETH THAT:
WHEREAS, ICG, Internet Capital Group Operations, Inc., a Delaware
corporation ("ICG Operations"), certain Banks (the "Existing Banks") and PNC
-------------- --------------
Bank, National Association, as agent for the Existing Banks ("PNC"), have
---
entered into that certain Existing Agreement (as defined in the Credit
Agreement) pursuant to which the Existing Banks agreed to make extensions of
credit available to ICG and ICG Operations; and
WHEREAS, pursuant to the Existing Agreement, ICG, ICG Operations and
PNC have entered into an Intercompany Subordination Agreement dated as of April
30, 1999 (the "Existing Intercompany Subordination Agreement") pursuant to which
---------------------------------------------
ICG and ICG Operations subordinate the Subordinated Debt (as defined therein) to
the Senior Debt (as defined therein); and
WHEREAS, the Borrowers, the Agents and the Banks party thereto desire
to amend and restate the Existing Agreement pursuant to the Credit Agreement and
the Banks intend to make Loans to the Borrowers as provided therein; and
WHEREAS, the Companies are now or may hereafter become indebted to each
other (all present and future indebtedness of the Companies to each other except
for the Operating Expenses defined below, whether created directly or acquired
by assignment or otherwise, and interest and premiums, if any, thereon and other
amounts payable in respect thereof are hereinafter collectively referred to as
the "Subordinated Debt"); and
-----------------
2
<PAGE>
WHEREAS, ICG Operations operates the day-to-day activities of ICG, and
in its capacity as ICG's operating company, ICG Operations incurs expenses which
are paid directly to ICG Operations by ICG, or through payables and receivables
between ICG and ICG Operations which are satisfied in the ordinary course of
ICG's and ICG Operations' business (the "Operating Expenses"); and
------------------
WHEREAS, the obligation of the Banks to make Loans is subject to the
condition, among others, that the Companies subordinate the Subordinated Debt to
the Obligations of the Loan Parties to the Banks pursuant to the Loan Documents
(the "Senior Debt") in the manner set forth herein; and
-----------
WHEREAS, pursuant to the Credit Agreement, the Borrowers and the
Administrative Agent desire to amend and restate the Existing Intercompany
Subordination Agreement as set forth herein.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
covenant and agree that effective upon the Effective Date, the Existing
Intercompany Subordination Agreement is hereby amended and restated in its
entirety as follows:
11. Subordinated Debt Subordinated to Senior Debt. The recitals set
---------------------------------------------
forth above are hereby incorporated by reference. All Subordinated Debt shall be
subordinate and subject in right of payment to the prior indefeasible payment in
full of all Senior Debt pursuant to the provisions contained herein.
12. Payment Over of Proceeds Upon Dissolution, Etc. Upon any
----------------------------------------------
distribution of assets of any Company (a) in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization,
assignment for the benefit of creditors or other similar case or proceeding in
connection therewith, relative to any such Company or to its assets, or (b)
after the occurrence and during the continuance of an Event of Default or
Potential Default under the Credit Agreement or any liquidation, dissolution or
other winding up of any such Company, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy, or (c) in the event of any
assignment for the benefit of creditors or any marshaling of assets and
liabilities of any such Company (a Company distributing assets as set forth
herein being referred to in such capacity as a "Distributing Company"), then and
in any such event the Banks shall be entitled to receive indefeasible payment in
full of all amounts due or to become due (whether or not an Event of Default has
occurred under the terms of the Loan Documents or the Senior Debt has been
declared due and payable prior to the date on which it would otherwise have
become due and payable) on or in respect of any and all Senior Debt before the
holder of any Subordinated Debt owed by the Distributing Company is entitled to
receive any payment on account of the principal of or interest on such
Subordinated Debt, and to that end the Banks shall be entitled to receive, for
application to the payment of the Senior Debt, any payment or distribution of
any kind or character, whether in cash, property or securities, which may be
3
<PAGE>
payable or deliverable in respect of the Subordinated Debt owed by the
Distributing Company in any such case, proceeding, dissolution, liquidation or
other winding up or event.
13. No Commencement of any Proceeding. Each Company agrees that, so
---------------------------------
long as the Senior Debt shall remain unpaid, it will not commence, or join with
any creditor other than the Banks or the Administrative Agent on behalf of the
Banks in commencing, any collection or enforcement proceeding against any other
Company, including, but not limited to, those described in Section 2 hereof, or
any other enforcement action of any kind against any Company in respect of the
Subordinated Debt.
14. Prior Payment of Senior Debt Upon Acceleration of Subordinated
--------------------------------------------------------------
Debt. If any portion of the Subordinated Debt owed by any Company becomes or is
- ----
declared due and payable before its stated maturity, then and in such event the
Banks shall be entitled to receive indefeasible payment in full of all amounts
due and to become due on or in respect of the Senior Debt (whether or not an
Event of Default has occurred under the terms of the Credit Agreement or the
Senior Debt has been declared due and payable prior to the date on which it
would otherwise have become due and payable) before the holder of any such
Subordinated Debt is entitled to receive any payment thereon.
15. No Payment When Senior Debt in Default. If any Event of Default
--------------------------------------
under the Credit Agreement shall have occurred and be continuing or such an
Event of Default would result from or exist after giving effect to a payment
with respect to any portion of the Subordinated Debt, unless the Banks shall
have consented to or waived the same, so long as any of the Senior Debt shall
remain outstanding, no payment shall be made by the Company owing such
Subordinated Debt on account of principal or interest on any portion of the
Subordinated Debt.
16. Payment Permitted if No Default. Nothing contained in this
-------------------------------
Agreement shall prevent any of the Companies, at any time, except during the
pendency of any of the conditions described in Sections 2, 4 and 5 hereof, from
making the regularly scheduled payments of the Subordinated Debt, or the
retention thereof by any of the Companies of any money deposited with it for the
regularly scheduled payments of or on account of the Subordinated Debt.
17. Receipt of Prohibited Payments. If, notwithstanding the foregoing
------------------------------
provisions of Sections 2, 4, 5 and 6 hereof, a Company which is owed
Subordinated Debt by a Distributing Company shall have received any payment or
distribution of assets from the Distributing Company of any kind or character,
whether in cash, property or securities, other than as expressly permitted by
the terms of this Agreement, then and in such event such payment or distribution
shall be held in trust for the benefit of the Banks, shall be segregated from
other funds and property held by such Company, and shall be forthwith paid over
to the Administrative Agent for the benefit of the Banks in the same form as so
received (with any necessary endorsement) to be applied (in the case of cash) to
or held as collateral (in the case of non-cash property) for the payment or
prepayment of the Senior Debt in accordance with the terms of the Credit
Agreement.
4
<PAGE>
18. Rights of Subrogation. Each Company agrees that no payment or
---------------------
distribution to the Banks pursuant to the provisions of this Agreement shall
entitle the Company to exercise any rights of subrogation in respect thereof
until the Senior Debt shall have been indefeasibly paid in full and the
Commitments under the Credit Agreement shall have terminated.
19. Instruments Evidencing Subordinated Debt. At the request of the
----------------------------------------
Administrative Agent, each Company shall cause each instrument, if any, which
now or hereafter evidences all or a portion of the Subordinated Debt to be
conspicuously marked as follows:
"This instrument is subject to the terms of an Amended and Restated
Intercompany Subordination Agreement dated as of March __, 2000 in favor of
PNC Bank, National Association, as Administrative Agent, which Amended and
Restated Intercompany Subordination Agreement is incorporated herein by
reference. Notwithstanding any contrary statement contained in the within
instrument, no payment on account of the principal thereof or interest
thereon shall become due or payable except in accordance with the express
terms of said Amended and Restated Intercompany Subordination Agreement."
At the Administrative Agent's request, each Company will further mark its books
of account in such a manner as shall be effective to give proper notice to the
effect of this Agreement.
20. Agreement Solely to Define Relative Rights. The purpose of this
------------------------------------------
Agreement is solely to define the relative rights of the Companies, on the one
hand, and the Administrative Agent and the Banks, on the other hand. Nothing
contained in this Agreement is intended to or shall prevent the Companies from
exercising all remedies otherwise permitted by applicable law upon default under
any agreement pursuant to which the Subordinated Debt is created, subject to
Sections 2, 3, 4, 5 and 6 hereof, including, without limitation, the rights
under this Agreement of the Administrative Agent or the Banks to receive cash,
property or securities otherwise payable or deliverable with respect to the
Subordinated Debt.
21. No Implied Waivers of Subordination. No right of the Banks or the
-----------------------------------
Administrative Agent on behalf of the Banks 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 any Company, by any act or failure to act by the
Administrative Agent or any Bank, or by any non-compliance by any Company with
the terms, provisions and covenants of any agreement pursuant to which the
Subordinated Debt is created, regardless of any knowledge thereof the
Administrative Agent or any Bank may have or be otherwise charged with. Each
Company by its acceptance hereof agrees that, so long as there is Senior Debt
outstanding or the Commitments are in effect under the Credit Agreement, such
Company shall not agree to sell, assign, pledge, encumber or otherwise dispose
of, the obligations of the Subordinated Debt, other than by means of payment of
such Subordinated Debt according to its terms, without the prior written consent
of the Administrative Agent.
Without in any way limiting the generality of the foregoing paragraph, in
accordance with the Credit Agreement, the Administrative Agent on behalf of the
Banks, the Banks, or the
5
<PAGE>
Required Banks, as the case may be, at any time and from time to time, without
the consent of or notice to the Companies, except to the extent required by the
Credit Agreement or other Loan Documents, without incurring responsibility to
the Companies and without impairing or releasing the subordination provided in
this Agreement or the obligations hereunder of the Companies to the Banks, may
do any one or more of the following: (i) change the manner, place or terms of
payment, or extend the time of payment, renew or alter the Senior Debt or
otherwise amend, restate, supplement or otherwise modify the Senior Debt or the
Credit Agreement; (ii) release any person liable in any manner for the payment
or collection of the Senior Debt; and (iii) exercise or refrain from exercising
any rights against any of the Companies and any other person or entity.
6
<PAGE>
22. Additional Subsidiaries. The Companies covenant and agree that they
-----------------------
shall not create or acquire any additional Subsidiaries after the date hereof,
except to the extent permitted under the Credit Agreement. Borrower shall cause
each direct or indirect Subsidiary which it creates or acquires after the date
hereof to become a party to this Agreement by executing a joinder to this
Agreement in a form acceptable to and approved by the Administrative Agent
promptly after Borrower acquires or creates such Subsidiary.
23. Continuing Force and Effect. This Agreement shall continue in force
---------------------------
until all of the Senior Debt is indefeasibly paid in full and the Commitments
under the Credit Agreement have terminated, it being contemplated that this
Agreement be of a continuing nature.
24. Modification, Amendments or Waivers. Any and all agreements
-----------------------------------
amending or changing any provision of this Agreement or the rights of the
Administrative Agent on behalf of the Banks or the Banks hereunder, and any and
all waivers or consents to any departures from the due performance of the
Companies hereunder shall be made only by written agreement, waiver or consent
signed by the Administrative Agent.
25. Expenses. Subject to any additional provisions set forth in Section
--------
10.3 of the Credit Agreement, the Companies each unconditionally and jointly and
severally agree upon demand to pay to the Administrative Agent on behalf of the
Banks the amount of any and all reasonable and necessary out-of-pocket costs,
expenses and disbursements, including but not limited to reasonable fees and
expenses of counsel, which may be incurred by the Banks in connection with (a)
the exercise or enforcement of any of the rights of the Banks hereunder, or (b)
the failure by the Companies to perform or observe any of the provisions hereof.
26. Severability. The provisions of this Agreement are intended to be
------------
severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
27. Governing Law. This Agreement shall be a contract under the
-------------
internal laws of the Commonwealth of Pennsylvania and for all purposes shall be
construed in accordance with the laws of said Commonwealth without giving effect
to its conflicts of law principles.
28. Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of the Administrative Agent, the Banks and their respective successors and
assigns, and the obligations of the Companies shall be binding upon their
respective successors and assigns. The duties and obligations of each of the
Companies may not be delegated or transferred by it.
29. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which, when executed and delivered, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
7
<PAGE>
30. Attorneys-in-Fact. Each Company hereby authorizes and empowers the
-----------------
Administrative Agent, at its election and in the name of either itself, or in
the name of each Company, to execute and file proofs and documents and take any
other action the Administrative Agent may deem advisable to enforce the Banks'
interests relating to the Subordinated Debt created hereunder and their right of
enforcement thereof as set forth herein, and to that end the Companies hereby
irrevocably make, constitute and appoint the Administrative Agent, its officers,
employees and agents, or any of them, with full power of substitution, as the
true and lawful attorney-in-fact and agent of such Company and with full power
for such Company and in the name, place and stead of such Company for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing, delivering, filing and recording any instruments which the
Administrative Agent may deem necessary or advisable to accomplish the purposes
hereof, which power of attorney, being given for security, is coupled with an
interest and irrevocable. Each Company hereby ratifies and confirms and agrees
to ratify and confirm all action taken by the Administrative Agent, its
officers, employees or agents pursuant to the foregoing power of attorney.
31. Application of Payments. In the event any payments are received by
-----------------------
the Administrative Agent on behalf of the Banks or any Bank under the terms of
this Agreement for application to the Senior Debt at any time when the Senior
Debt has not been declared due and payable and prior to the date on which it
would otherwise become due and payable, such payment shall constitute a
voluntary prepayment of the Senior Debt for all purposes under the Credit
Agreement.
32. Remedies. In the event of a breach by any of the Companies in the
--------
performance of any of the terms of this Agreement, the Administrative Agent on
behalf of the Banks or any Bank may demand specific performance of this
Agreement and seek injunctive relief and may exercise any other remedy available
at law or in equity, it being recognized that the remedies of the Banks at law
may not fully compensate the Banks for the damages they may suffer in the event
of a breach hereof.
33. CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL. EACH COMPANY HEREBY
---------------------------------------------
IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON
PLEAS OF CHESTER COUNTY, PENNSYLVANIA AND THE UNITED STATES DISTRICT COURT FOR
THE EASTERN DISTRICT OF PENNSYLVANIA, AND EACH COMPANY WAIVES TRIAL BY JURY IN
ANY ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT TO THE FULL EXTENT
PERMITTED BY LAW.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
8
<PAGE>
WITNESS the due execution hereof as of the day and year first above written.
COMPANIES:
INTERNET CAPITAL GROUP, INC.
By:
--------------------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
ICG HOLDINGS, INC.
By:
--------------------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
1999 INTERNET CAPITAL L.P.
By: ICG HOLDINGS, INC., its general partner
By:
--------------------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
<PAGE>
EXHIBIT 1.1(L)
form of
LINE OF CREDIT NOTE
$______________ Pittsburgh, Pennsylvania
March 31, 2000
FOR VALUE RECEIVED, the undersigned, INTERNET CAPITAL GROUP, INC., a
Delaware corporation ("ICG"), and ICG HOLDINGS, INC., a Delaware corporation
---
("ICG Holdings"; ICG and ICG Holdings being referred to herein individually as a
------------
"Borrower" and collectively as the "Borrowers"), hereby, jointly and severally,
-------- ---------
promises to pay to the order of _____________________________ (the "Bank") the
----
lesser of (i) the principal sum of ____________________ U.S. Dollars (U.S.
$______________), or (ii) the aggregate unpaid principal balance of all Line of
Credit Loans made by the Bank to the Borrowers pursuant to Section 3 of the
Amended and Restated Credit Agreement, dated as of March 28, 2000, by and among
the Borrowers, each of the Guarantors, the Banks, and PNC Bank, National
Association, in its capacity as administrative agent for the Banks (the
"Administrative Agent") (as hereafter amended, supplemented or modified from
--------------------
time to time (the "Credit Agreement")), whichever is less, payable on the
----------------
earlier of the Expiration Date, the acceleration hereby or as otherwise provided
in the Credit Agreement.
The Borrowers shall pay interest on the unpaid principal balance
hereof from time to time outstanding from the date hereof at the rate or rates
per annum specified by the Borrowers pursuant to Section 4.1 of, or as otherwise
provided in, the Credit Agreement.
Upon the occurrence and during the continuation of an Event of
Default, the Borrowers shall pay interest on the entire principal amount of the
then outstanding Line of Credit Loans evidenced by this Line of Credit Note at
an increased rate of interest as more fully set forth in Section 4.3 of the
Credit Agreement. Such interest rate will accrue before and after any judgment
has been entered.
Interest on this Line of Credit Note will be payable as set forth in
Section 5.3 of the Credit Agreement, on the Expiration Date and at such other
times as are specified in the Credit Agreement.
Subject to the provisions of the Credit Agreement, payments of both
principal and interest shall be made without setoff, counterclaim or other
deduction of any nature at the office of the Administrative Agent for the
benefit of the Banks located at 249 Fifth Avenue, Pittsburgh, Pennsylvania,
15222-2707, in lawful money of the United States of America in immediately
available funds.
This Note is one of the Line of Credit Notes referred to in, and is
entitled to the benefits of, the Credit Agreement and other Loan Documents,
including the representations,
-2-
<PAGE>
warranties, covenants, conditions, security interests or Liens contained or
granted therein. The Credit Agreement, among other things, contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayment, in certain circumstances, on account of
principal hereof prior to maturity upon the terms and conditions therein
specified.
All capitalized terms used herein shall, unless otherwise defined
herein, have the same meanings given to such terms in the Credit Agreement.
Except as otherwise provided in the Credit Agreement, each Borrower
waives presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Credit Agreement.
This Note shall bind each Borrower and its successors and assigns, and
the benefits hereof shall inure to the benefit of the Bank and its successors
and assigns. All references herein to any "Borrower" and any "Bank" shall be
deemed to apply to each Borrower and any Bank, respectively, and their
respective successors and assigns.
This Note and any other documents delivered in connection herewith and
the rights and obligations of the parties hereto and thereto shall for all
purposes be governed by and construed and enforced in accordance with the
internal laws of the Commonwealth of Pennsylvania without giving effect to its
conflicts of law principles.
IN WITNESS WHEREOF, the undersigned have each executed this Note by
its duly respective authorized officers with the intention that it constitute a
sealed instrument.
ATTEST/WITNESS: INTERNET CAPITAL GROUP, INC.
By: By:
------------------------------ ------------------------------
Name: Name:
---------------------------- ----------------------------
Title:
---------------------------
[Seal]
ATTEST/WITNESS: ICG HOLDINGS, INC.
By: By:
------------------------------ ------------------------------
Name: Name:
---------------------------- ----------------------------
Title:
---------------------------
[Seal]
-3-
<PAGE>
EXHIBIT 1.1(M)
form of
Amended and Restated PLEDGE AGREEMENT
(for Stock, LLC and Partnership Interests)
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Pledge Agreement") is made
and entered into as of the 28th day of March, 2000 by and among Internet Capital
Group, Inc., a Delaware corporation ("ICG"), ICG Holdings, Inc., a Delaware
corporation ("ICG Holdings") and 1999 Internet Capital L.P. ("ICLP" and together
with ICG, ICG Holdings and ICLP, each a "Pledgor" or a "Borrower" as the case
may be), PNC Bank, National Association, a national banking association (the
"Administrative Agent" or the "Pledgee"), as Administrative Agent for the Banks
party to the Credit Agreement (defined below) and the Administrative Agent's (as
defined in the Credit Agreement).
WITNESSETH THAT:
WHEREAS, ICG, Internet Capital Group Operations, Inc., a Delaware
corporation ("ICG Operations"), certain Banks (the "Existing Banks") and PNC
-------------- --------------
Bank, National Association, as Administrative Agent for the Existing Banks
("PNC"), have entered into that certain Existing Agreement (as defined in the
---
Credit Agreement) pursuant to which the Existing Banks agreed to make extensions
of credit available to ICG and ICG Operations; and
WHEREAS, pursuant to the Existing Agreement, ICG has entered into a Pledge
Agreement dated as of April 30, 1999 (the "Existing Pledge Agreement") pursuant
-------------------------
to which ICG grants to PNC a first lien on and security interest in, and pledge
with PNC, the Pledged Securities (as defined in the Existing Pledge Agreement);
and
WHEREAS, ICG and ICG Operations, the Existing Banks and PNC desire to amend
and restate the Existing Agreement pursuant to that certain Amended and Restated
Credit Agreement (as it may hereafter be amended or otherwise modified from time
to time, the "Credit Agreement") of even date herewith among ICG, ICG Holdings,
----------------
Inc., the Guarantors party thereto, the Banks party thereto, the Administrative
Agent and the Agents; and
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed, on the
terms set forth in the Credit Agreement, to make certain loans and extend credit
to the Pledgors; and
WHEREAS, in order to secure the due payment and performance of all of the
Obligations (as defined in the Credit Agreement), the Pledgors have agreed to
grant to the Pledgee a first lien on and security interest in, and pledge with
the Pledgee, the Pledged Collateral, as hereinafter defined; and
WHEREAS, pursuant to the Credit Agreement, the Pledgors and the
Administrative Agent desire to amend and restate the Existing Pledge Agreement
as set forth herein; and
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WHEREAS, all terms used in this Agreement which are not defined herein, but
are defined in the Credit Agreement, shall have the respective meanings ascribed
to them therein; and
WHEREAS, it is a condition precedent to the obligations of the Pledgee and
the Banks under the Credit Agreement that the Pledgors shall execute and deliver
this Pledge Agreement.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
34. Definitions. In addition to the words and terms defined elsewhere
-----------
in this Pledge Agreement, the following words and terms shall have the following
meanings, respectively, unless the context hereof clearly requires otherwise:
34.1 "Code" shall mean the Uniform Commercial Code as enacted in each
applicable jurisdiction.
34.2 "Limited Liability Companies" shall mean limited liability companies in
which any Pledgor now owns or hereafter acquires an equity interest, each of the
Limited Liability Companies being individually referred to herein as a "Limited
Liability Company".
34.3 "Partnerships" shall mean joint ventures or general or limited
partnerships in which any Pledgor now owns or hereafter acquires an interest,
each of the Partnerships being individually referred to herein as a
"Partnership".
34.4 "Partnership Agreements" shall mean the agreements pursuant to which
the Partnerships are organized, as amended from time to time, each agreement
being individually referred to herein as a "Partnership Agreement".
34.5 "Pledged Collateral" shall mean all of the Pledged Securities, the
Pledged Partnership Interests and the Pledged Limited Liability Company
Interests; notwithstanding the foregoing, for so long as no Event of Default
shall have occurred and be continuing under the Credit Agreement, the following
securities shall not be deemed to be Pledged Securities for purposes of this
Pledge Agreement: (i) the 48,000 shares of common stock of Excite@Home, Inc.
pledged by ICG to Silicon Valley Bank in connection with ICG's guaranty of
certain obligations of E-Chemicals, Inc., until such time as such pledge is no
longer required under such guaranty; (ii) the 44,748 shares of common stock of
Lycos, Inc. owned of record by ICG as of the date hereof; and (iii) the 20,000
shares of common stock of i2 Technologies, Inc. held in escrow relating to
certain indemnification obligations of ICG in connection with the sale of ICG's
holdings of i2 Technologies, Inc.
34.6 "Pledged Limited Liability Company Interests" shall mean and include
any and all of any Pledgor's present and future right, title and interest in the
Limited Liability Companies including, without limitation, the voting rights
associated therewith and the Pledged Limited Liability Company Interests to be
included in the Pledged Collateral as of the date hereof being set forth on
Schedule 1(B) hereto; such Schedule to be updated from time to time as Pledged
- -------------
Limited
-5-
<PAGE>
Liability Company Interests are added and/or released from the Pledged
Collateral in accordance with the terms of the Credit Agreement.
34.7 "Pledged Partnership Interests" shall mean and include (i) any
Pledgor's present and future right, title and interest in and to its interest in
the Partnerships, including without limitation, the right to receive profits and
liquidation proceeds therefrom and any and all other rights contained in the
respective Partnership Agreements, and (ii) whatever is received by any Pledgor
whenever any of the foregoing is sold, exchanged or otherwise disposed of,
including any proceeds as such term is defined in the Code and the Pledged
Partnership Interests to be included in the Pledged Collateral as of the date
hereof being set forth on Schedule 1(C) hereto; such Schedule to be updated from
-------------
time to time as Pledged Partnership Interests are added and/or released from the
Pledged Collateral in accordance with the terms of the Credit Agreement.
34.8 "Secured Indebtedness" shall mean, collectively, (i) (A) all
obligations, including, without limitation, all Indebtedness and Obligations,
whether of principal, interest, fees, expenses or otherwise, of any Pledgor
and/or Borrower to the Banks now existing or hereafter incurred under the Loan
Documents, together with any and all extensions, renewals, refinancings or
refundings thereof in whole or in part by the Banks as a group, (ii) all
reasonable costs and expenses, including, without limitation, reasonable
attorneys' fees and legal expenses, incurred by the Banks and the Administrative
Agent in the collection of any of the obligations referred to in clause (i)
above, and (iii) any advances made, subsequent to an Event of Default, by the
Banks or the Administrative Agent for the reasonable maintenance, preservation,
protection or enforcement of, or realization upon, the Pledged Collateral,
including, without limitation, advances for taxes, insurance, repairs and the
like and reasonable expenses incurred to sell or otherwise realize on, or
prepare for sale or other realization on, any of the Pledged Collateral.
35. Pledge and Grant of Security Interests. As collateral security for
--------------------------------------
the due and punctual payment and performance of the Secured Indebtedness in
full, each Pledgor hereby agrees that the Administrative Agent shall have, and
each Pledgor hereby grants to and creates in favor of the Administrative Agent,
for the benefit of the Administrative Agent and the Banks, as their respective
interests may appear, a continuing security interest under the Code in and to
the Pledged Collateral.
36. Pledged Securities.
------------------
36.1 On the Closing Date and from time to time thereafter, except as
otherwise provided in the Schedules to the Borrowing Base Certificate to be
delivered in accordance with the terms of the Credit Agreement, each Pledgor
shall deliver or cause to be delivered to the Administrative Agent certificates
representing the shares of capital stock constituting Pledged Securities duly
endorsed in blank by such Pledgor as the record owner thereof or accompanied by
stock powers duly executed in blank by such Pledgor as such record owner and in
form appropriate in the reasonable judgment of the Administrative Agent to
permit the transfer of record ownership of such shares to the Administrative
Agent or its nominee.
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<PAGE>
36.2 Unless an Event of Default shall have occurred and be continuing and
subject to the Credit Agreement, each Pledgor shall have the right to receive
and to retain all cash dividends, interest and distributions paid upon the
Pledged Securities. The Administrative Agent shall have the right to receive and
to retain as additional Pledged Collateral hereunder all other non-cash
dividends, interest and distributions issued or made upon or in substitution or
exchange for or with respect to the Pledged Securities, including, without
limitation, shares issued as a result of any reclassification, stock split,
split-up or other corporate reorganization, and each Pledgor shall take all such
action as the Administrative Agent may reasonably deem necessary or appropriate
to give effect to such right. All such other non-cash dividends, interest and
shares and distributions that are received by any Pledgor shall be received in
trust for the benefit of the Banks and shall forthwith be delivered over to the
Administrative Agent, for the benefit of the Banks, as Pledged Collateral in the
same form as received (with any necessary endorsements) in accordance with
Section 3(a) and the same shall thereafter be Pledged Securities hereunder.
36.3 Unless an Event of Default shall have occurred and be continuing and
the Pledgors shall have received written notice from the Administrative Agent to
the contrary, Pledgors shall have the right, from time to time, to vote and to
give consents, ratifications and waivers with respect to its Pledged Securities.
Notwithstanding the foregoing, each Pledgor agrees not to exercise such rights
in a manner that would violate any provision of the Loan Documents.
36.4 The security interests in the Pledged Securities are granted as
security only and shall not subject the Administrative Agent or the Banks to, or
transfer or in any way affect or modify, any obligation or liability of such
Pledgor with respect to the Pledged Securities or any transaction in connection
therewith.
37. Pledged Limited Liability Company Interests.
-------------------------------------------
37.1 On the Closing Date and from time to time thereafter, except as
otherwise provided in the Schedules to the Borrowing Base Certificate to be
delivered in accordance with the terms of the Credit Agreement, each Pledgor
shall deliver or cause to be delivered to the Administrative Agent certified
copies of any operating agreement for the applicable limited liability company.
If at any time the Pledged Limited Liability Company Interests shall be
represented by one or more limited liability company certificates or any
documents which are instruments, then such Pledgor shall promptly deliver the
same to the Administrative Agent accompanied by duly executed transfer powers
endorsed in blank respecting such certificates or documents.
37.2 Unless an Event of Default shall have occurred and be continuing and
subject to the Credit Agreement, each Pledgor shall have the right to receive
and to retain all cash distributions or other payments made by the Limited
Liability Companies. The Administrative Agent shall have the right to receive
and to retain as additional Pledged Collateral hereunder all other non-cash
interest and distributions issued or made upon or in substitution or exchange
for or with respect to the Pledged Limited Liability Company Interests and each
Pledgor shall take all such action as the Administrative Agent may reasonably
deem necessary or appropriate to give effect to such right. All such other non-
cash interest and distributions that are received by any
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<PAGE>
Pledgor shall be received in trust for the benefit of the Banks and shall
forthwith be delivered over to the Administrative Agent, for the benefit of the
Banks, as Pledged Collateral in the same form as received (with any necessary
endorsements) in accordance with Section 4(a) and the same shall thereafter be
Pledged Limited Liability Company Interests hereunder.
37.3 Unless an Event of Default shall have occurred and be continuing and
the Pledgors shall have received written notice from the Administrative Agent to
the contrary, Pledgors shall have the right, from time to time, to vote and to
give consents, ratifications and waivers with respect to its Pledged Limited
Liability Company Interests. Notwithstanding the foregoing, each Pledgor agrees
not to exercise such rights in a manner that would violate any provision of the
Loan Documents.
37.4 The security interests in the Pledged Limited Liability Company
Interests are granted as security only and shall not subject the Administrative
Agent or the Banks to, or transfer or in any way affect or modify, any
obligation or liability of such Pledgor with respect to the Pledged Limited
Liability Company Interests or any transaction in connection therewith.
38. Pledged Partnership Interests.
-----------------------------
38.1 On the Closing Date and from time to time thereafter, except as
otherwise provided in the Schedules to the Borrowing Base Certificate to be
delivered in accordance with the terms of the Credit Agreement, each Pledgor
shall deliver or cause to be delivered to the Administrative Agent a true and
correct copy of the Partnership Agreement for the applicable partnership and any
certificate with respect thereto relating to the Pledged Partnership Interests.
If at any time the Pledged Partnership Interests shall be represented by one or
more partnership certificates or any documents which are instruments, then such
Pledgor shall promptly deliver the same to the Administrative Agent accompanied
by duly executed transfer powers endorsed in blank respecting such certificates
or documents.
38.2 Unless an Event of Default shall have occurred and be continuing and
subject to the Credit Agreement, Pledgors shall be entitled to receive and
retain cash and non-cash distributions or other payments made by the
Partnerships (other than distributions or other payments made in connection with
the liquidation of any Partnership or representing an equity interest in the
Partnership which if cash shall be paid over to the Administrative Agent in
reduction of the Loan secured by the Pledged Partnership Interests, provided
that such reduction shall be made only at the end of the then-applicable
Interest Period for such Loan and if non-cash, shall be pledged as additional
Pledged Collateral hereunder in addition to or substitution for the Pledged
Partnership Interests in question).
38.3 The security interests in the Pledged Partnership Interests are granted
as security only, and, subject to the last sentence of this subsection (c),
neither the Administrative Agent nor any Bank shall, either by virtue of this
Pledge Agreement, by their receipt of distributions from any of the Partnerships
or by their exercise of any of their rights hereunder, be deemed to be partners
of any of the Partnerships or to have any liability for the debts, obligations
or liabilities of any of the Partnerships or any Pledgor. The execution and
delivery of this Pledge Agreement
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<PAGE>
shall not, subject to the last sentence of this subsection (c), subject the
Administrative Agent or the Banks to, or transfer or pass to the Administrative
Agent or the Banks, or in any way affect or modify, any liability or obligation
of any Pledgor as a partner of the Partnerships, it being understood and agreed
that notwithstanding this Pledge Agreement or any subsequent assignment of the
Administrative Agent's or the Banks' interest under this Pledge Agreement, any
Pledgor's liabilities or obligations as a partner of the Partnerships shall be
and remain enforceable against, but only against, such Pledgor or persons or
entities other than the Administrative Agent or the Banks. Unless and until the
Administrative Agent or the Banks shall have exercised such rights granted
hereunder or under the Loan Documents as require contrary treatment (as a matter
of statutory or decisional law) or evidence their voluntary and clear election
to be treated otherwise, this Pledge Agreement shall not be construed to
substitute the Administrative Agent or the Banks for any Pledgor as a partner of
the Partnerships or in any way to constitute any such person or entity as a
partner of the Partnerships, and no such person or entity shall, as a result
hereof, have any control of or over the management of the Partnerships.
39. Further Assurances.
------------------
39.1 Each Pledgor will, from time to time at its expense, faithfully
preserve and protect the Administrative Agent's security interest in the Pledged
Collateral as a continuing first-priority perfected security interest under the
Code, subject only to Permitted Liens, and will do, and will use its best
efforts to cause each of Partnerships and Limited Liability Companies to do, all
such other acts and things and will, upon request therefor by the Administrative
Agent, execute, deliver, file and record, and will use its best efforts to cause
each of the Partnerships and Limited Liability Companies to execute, deliver,
file and record, all such other documents and instruments, including, without
limitation, financing statements, security agreements, pledges, assignments,
documents and powers of attorney with respect to the Pledged Collateral, and pay
all filing fees and taxes related thereto as the Administrative Agent may
reasonably deem necessary or advisable from time to time in order to perfect or
protect any security interest granted or purported to be granted hereby or to
enable the Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any of the Pledged Collateral.
40. Covenants. Each Pledgor covenants and agrees that (a) it will
---------
execute, deliver and record instruments granting security interests to the
Administrative Agent, for the benefit of the Banks, in limited liability company
interests in the Limited Liabilities Companies and partnership interests in
Partnerships as the Administrative Agent may reasonably request pursuant to the
Loan Documents, and take any and all steps reasonably requested by the
Administrative Agent to perfect such security interests (all such instruments
and documentation to be in such form as the Administrative Agent may reasonably
request), as soon as practicable and in any event within ten (10) Business Days
of the Administrative Agent's request; (b) it will have good and marketable
title to and right to pledge any other property at any time hereafter pledged to
the Administrative Agent pursuant to the Loan Documents and will defend the
Administrative Agent's right thereto and security interest therein; (c) it will
not assign, transfer, pledge or otherwise encumber any of its right, title or
interest under, in or to the Pledged Collateral other than pursuant hereto or as
permitted under the other Loan Documents and except with respect to
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<PAGE>
Permitted Liens; (d) it will not take or omit to take any action, and will use
its best efforts to prevent any corporation, Limited Liability Company or
Partnership from taking or omitting to take any action, the taking or the
omission of which would result in a material impairment of the Pledged
Collateral or of this Pledge Agreement; (e) it will faithfully abide by, perform
and discharge each and every material obligation, covenant, condition, duty and
agreement of the Pledgor set forth in any Limited Liability Company Agreement or
Partnership Agreement; (f) it will not consent to any repeal, material amendment
or material modification of the articles or certificate of incorporation,
bylaws, partnership agreement or other organizational documents of any
corporation, Limited Liability Company or Partnership which is materially
adverse to the Banks without the Administrative Agent's prior written consent;
(g) it will maintain and keep its place of business or, if it has more than one
place of business, its chief executive office, at the location set forth in the
Credit Agreement or at such other location as it may designate from time to time
by prior written notice to the Administrative Agent; and (h) it will execute and
deliver to the Administrative Agent such supplements to this Pledge Agreement
and additional assignments as the Administrative Agent reasonably may request to
evidence and confirm the security interest herein contained.
41. Preservation of Security Interests. Each Pledgor assumes full
----------------------------------
responsibility for taking any and all necessary steps to preserve and defend the
Administrative Agent's right, title and security interest in and to such Pledged
Collateral against the claims and demands of all persons asserting claims
against such Pledged Collateral or the Administrative Agent's right in such
Pledged Collateral, except for Permitted Liens and except as such right, title
and security interest may be impaired by the gross negligence or willful
misconduct of the Administrative Agent or the Banks. The Administrative Agent
shall exercise reasonable care in the custody and preservation of the Pledged
Collateral in its possession. The Administrative Agent shall be deemed to have
exercised reasonable care in the custody and preservation of Pledged Collateral
in the Administrative Agent's possession if the Administrative Agent takes such
action for that purpose as the Pledgor shall request in writing, provided that
such requested action will not, in the judgment of the Administrative Agent,
impair the security interest in the Pledged Collateral created hereby or the
Administrative Agent's rights in, or the value of, such Pledged Collateral, and
provided further that such written request is received by the Administrative
Agent in sufficient time to permit the Administrative Agent to take the
requested action.
42. Remedies on Default. If there shall have occurred and be continuing
-------------------
an Event of Default under the terms of any of the Loan Documents, then the
Administrative Agent shall have such rights and remedies with respect to the
Pledged Collateral or any part thereof and the proceeds thereof as are provided
by the Code and such other rights and remedies with respect thereto which it may
have at law or in equity or under this Pledge Agreement, including, without
limitation, to the extent not inconsistent with the provisions of the Code, the
right (a) to receive direct payment of all dividends, distributions and other
payments with respect to any Pledged Collateral as additional collateral
hereunder; (b) to transfer all or any part of the Pledged Collateral into the
Administrative Agent's name or into the name of its nominee and thereafter
receive all cash, stock, partnership interests and other dividends or
distributions paid or payable in respect thereof; (c) to vote and to give
consents, ratifications and waivers, and to take any other
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<PAGE>
action (including with respect to enforcement, discounting, liquidation or
compromise) with respect to, the Pledged Collateral with the same force and
effect as if the Administrative Agent were the absolute and sole owner thereof;
and (d) upon acceleration of the Secured Obligations, to sell, assign, give an
option or options to purchase or otherwise dispose of that portion of the
Pledged Collateral, which the Administrative Agent in its good faith judgement,
exercised from time to time, deems necessary to satisfy any amounts remaining
unpaid or owing on the Secured Obligations, at any public or private sale at
such place or places and at such time or times and upon such terms, whether for
cash or on credit, and in such manner as the Administrative Agent may determine.
In any such case, the Pledgor shall take all such action as may reasonably be
necessary to give effect to such rights.
43. Sale of Collateral.
------------------
43.1 If any notification of intended sale of any of the Pledged Collateral
is required by law, such notification shall be deemed reasonable if mailed at
least ten (10) Business days before such sale, postage prepaid, addressed to the
Pledgor as provided in the Credit Agreement.
43.2 Each Pledgor recognizes that in the event the Administrative Agent,
with the consent of the Required Banks, shall determine to exercise its right to
sell all or any of the Pledged Collateral pursuant to Section 8 hereof, the
Administrative Agent may be compelled to resort to one or more private sales of
the Pledged Collateral to a restricted group of purchasers who, with respect to
the Pledged Collateral, will be obliged to agree, among other things, to acquire
such securities or partnership interests for their own account for investment
and not with a view to the distribution or resale thereof. Each Pledgor
acknowledges and agrees that any such private sale may result in prices and
other terms less favorable to the seller than if such sale were a public sale
and, notwithstanding such circumstances, agrees that any such private sale shall
not, for such reason alone, be deemed to have been in a commercially
unreasonable manner. Each Pledgor further agrees to reimburse the Administrative
Agent for any and all reasonable costs and expenses incurred by the
Administrative Agent in making such private sale. The Administrative Agent shall
not be under any obligation to delay a sale of any of the Pledged Collateral for
the period of time necessary to permit the issuer of such securities, limited
liabilities company interests or partnership interests to register such
securities, Limited Liabilities Company interest or partnership interests for
public sale under the federal Securities Act of 1933, as amended, or under
applicable state securities laws, even if the issuer would agree to do so.
44. Application of Proceeds. The security interest in the Pledged
-----------------------
Collateral granted to and created in favor of the Administrative Agent by this
Pledge Agreement shall be for the benefit of the Administrative Agent and the
Banks as their respective interests in the Secured Indebtedness may appear. Each
of the rights, privileges and remedies provided to the Administrative Agent
hereunder or otherwise by law with respect to the Pledged Collateral shall be
exercised by the Administrative Agent only for the benefit of the Administrative
Agent and the Banks as such interests may appear and any Pledged Collateral or
proceeds thereof held or realized upon at any time by the Administrative Agent
shall inure to the benefit of the Administrative Agent and the Banks as their
respective interests in the Secured Indebtedness may appear and shall be applied
as follows: (a) first, to reimburse the Administrative Agent and,
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subject to the terms of the Credit Agreement, the Banks for reasonable costs,
expenses and fees incurred in connection with realizing on the Pledged
Collateral, including, without limitation, the costs, expenses and fees referred
to in clauses (ii) and (iii) of the definition of "Secured Indebtedness," (b)
second, to the repayment of all amounts then due and unpaid on the Secured
Indebtedness, whether on account of principal, interest, fees, expenses or
otherwise, and (c) then to pay the balance, if any, as required by law. Subject
to the terms of the Credit Agreement, the Pledgors shall be liable for any
deficiency if the proceeds of any sale, assignment, giving of an option or
options to purchase or other disposition of the Pledged Collateral is
insufficient to pay all amounts to which the Banks are entitled.
45. Attorneys-in-Fact. Each Pledgor hereby irrevocably appoints the
-----------------
Administrative Agent, its officers, employees and Administrative Agents, or any
of them, as attorneys-in-fact, with full power of substitution, for the Pledgor
for the purpose of carrying out the provisions of this Pledge Agreement and
taking any action and executing, delivering, filing and recording any
instruments (including, without limitation, financing or continuation
statements, security agreements, pledges, conveyances, assignments, transfers
and documents) which the Administrative Agent may reasonably deem necessary or
advisable to accomplish the purposes hereof, provided that if an Event of
Default does not exist, the Administrative Agent shall take any such action and
execute any such instrument only if such Pledgor fails to do so after written
request and the expiration of ten (10) Business Days from such request, unless
the Administrative Agent determines in good faith that the Pledged Collateral is
in risk of imminent impairment, in which case the notice may be given
immediately prior to the time Administrative Agent acts and no such grace period
shall be required for the Administrative Agent to act and/or execute such
documents.
46. Indemnity and Expenses.
----------------------
46.1 Each Pledgor agrees to indemnify the Administrative Agent and the Banks
from and against any and all claims, losses and liabilities growing out of or
resulting from this Pledge Agreement (including without limitation enforcement
of this Pledge Agreement) in accordance with and to the extent provided in
Section 11.3 of the Credit Agreement.
46.2 Each Pledgor will within ten (10) Business Days after demand pay to the
Administrative Agent and the Banks the amount of any and all reasonable
expenses, including the reasonable fees and disbursements of their counsel
(provided, however, such fees and expenses relating to legal counsel shall be
subject to Section 11.3 of the Credit Agreement as such Sections relate to the
Borrower's obligations to the Administrative Agent and the Banks for the payment
of such costs and expenses and of any experts and Administrative Agents which
the Administrative Agent or any of the Banks may incur in connection with (i)
the administration of this Pledge Agreement, (ii) the custody or preservation
of, or the sale of, collection from or other realization upon, any of the
Pledged Collateral, (iii) the exercise or enforcement of any of the rights of
the Administrative Agent or the Banks hereunder, or (iv) the failure by the
Pledgors to perform or observe any of the provisions hereof). If any Pledgor
fails to pay Administrative Agent any such expenses within such ten (10)
Business Days, Pledgors shall also pay to Administrative Agent interest thereon
at the default rate set forth in the Credit Agreement from the date of demand
until the date paid.
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47. Security Interest Absolute. All rights of the Administrative Agent
--------------------------
and the Banks and the security interests hereunder, and all obligations of the
Pledgor hereunder, shall be absolute and unconditional, irrespective of: (a) any
lack of validity or enforceability of the Credit Agreement, the Notes or any of
the other Loan Documents; (b) any change in the time, manner or place of payment
of, or in any other term of, all or any of the Secured Indebtedness or any other
amendment or waiver of or any consent to any departure from the Credit
Agreement, the Notes or any of the other Loan Documents; (c) any exchange,
release or non-perfection of any other collateral, or any release or amendment
or waiver of or consent to departure from any guaranty, for all or any of the
Secured Indebtedness; or (d) any other circumstance which might constitute a
defense available to, or a discharge of, the Pledgor or a third-party pledgor,
if any.
48. Termination. Upon the date of earliest to occur of (i) payment in
-----------
full of the Secured Indebtedness and termination of the Credit Agreement, the
Loan Documents and the Commitments, (ii) the release of all of the Pledged
Collateral from the lien contemplated pursuant to the Credit Agreement, or (iii)
the sale by the Administrative Agent of all of the Pledged Collateral pursuant
to Sections 8 and 9 hereof and the applicable provisions of the Loan Documents,
this Pledge Agreement shall terminate (except for provisions requiring Pledgor
to indemnify the Administrative Agent or the Banks) and be of no further force
and effect, and the Administrative Agent shall thereupon promptly return to each
Pledgor such of its Pledged Collateral and such other documents delivered by
such Pledgor hereunder as may then be in the Administrative Agent's possession.
Upon any such termination, the Administrative Agent will, at such Pledgor's
expense, execute and deliver to such Pledgor such documents as such Pledgor
shall reasonably request to evidence such termination. The Administrative Agent,
upon request of such Pledgor, shall, provided no Event of Default exists, return
and release the Banks' security interest in any of such Pledgor's Pledged
Collateral which is sold by such Pledgor or otherwise transferred, provided such
sale or other transfer is permitted by, and made in accordance with, the
provisions of the Credit Agreement, and in the case of such a sale, the proceeds
thereof shall be applied in accordance with the Credit Agreement.
49. Modifications and Amendments. Any change, amendment, modification,
----------------------------
abridgment, cancellation or discharge of this Agreement or any term or provision
hereof shall be in writing and signed by Pledgors and Administrative Agent.
50. No Implied Waivers, Cumulative Remedies. No course of dealing and
---------------------------------------
no failure or delay on the part of the Administrative Agent in exercising any
right, remedy, power or privilege hereunder shall operate as a waiver thereof or
of any other right, remedy, power or privilege of the Administrative Agent
hereunder, nor shall any single or partial exercise of any such right, remedy,
power or privilege. The rights and remedies of the Administrative Agent under
this Pledge Agreement are cumulative and not exclusive of any rights or remedies
which it may otherwise have.
51. Notices. All notices, statements, requests, demands and other
-------
communications given to or made upon the Pledgors, the Administrative Agent or
the Banks in accordance with the provisions of this Pledge Agreement shall be
given or made as provided in the Credit Agreement.
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52. Severability. The provisions of this Pledge Agreement are intended
------------
to be severable. If any provision of this Pledge Agreement shall be held invalid
or unenforceable in whole or in part in any jurisdiction, such provision shall,
as to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
53. Governing Law. This Pledge Agreement shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed in accordance with the laws of said
Commonwealth, except as required by mandatory provisions of law and except to
the extent that the validity or perfection of security interests hereunder or
remedies hereunder with respect to any particular Pledged Collateral is governed
by the laws of a jurisdiction other than the Commonwealth of Pennsylvania.
54. Successors and Assigns. Subject to the terms and conditions of the
----------------------
Credit Agreement, this Pledge Agreement shall be assignable and transferable by
the Administrative Agent and the Banks in connection with the assignment or
transfer of the Secured Indebtedness; however, the duties and obligations of
each Pledgor may not be transferred by such Pledgor. The rights and privileges
of the Administrative Agent and each of the Banks shall inure to their benefit
and the benefit of their respective successors and assigns as such are permitted
pursuant to the Credit Agreement, and the duties and obligations of each Pledgor
shall bind such Pledgor and its successors and assigns.
55. Counterparts. This Pledge Agreement may be executed in any number
------------
of counterparts and by the different parties hereto on separate counterparts,
each of which, when so executed and delivered, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
56. Inconsistency. In the event of any inconsistency or conflict
-------------
between the terms and provisions of this Agreement and the terms and provisions
of the Credit Agreement, the terms and provisions of the Credit Agreement shall
prevail.
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<PAGE>
[SIGNATURE PAGE 1 OF 1 TO PLEDGE AGREEMENT]
WITNESS the due execution hereof as of the day and year first above
written.
INTERNET CAPITAL GROUP, INC.
By:________________________________
Name:
Title:
ICG HOLDINGS, INC.
By:________________________________
Name:
Title:
1999 INTERNET CAPITAL L.P.
By: ICG HOLDINGS, INC., its general partner
By:________________________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent
By:________________________________
Name:
Title:
<PAGE>
SCHEDULE 1
Pledged Collateral
------------------
A. Pledged
Type and
Pledgor Ownership In Amount of Ownership
------- ------------ -------------------
B. Limited Liability Companies
Type and
Pledgor Ownership In Amount of Ownership
------- ------------ -------------------
C. Partnerships
Type and
Pledgor Ownership In Amount of Ownership
------- ------------ -------------------
16
<PAGE>
EXHIBIT 1.1(P)(1)
form of
AMENDED AND RESTATED
PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT
This Amended and Restated Patent, Trademark and Copyright Security
Agreement (the "Agreement"), dated as of March 28, 2000, is entered into among
---------
INTERNET CAPITAL GROUP, INC., a Delaware corporation ("ICG"), ICG HOLDINGS,
---
INC., a Delaware corporation ("ICG Holdings"; ICG and ICG Holdings being
------------
referred to herein individually as an "Assignor" or a "Borrower" and
-------- --------
collectively as the "Assignors" or the "Borrowers"), the BANKS (as defined in
--------- ---------
the Credit Agreement) and PNC BANK, NATIONAL ASSOCIATION, in its capacity as
administrative agent for the Banks under the Credit Agreement referred to below
(the "Assignee").
--------
WHEREAS, ICG, Internet Capital Group Operations, Inc., a Delaware
corporation ("ICG Operations"), certain Banks (the "Existing Banks") and PNC
-------------- --------------
Bank, National Association, as agent for the Existing Banks ("PNC"), have
---
entered into that certain Existing Agreement (as defined in the Credit
Agreement) pursuant to which the Existing Banks agreed to make extensions of
credit available to ICG and ICG Operations; and
WHEREAS, pursuant to the Existing Agreement, ICG, ICG Operations and
PNC have entered into a Patent, Trademark and Copyright Security Agreement dated
as of April 30, 1999 (the "Existing Patent, Trademark and Copyright Agreement")
--------------------------------------------------
pursuant to which ICG and ICG Operations grant security interests in the
patents, trademarks and copyrights described therein to PNC; and
WHEREAS, the Borrowers, the Agents and the Banks party thereto desire
to amend and restate the Existing Agreement pursuant to that certain Amended and
Restated Credit Agreement (as the same may be amended, restated, modified or
supplemented from time to time, the "Credit Agreement") of even date herewith
----------------
among the Borrowers, the Guarantors party thereto, the Banks party thereto and
the Agents; and
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to
provide certain loans to each Borrower and each Assignor has agreed, among other
things, to grant to the Assignee a security interest in, and upon the occurrence
of an Event of Default (as that term is defined in the Credit Agreement) to
conditionally assign to the Assignee for the benefit of the Banks, certain
patents, trademarks and copyrights; and
WHEREAS, pursuant to the Credit Agreement, the Assignors and Assignee
desire to amend and restate the Existing Patent, Trademark and Copyright
Agreement as set forth herein.
17
<PAGE>
NOW, THEREFORE, intending to be legally bound hereby and for value
received, the parties hereto covenant and agree that effective upon the
Effective Date, the Existing Patent, Trademark and Copyright Agreement is hereby
amended and restated in its entirety as follows:
57. Except as otherwise expressly provided herein, capitalized terms
used in this Agreement shall have the respective meanings given to them in the
Credit Agreement.
58. To secure the payment and performance of all indebtedness and other
obligations of the Assignors now or hereafter existing under the Credit
Agreement and the other Loan Documents, including, without limitation,
principal, interest, fees, expenses, reasonable costs and expenses of
enforcement, reasonable attorney's fees and expenses, and obligations under
indemnification provisions in the Loan Documents (collectively, the "Secured
-------
Obligations"), each Assignor hereby grants to the Assignee, its successors and
- -----------
assigns, a security interest in, and subject to Sections 8 and 9 hereof, assigns
and conveys to the Assignee all of the right, title and interest of such
Assignor in and to all patent applications, patents, federal and state trademark
applications, registered and common law trademarks and logos, servicemarks,
tradenames, copyright registrations and copyrights now owned by such Assignor in
the United States, including, without limitation, those listed on Schedule A
----------
hereto, including all proceeds thereof (such as, by way of example, license
royalties and proceeds of infringement suits), the right to sue for past,
present and future infringements, all rights corresponding thereto throughout
the world and all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof, and the goodwill of the business to which any of
the foregoing relate (collectively, the "Patents, Trademarks and Copyrights").
----------------------------------
59. Each Assignor covenants and warrants that, except as set forth in
Schedule B:
59.1 to the best of each Assignor's knowledge, the Patents, Trademarks and
Copyrights are subsisting and have not been adjudged invalid or unenforceable,
in whole or in part;
59.2 to the best of each Assignor's knowledge, each of the Patents,
Trademarks and Copyrights is valid and enforceable;
59.3 except for Permitted Liens, each Assignor is the sole and exclusive
owner of the entire and unencumbered right, title and interest in and to the
Patents, Trademarks and Copyrights owned by it, free and clear of any liens,
charges and encumbrances, including, without limitation, pledges, assignments,
shop rights and covenants by such Assignor not to sue third persons with respect
to such Patents, Trademarks and Copyrights;
59.4 each Assignor has the corporate power and authority to enter into this
Agreement and perform its terms;
-18-
<PAGE>
59.5 no written claim has been made to any Assignor or, to the knowledge of
any Assignor, any other person that the use of any of the Patents, Trademarks
and Copyrights does or may violate the intellectual property rights of any third
party; and
59.6 each Assignor has used, and shall continue to use for the duration of
this Agreement, materially consistent standards of quality in its manufacture of
products which use or display the Patents, Trademarks and Copyrights; and
59.7 each Assignor in all material respects has used, and shall continue to
use for the duration of this Agreement, proper statutory notice in connection
with its use of the Patents, Trademarks and Copyrights.
-19-
<PAGE>
60. Except as set forth in Section 6 hereof, each Assignor agrees that,
until all of the Obligations shall have been satisfied in full, it will not
enter into any agreement which is inconsistent with such Assignor's obligations
under this Agreement, without the Assignee's prior written consent, which
consent shall not be unreasonably withheld.
61. If, before the Obligations shall have been satisfied in full, any
Assignor shall own any new U.S. applications for any Patents, Trademarks or
Copyrights, such Assignor shall diligently prosecute such applications. The
provisions of this Agreement shall automatically apply to any such registration
or patents which are issued to any Assignor in connection with such new
applications, and such Assignor shall give to the Assignee prompt notice thereof
in writing. Each Assignor and the Assignee agree to modify this Agreement by
amending Schedule A to include any such future patents, trademark registrations,
or copyrights and the provisions of this Agreement shall apply thereto. Any
expenses incurred in connection with such an application shall be borne by the
Assignors.
62. Each Assignor shall not abandon any Patent, Trademark or Copyright
without the consent of the Assignee, which consent shall not be unreasonably
withheld.
63. Each Assignor agrees not to assign or sell (except as set forth on
Schedule C) its interests in any of its Patents, Trademarks and Copyrights
without the prior written consent of the Assignee, which consent shall not be
unreasonably withheld. Unless there shall have occurred and be continuing an
Event of Default, each Assignor shall have the right to grant any license under
any of its Patents, Trademarks and Copyrights in the ordinary course of such
Assignor's business. The Assignee reserves the right upon reasonable notice to
the Assignors during normal business hours to inspect the operations and
facilities of the Assignors from time to time for the purpose of ensuring that
the use of each Assignor's Patents, Trademarks and Copyrights are consistent
with such Assignor's obligations under the Credit Agreement and hereunder;
provided that such inspection is not disruptive of such Assignor's business.
64. If and during the period that the Obligations are declared due and
payable pursuant to Section 9.2.1 of the Credit Agreement, the Assignee shall
have the right, in addition to all other rights and remedies given it by this
Agreement, the Credit Agreement, those allowed by Law and the rights and
remedies of a secured party under the Uniform Commercial Code as enacted in any
jurisdiction in which the Patents, Trademarks and Copyrights may be registered,
to transfer or assign, in good faith and without negligence or willful
misconduct, all or from time to time any part of the Patents, Trademarks and
Copyrights, or any interest which any Assignor may have therein, and after
deducting from the proceeds of sale or other disposition of the Patents,
Trademarks and Copyrights all expenses (including reasonable fees and expenses
for brokers and attorneys) relating to such sale or disposition, shall apply the
remainder of such proceeds toward the payment of the Obligations as the
Assignee, in its sole discretion, shall determine. Any remainder of the proceeds
after payment in full of the Obligations shall be paid over to the applicable
Assignor and this Agreement shall terminate. Notwithstanding the foregoing,
notice of
-20-
<PAGE>
any transfer or assignment or other disposition of the Patents, Trademarks and
Copyrights shall be given to the applicable Assignor at least thirty (30) days
before the time that any intended public or private transfer or assignment or
other disposition of the Patents, Trademarks and Copyrights is to be made, which
each Assignor hereby agrees shall be reasonable notice of such sale or other
disposition, and during which period the applicable Assignor shall have the
right to pay to the Assignee the amount of Obligations due and payable plus any
reasonable expenses incurred by the Assignee in connection with any such
proposed transfer, assignment or disposition, and upon such payment the Assignee
shall release all interest in the Patents, Trademarks and Copyrights, and this
Agreement shall terminate. At any such transfer or assignment or other
disposition, the Assignee may, to the extent permissible under applicable Law,
purchase the whole or any part of the Patents, Trademarks and Copyrights sold,
free from any right of redemption on the part of any Assignor, which right is
hereby waived and released.
65. Subject to Section 10 hereof, if any Event of Default shall have
occurred and be continuing, each Assignor hereby authorizes and empowers the
Assignee to make, constitute and appoint any officer or agent of the Assignee,
as the Assignee may select in its exclusive discretion, as such Assignor's true
and lawful attorney-in-fact, with the power to endorse such Assignor's name on
all applications, documents, papers and instruments necessary for the Assignee
to use the Patents, Trademarks and Copyrights, or to grant or issue, on
commercially reasonable terms, any exclusive or nonexclusive license under the
Patents, Trademarks and Copyrights to any third person, or necessary for the
Assignee to assign, pledge, convey or otherwise transfer title in or dispose, on
commercially reasonable terms, of the Patents, Trademarks and Copyrights to any
third Person. Each Assignor hereby ratifies all that such attorney shall
lawfully do or cause to be done by virtue hereof other than acts or omissions
which are grossly negligent or constitute willful misconduct. This power of
attorney, being coupled with an interest, shall be irrevocable for the life of
this Agreement.
66. At such time as any Assignor shall have indefeasibly paid in full
all of the Obligations and the Commitments shall have terminated, this Agreement
shall terminate and the Assignee shall execute and deliver to the applicable
Assignor all deeds, assignments and other instruments as may be necessary or
proper as reasonably requested by such Assignor to release the security interest
created hereby and to reassign to such Assignor any and all rights granted to
the Assignee in and to the Patents, Trademarks and Copyrights, pursuant to this
Agreement.
67. Each Assignor shall preserve and maintain all rights in the
Patents, Trademark and Copyrights, including without limitation the payment of
all maintenance fees, renewal fees or taxes. Each Assignor may elect not to
preserve or maintain its rights in certain Patents, Trademarks and Copyrights
provided such election is with the prior consent of the Assignee, which consent
will not be unreasonably withheld.
68. Any and all fees, costs and expenses, of whatever kind or nature,
including reasonable attorney's fees and reasonable expenses incurred by the
Assignee in connection with
-21-
<PAGE>
the preparation of this Agreement and all other documents relating hereto and
the consummation of this transaction, the filing or recording of any documents
(including all taxes in connection therewith) in public offices, the payment or
discharge of any taxes, counsel fees, maintenance fees, encumbrances, the
protection, maintenance or preservation of the Patents, Trademarks and
Copyrights (in the event that any Assignor fails to discharge its duty pursuant
to Section 10 or otherwise), or the defense or prosecution of any actions or
proceedings arising out of or related to the Patents, Trademarks and Copyrights,
shall be borne and paid by the Assignors within thirty (30) days of demand by
the Assignee, and if not paid within such time, shall be added to the principal
amount of the Obligations and shall bear interest at the highest rate prescribed
in the Credit Agreement.
69. Each Assignor shall have the right, with the consent of the
Assignee, which shall not be unreasonably withheld, to bring suit, action or
other proceeding in its own name, to enforce the Patents, Trademarks and
Copyrights and any licenses thereunder. The Assignee shall cooperate with such
Assignor, at such Assignor's reasonable request and expense, in the prosecution
or defense of any suit, action or proceeding with respect to the Patents,
Trademarks and Copyrights. Each Assignor shall promptly, upon demand, reimburse
and indemnify the Assignee for all damages, costs and expenses, including
reasonable legal fees, incurred by the Assignee at the request of such Assignor
as a result of such suit.
70. No course of dealing between any Assignor and the Assignee, nor any
failure to exercise nor any delay in exercising, on the part of the Assignee,
any right, power or privilege hereunder or under the Credit Agreement or other
Loan Documents shall operate as a waiver of such right, power or privilege, nor
shall any single or partial exercise of any right, power or privilege hereunder
or thereunder preclude any other or further exercise thereof or the exercise of
any other right, power or privilege.
71. All of the Assignee's rights and remedies with respect to the
Patents, Trademarks and Copyrights, whether established hereby or by the Credit
Agreement or by any other agreements or by Law, shall be cumulative and may be
exercised singularly or concurrently.
72. The provisions of this Agreement are severable, and if any clause
or provision shall be held invalid and unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such clause or provision in any other jurisdiction, or any clause
or provision of this Agreement in any jurisdiction.
73. This Agreement is subject to modification only by a writing signed
by the parties, except as provided in Paragraph 5.
74. The benefits and burdens of this Agreement shall inure to the
benefit of and be binding upon the respective successors and permitted assigns
of the parties.
-22-
<PAGE>
75. This Agreement shall be governed by and construed in accordance
with the internal Laws of the Commonwealth of Pennsylvania without regard to its
conflicts of law principles.
76. EACH ASSIGNOR HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF THE COURT OF COMMON PLEAS OF CHESTER COUNTY, PENNSYLVANIA AND
THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA, AND
EACH ASSIGNOR WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT TO THE FULL EXTENT PERMITTED BY LAW.
[SIGNATURES BEGIN ON NEXT PAGE]
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or agents thereunto duly authorized, as of
the date first above written.
INTERNET CAPITAL GROUP, INC.
By:
--------------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
ICG HOLDINGS, INC.
By:
--------------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
<PAGE>
SCHEDULE A
TO
AMENDED AND RESTATED PATENT, TRADEMARK AND COPYRIGHT COLLATERAL SECURITY
------------------------------------------------------------------------
AGREEMENT
---------
SCHEDULE OF FILED TRADEMARKS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MARK COUNTRY CLASS SERIAL NO. FILING DATE
(Registration No.) (Registration Date)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNET CAPITAL GROUP United States 35, 36 Not Yet Provided 01/18/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Argentina 35 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Australia 35, 36 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Brazil 35 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Canada N/A Not Yet Provided 02/11/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Switzerland 35, 36 00989/2000 02/01/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Chile 35 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP China 42 2000013012 01/28/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Czech Republic Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP European 9, 35, 1479567 01/27/00
Community 36
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Hong Kong 35 03316/2000 02/18/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Israel Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Japan 35 13151/2000 02/17/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Korea 35 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Mexico Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP New Zealand 36 607080 01/26/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Peru 35 100028 01/31/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Poland 35, 36 Z-214446 02/28/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Russian Not Yet Provided Not Yet Provided
Federation
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Singapore 35 1382/00 01/31/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Turkey Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Taiwan 35 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Venezuela Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Africa 35 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & United States Not Yet Provided 01/18/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Argentina 35 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Australia 35, 36 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MARK COUNTRY CLASS SERIAL NO. FILING DATE
(Registration No.) (Registration Date)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNET CAPITAL GROUP & Brazil 35 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Canada Not Yet Provided 02/11/00
Design N/A
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Switzerland 35, 36 00990/2000 02/01/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Chile 35 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & China 42 2000013010 01/28/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Czech Republic Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & European 9, 35, 1479401 01/27/100
Design Community 36
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Hong Kong 35 03314/2000 2/18/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Israel Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Japan 35 13152/2000 02/17/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & South Korea 35 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Mexico Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Norway 35, 36 200001002 02/02/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & New Zealand 36 607081 01/26/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Peru 35 100912 02/14/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Poland 35, 36 Z-214447 02/28/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Russian Not Yet Provided Not Yet Provided
Design Federation
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Singapore 35 1384/00 01/31/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Turkey Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Taiwan 35 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Venezuela Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
MARK COUNTRY CLASS SERIAL NO. FILING DATE
(Registration No.) (Registration Date)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNET CAPITAL GROUP & South Africa 35 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
MISCELLANEOUS DESIGN United States Not Yet Provided 01/18/00
(Orbiting Spheres)
- ----------------------------------------------------------------------------------------------------------
MARKET MAKER IN A BOX United States Not Yet Provided 01/18/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP United States 35, 36 75/259,155 03/18/97
(2,293,722) (11/16/99)
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Argentina 36 Not Yet Provided Not Yet Provided
- ---------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Brazil 36 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Hong Kong 36 03315/2000 2/18/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP China 9 2000013011 01/28/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Korea 36 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Singapore 36 1383/00 01/31/00
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP Taiwan 36 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP South Africa 36 Not Yet Provided Not Yet Provided
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Argentina 36 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Brazil 36 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & China 9 2000013009 01/28/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Hong Kong 36 03317/2000 2/18/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & South Korea 36 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Singapore 36 1385/00 01/31/00
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & Taiwan 36 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
INTERNET CAPITAL GROUP & South Africa 36 Not Yet Provided Not Yet Provided
Design
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE OF MISCELLANEOUS INTELLECTUAL PROPERTY
Internet Capital Group also has common law rights both domestically and
abroad in several other trademarks including ICG.
Internet Capital Group also owns copyrights in a wide variety of works
including its website and publications.
<PAGE>
SCHEDULE B
TO
AMENDED AND RESTATED PATENT, TRADEMARK AND COPYRIGHT COLLATERAL SECURITY
------------------------------------------------------------------------
AGREEMENT
---------
LIST OF LIENS, CHARGES AND ENCUMBRANCES
OTHER THAN PERMITTED LIENS
In a letter dated July 27, 1999 from the law firm of Niro, Scavone,
Haller & Niro, (the "Firm") to Internet Capital Group, Inc. ("ICG"), the Firm
---- ---
claims that Tech Search L.L.C. (the "Company") owns and has the exclusive right
-------
to license a patent entitled "Remote Query Communication Systems" (the
"Patent"). The Patent claims methods and systems for retrieving and presenting
------
graphical and/or audio data from a remote server in response to a query from the
end user. The Firm believes that ICG's website (www.icge.com) induces the
infringement by others of one or more claims of the Patent.
The Company has filed suit against three other companies in federal
district court seeking a judgment of infringement of the Patent and damages.
The Company has offered to grant ICG a license in exchange for a one-time
payment. The payment would vary depending upon ICG's expected volume of use,
but would not be more than $150,000. The Company will also grant ICG a full
release of any past infringement.
ICG does not believe that this claim could result in a material
adverse change.
<PAGE>
SCHEDULE C
TO
AMENDED AND RESTATED PATENT, TRADEMARK AND COPYRIGHT COLLATERAL SECURITY
------------------------------------------------------------------------
AGREEMENT
---------
PERMITTED SALES
None.
<PAGE>
EXHIBIT 1.1(P)(2)
Account Control Agreement
(In-Registration Company Pledged Securities)
Account Control Agreement (In-Registration Company Pledged Securities),
dated as of March 28, 2000 (this "Agreement"), among INTERNET CAPITAL GROUP,
INC., a Delaware corporation ("ICG"), ICG HOLDINGS, INC., a Delaware corporation
("ICG Holdings") and 1999 INTERNET CAPITAL L.P., a Delaware limited partnership
("ICLP" and together with ICG and ICG Holdings, each a "Pledgor" and
collectively the "Pledgors"), MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, a Delaware corporation ("Broker") and PNC BANK, NATIONAL
ASSOCIATION, a national banking association (the "Administrative Agent"), in its
capacity as Administrative Agent for the Banks under that certain Amended and
Restated Credit Agreement, dated as of March 28, 2000 (the "Credit Agreement"),
among ICG and ICG Holdings, as borrowers, the Banks (as defined therein), the
Guarantors (as defined therein), the Administrative Agent and the Agents (as
defined therein).
Witnesseth:
Whereas, Broker has established securities accounts designated as (i)
Account No. 438-07A50 entitled Internet Capital Group, Inc. In-Registration
Private Co. Pledged Securities Account for PNC Bank, N.A. as Administrative
Agent, (ii) Account No. 438-07A53 entitled ICG Holdings, Inc. In-Registration
Private Co. Pledged Securities Account for PNC Bank, N.A. as Administrative
Agent, and (iii) Account No. 438-07A62 entitled 1999 Internet Capital L.P. In-
Registration Private Co. Pledged Securities Account for PNC Bank, N.A. as
Administrative Agent (collectively, the "In-Registration Company Pledged
Collateral Account");
Whereas, pursuant to that certain Security Agreement (Special
Collateral Account), dated as of March 28, 2000 (the "Security Agreement
(Special Collateral Account)"), among the Pledgors and the Administrative Agent,
the Pledgors have granted the Administrative Agent a security interest in, among
other things, the In-Registration Company Pledged Collateral Account and the
pledged securities from time to time deposited in the In-Registration Company
Pledged Collateral Account;
Whereas, it is a condition to the financing transactions contemplated
by the Credit Agreement that the Administrative Agent obtain and continue to
maintain a perfected first priority security interest in the In-Registration
Company Pledged Collateral Account and the Pledged Securities from time to time
held therein;
Whereas, the Administrative Agent, the Pledgors and the Broker are
entering into this Agreement to perfect the security interest of the
Administrative Agent in the In-Registration
8
<PAGE>
Company Pledged Collateral Account by providing for the Administrative Agent to
have control over the In-Registration Company Pledged Securities Account;
Now, Therefore, the parties hereto hereby agree as follows:
Section 1. The In-Registration Company Pledged Collateral Account. The
Broker hereby represents and warrants to the Administrative Agent and the
Pledgors that (a) in the ordinary course of its business, the Broker maintains
securities accounts for others, (b) the In-Registration Company Pledged
Collateral Account has been established with the titles as recited above and (c)
except for the claims and interest of the Administrative Agent and the Pledgors
in the In-Registration Company Pledged Collateral Account (subject to any claim
in favor of the Broker permitted under Section 2), the manager executing this
Agreement on behalf of the Broker does not know of any claim to or interest in
the In-Registration Company Pledged Collateral Account. All parties agree that
the In-Registration Company Pledged Collateral Account is a "securities account"
within the meaning of Article 8 of the Uniform Commercial Code of the State of
New York (the "UCC") and that all property held by the Broker in the
In-Registration Company Pledged Collateral Account will be treated as financial
assets under the UCC. However, the Pledgors and the Administrative Agent each
acknowledge that the following assets are not covered by this Agreement even if
shown, for information purposes, on a periodic account statement for the
In-Registration Company Pledged Collateral Account because the Broker is not the
legal custodian of such assets: Money Market Deposit Account (MMDA) Balances,
shares of ML Ready Assets Trusts, USA Government and USA Treasury Money Market
Funds and of the Merrill Lynch Institutional Funds, non-listed limited
partnership or limited liability interests, annuities and life insurance
contracts, precious metals, loan receivables, note receivables, bridge loans and
similar such items. The Broker will not be responsible for assuring that any of
these assets are not acquired with cash from the In-Registration Company Pledged
Collateral Account. The parties further acknowledge that no security entitlement
under the UCC shall exist with respect to any financial asset which may be held
by the Broker for any Pledgor (even though such financial asset may be shown on
a periodic statement as being held in the Account) which is registered in the
name of a Pledgor, payable to the order of a Pledgor or specially indorsed to a
Pledgor, except to the extent the foregoing have been specially indorsed to the
Broker or in blank.
Section 2. Priority of Lien. The Broker hereby acknowledges the
security interest granted to the Administrative Agent by the Pledgors. The
Broker hereby confirms that the In-Registration Company Pledged Collateral
Account is a controlled securities account and cash account and that it will not
advance any margin or other credit to the Pledgors nor hypothecate any
securities carried in the In-Registration Company Pledged Collateral Account
except in connection with the settlement of trading activity permitted to be
conducted by the Pledgors hereunder. The Broker hereby subordinates all liens,
encumbrances, claims and rights of setoff it may have, now or in the future,
against the In-Registration Company Pledged Collateral Account or any property
carried in the In-Registration Company Pledged Collateral Account or any free
credit balance in the In-Registration Company Pledged Collateral Account other
than in
9
<PAGE>
connection with activities in which the Pledgors are permitted to engage
hereunder, including the payment of the Broker's customary fees, commissions and
other charges pursuant to its agreement with the Pledgors and for payment or
delivery of financial assets purchased or sold for or from the In-Registration
Company Pledged Collateral Account. The Broker will not agree with any third
party that the Broker will comply with entitlement orders concerning the In-
Registration Company Pledged Collateral Account originated by such third party
without the prior written consent of the Administrative Agent and the Pledgors.
Section 3. Control. (a) The Broker will comply with entitlement orders
originated by the Administrative Agent concerning the In-Registration Company
Pledged Collateral Account without further consent by the Pledgors. In
furtherance of the foregoing, the Broker will comply with all orders from the
Administrative Agent directing the Broker to hold, transfer or dispose of all
amounts and other financial assets in the In-Registration Company Pledged
Collateral Account as the Administrative Agent may from time to time specify, in
each case, without obtaining the consent from the Pledgors, provided that, until
such time as the Administrative Agent delivers a written notice to the Broker
that the Administrative Agent is thereby exercising exclusive control over the
In-Registration Company Pledged Collateral Account (a "Notice of Exclusive
Control"), in substantially the form of Exhibit A attached hereto, the Broker
may comply with the trading instructions and other entitlement orders of any
Pledgor, or any of the Pledgors' authorized representatives, with respect to the
In-Registration Company Pledged Collateral Account, except as otherwise provided
in Section 4 below. The Administrative Agent shall promptly (and in any event,
within five (5) days) notify each Pledgor in writing of the Administrative
Agent's exercise of exclusive control over the In-Registration Company Pledged
Collateral Account (provided that failure to so notify any Pledgor within five
(5) days shall not impair or otherwise affect in any way the validity, force and
effect of the Notice of Exclusive Control).
(b) So long as the Administrative Agent's Notice of Exclusive
Control is not in effect, the Broker may allow the Pledgors to exercise (x) all
voting, corporate and other rights pertaining to financial assets held in the
In-Registration Company Pledged Collateral Account and (y) any and all rights of
conversion, exchange, subscription and any other rights, privileges or options
pertaining to such financial assets as if it were the absolute owner thereof
(including, without limitation, the right to exchange at its discretion any and
all of the financial assets upon the merger, consolidation, reorganization,
recapitalization or other financial change in the corporate structure of the
issuer of such financial assets).
(c) After the Broker receives a Notice of Exclusive Control and
has had a reasonable opportunity to comply, it will cease complying with
entitlement orders or other instructions concerning the In-Registration Company
Pledged Collateral Account originated by any Pledgor or any of their
representatives and cease distributing interest and dividends on property in the
In-Registration Company Pledged Collateral Account and cease making withdrawals
to any Pledgor and will not allow any Pledgor to exercise (x) any voting,
corporate or other rights pertaining to financial assets held in the account
which would normally be
10
<PAGE>
exercised through the Broker or (y) any rights of conversion, exchange,
subscription or other rights, privileges or options pertaining to such financial
assets. The Broker shall be entitled to rely upon any entitlement order or
Notice of Exclusive Control that it reasonably believes to be from the
Administrative Agent. Until it receives a Notice of Exclusive Control, the
Broker shall be entitled to continue to act on investment instructions from any
Pledgor as are delivered in form satisfactory to the Broker.
Section 4. Limited Withdrawals. Notwithstanding the provisions of Section
3 above, the Broker shall not comply with any entitlement order from any Pledgor
requiring a free delivery of any financial assets from the In-Registration
Company Pledged Collateral Account nor deliver any such financial assets to any
Pledgor nor pay any free credit balance or other amount owing from the Broker to
any Pledgor with respect to the In-Registration Company Pledged Collateral
Account (each such delivery or payment being herein referred to as a
"withdrawal"), except that the Broker shall be permitted to make withdrawals
payable to, or deliverable at the direction of, any Pledgor consisting of (a)
distributions of interest or dividends earned in the In-Registration Company
Pledged Collateral Account upon delivery to the Broker, on or prior to 11:00
A.M. Eastern Standard Time on the date of any proposed disposition, of a written
notice substantially in the form of Exhibit B attached hereto, (b) certain
permitted withdrawals of pledged securities upon delivery to the Broker at least
contemporaneously therewith of a written notice substantially in the form of
Exhibit C attached hereto, (c) certain permitted exchanges of pledged securities
upon (i) delivery to the Broker, on or before 3 days before any such proposed
exchange, of a written notice substantially in the form of Exhibit D attached
hereto and (ii) upon delivery by the Broker to the Administrative Agent of a
letter evidencing that the transfer agent or other transferee of such pledged
securities has agreed to hold such pledged securities as bailee for the Broker
and (d) certain permitted withdrawals of pledged securities upon delivery to the
Broker of a letter of direction substantially in the form of Exhibit E attached
hereto.
Section 5. Statements, Confirmations and Notices of Adverse Claims. The
Broker will send copies of all statements and confirmations concerning the In-
Registration Company Pledged Collateral Account to each Pledgor and the
Administrative Agent at the address set forth in Section 14 of this Agreement.
Upon receipt at the branch office of the Broker at which the In-Registration
Company Pledged Collateral Account is maintained (which office is set forth in
Section 14 hereof or to such other office as the Broker shall give notice to the
Administrative Agent and each Pledgor) of written notice of any lien,
encumbrance or adverse claim against the In-Registration Company Pledged
Collateral Account or in any financial asset carried therein, the Broker will
make reasonable efforts promptly to notify the Administrative Agent and each
Pledgor thereof.
Section 6. Limited Responsibility of Broker. (a) Except for permitting a
withdrawal in violation of Section 3 or 4 above, failing to act in accordance
with a Letter of Direction in violation of Section 4A above or advancing margin
or other credit to any Pledgor in violation of Section 2 above, the Broker shall
have no responsibility or liability to the Administrative Agent
11
<PAGE>
for complying with entitlement orders concerning the In-Registration Company
Pledged Collateral Account from any Pledgor or any person reasonably believed by
the Broker to be such Pledgors's authorized representatives as specified in the
Merrill Lynch account agreement, which are received by the Broker before the
Broker receives a Notice of Exclusive Control and has had reasonable opportunity
to act on it. The Broker shall have no responsibility or liability to any
Pledgor for complying with a Notice of Exclusive Control or complying with
entitlement orders concerning the In-Registration Company Pledged Collateral
Account originated by the Administrative Agent, and shall have no responsibility
to investigate the appropriateness of any such entitlement order or Notice of
Exclusive Control, even if a Pledgor notifies the Broker that the Administrative
Agent is not legally entitled to originate any such entitlement order or Notice
of Exclusive Control, unless the Broker has been served at the address for
notices set forth below (as such address may from time to time be changed in
accordance with provisions hereof) with an injunction, restraining order or
other legal process issued by a court of competent jurisdiction (a "Court
Order") enjoining it from complying and has had a reasonable opportunity to act
on such Court Order. The Broker shall have no responsibility or liability to the
Administrative Agent with respect to the value of the In-Registration Company
Pledged Collateral Account or any asset held therein. This Agreement does not
create any obligation or duty of the Broker other than those expressly set forth
herein.
(b) The Broker shall be entitled to rely upon the authenticity
of, and the truth of any statement in any certificate, opinion of counsel,
evidence of indebtedness, notice, consent, instruction or other document
reasonably believed by the Broker to be genuine and to be signed by the proper
party or parties.
(c) The Broker shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in reliance upon the advice of
its legal counsel.
Section 7. Indemnification of Broker. (a) Each Pledgor agrees to indemnify
and hold harmless the Broker, its directors, officers, agents and employees
against any and all claims, causes of action, liabilities, lawsuits, demands and
damages, including, without limitation, any and all court costs and reasonable
attorney's fees, in any way related to or arising out of or in connection with
this Agreement or any action taken or not taken pursuant hereto, except to the
extent resulting from the Broker's gross negligence or willful misconduct.
(b) The Administrative Agent shall indemnify and hold harmless
the Broker, its directors, officers, agents and employees against any losses,
liabilities, and damages, including, without limitation, any and all court costs
and reasonable attorney's fees incurred by the Broker as a consequence of
actions taken pursuant to instructions of the Administrative Agent, except to
the extent resulting from the Broker's gross negligence or willful misconduct.
Section 8. Customer Agreement. In the event of a conflict between this
Agreement and any other agreement between the Broker and any Pledgor, the terms
of this Agreement will prevail. Each Pledgor and the Administrative Agent agree
that this Agreement supplements the
12
<PAGE>
applicable Merrill Lynch account agreement with respect to the In-Registration
Company Pledged Collateral Account and that it does not abridge any rights that
the Broker might otherwise have, except as expressly provided herein.
Section 9. Termination. Unless earlier terminated by the Broker pursuant
to this Section, this Agreement shall continue in effect until the
Administrative Agent has notified the Broker in writing that this Agreement, or
its security interest in the In-Registration Company Pledged Collateral Account,
is terminated, which notice shall not be unreasonably withheld by the
Administrative Agent upon any such termination. Upon receipt of such notice (i)
the obligations of the Broker under Sections 2, 3, 4 and 5 above with respect to
the operation and maintenance of the In-Registration Company Pledged Collateral
Account after the receipt of such notice shall terminate, (ii) the
Administrative Agent shall have no further right to originate entitlement orders
concerning the In-Registration Company Pledged Collateral Account, (iii) any
previous Notice of Exclusive Control delivered by the Administrative Agent shall
be deemed to be of no further force and effect, and (iv) the Broker may remove
the references to "Pledged Securities" and "Administrative Agent" from the
account titles. The Broker reserves the right, unilaterally, to terminate this
Agreement, such termination to be effective 30 business days after written
notice thereof is given to each Pledgor and the Administrative Agent.
Section 10. Complete Agreement. This Agreement and the instructions and
notices required or permitted to be executed and delivered hereunder set forth
the entire agreement of the parties with respect to the subject matter hereof,
and, subject to Section 8 above, supersede any prior agreement and
contemporaneous oral agreements of the parties concerning its subject matter.
Section 11. Amendments. No amendment, modification or (except as otherwise
specified in Section 9 above) termination of this Agreement, nor any assignment
of any rights hereunder (except to the extent contemplated under Section 13
below), shall be binding on any party hereto unless it is in writing and is
signed by each of the parties hereto, and any attempt to so amend, modify,
terminate or assign except pursuant to such a writing shall be null and void. No
waiver of any rights hereunder shall be binding on any party hereto unless such
waiver is in writing and signed by the party against whom enforcement is sought.
Section 12. Severability. If any term or provision set forth in this
Agreement shall be invalid or unenforceable, the remainder of this Agreement,
other than those provisions held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.
Section 13. Successors. The terms of this Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
corporate successors and assigns. This Agreement may be assigned by the
Administrative Agent to any successor of the Administrative Agent under its
security agreement with the Pledgors, provided that written notice thereof is
given by the Administrative Agent to the Broker.
13
<PAGE>
Section 14. Notices. Except as otherwise expressly provided herein, any
notice, order, instruction, request or other communication required or permitted
to be given under this Agreement shall be in writing and deemed to have been
properly given when delivered in person, or when sent by telecopy or other
electronic means and electronic confirmation of error-free receipt is received
or upon receipt of notice sent by certified or registered United States mail,
return receipt requested, postage prepaid, addressed to the party at the address
set forth below. Any party may change its address for notices in the manner set
forth above. Notices hereunder shall be addressed:
to Broker at:
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
100 Campus Drive, 3rd Floor
Florham Park, New Jersey 07963
Attention: Robert E. Mulholland
Telephone: (973) 301-7700
Telecopy: (973) 301-7779
to ICG at: to the Administrative Agent at:
Internet Capital Group, Inc. PNC Bank, National Association
103 The Springer Building One PNC Plaza - 22nd Floor
3411 Silverside Road 249 Fifth Avenue
Wilmington, Delaware 19801 Pittsburgh, PA 15222-2707
Attention: Vice President of Attention: Ms. Arlene Ohler
Finance Operation Telephone: (412) 762-3627
Telephone: (302) 478-6160 Telecopy: (412) 762-8672
Telecopy: (302) 478-3667
with a copy to: with a copy to:
Internet Capital Group Operations, Inc. VentureBank@PNC
800 The Safeguard Building 1000 Westlakes Drive
435 Devon Park Drive Suite 200
Wayne, PA 19087 Berwyn, PA 19312
Attention: Mr. James N. Borum Attention: Mr. John Freyhof
Mr. Henry N. Nassau Telephone: (610) 725-5752
Telephone: (610) 989-0111 Telecopy: (610) 725-5799
Telecopy: (610) 989-0112
14
<PAGE>
to ICG Holdings at:
ICG Holdings, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
to ICLP at:
1999 Internet Capital L.P.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
Section 15. Counterparts. This Agreement may be executed in any number
of
15
<PAGE>
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing and delivering one or more
counterparts.
Section 16. Choice of Law. Regardless of any provision in any other
agreement relating to the In-Registration Company Pledged Collateral Account,
the parties hereto agree that this Agreement (including the establishment and
maintenance of the In-Registration Company Pledged Collateral Account, and all
interest, duties and obligations with respect to the In-Registration Company
Pledged Collateral Account) shall be governed and construed in accordance with
the law of the State of New York and that the "securities intermediary's
jurisdiction", within the meaning of Section 8-110 of the UCC, of the Broker as
securities intermediary in respect of the In-Registration Company Pledged
Collateral Account, is the State of New York.
Section 17. Additional Pledgors. At any time after the initial execution
and delivery of this Agreement, additional Persons may become parties to this
Agreement and thereby acquire the duties and rights of being Pledgors hereunder
by executing and delivering to the Administrative Agent and the Banks a Security
Agreement (Special Collateral Account) Joinder substantially in the form of
Exhibit 1.1(U)(2) to the Credit Agreement and an Account Control Agreement (In-
- -----------------
Registration Company Pledged Securities) Supplement substantially in the form of
Exhibit F attached hereto. No notice of the addition of any Pledgor shall be
required to be given to any pre-existing Pledgor.
16
<PAGE>
Accepted and agreed to as of the date first above written.
INTERNET CAPITAL GROUP, INC.
By: _________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
ICG HOLDINGS, INC.
By: _________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
1999 INTERNET CAPITAL L.P.
By: ICG HOLDINGS, INC., its general partner
By: _________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _________________________________
Name: Robert E. Mulholland
Title: First Vice President and
District Director
17
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By:__________________________
Name:_____________________
Title:____________________
18
<PAGE>
Exhibit A
Sample Notice of Exclusive Control
[Letterhead of Administrative Agent]
Date: ___________________
To: Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch")
________________________________
________________________________
________________________________
Attention:______________________
(insert address of Merrill Lynch office servicing Private Company Pledged
Collateral Account as indicated on Account Statement)
Re: Pledged Collateral Account number________________________
in the name of "Internet Capital Group, Inc.
Private Company Pledged Collateral Account for PNC Bank, National
Association, as Administrative Agent"
This is to notify Merrill Lynch that the above-referenced pledged
collateral account (the "Private Company Pledged Collateral Account") is now
under the exclusive control of PNC Bank, National Association, as Administrative
Agent. Merrill Lynch is hereby instructed to cease complying with instructions
given by or on behalf of Internet Capital Group, Inc., ICG Holdings, Inc., or
1999 Internet Capital L.P. relating to said Private Company Pledged Collateral
Account, to cease distributing interest and regular cash dividends earned on
property in the Private Company Pledged Collateral Account, and to refuse to
accept any other instructions from Internet Capital Group, Inc., ICG Holdings,
Inc., Internet Capital Group Operations, Inc. or 1999 Internet Capital L.P., as
the case may be, intended to exercise any authority with respect to the Private
Company Pledged Collateral Account unless instructed by the undersigned on
behalf of PNC Bank, National Association, as Administrative Agent.
PNC Bank, National Association warrants to Merrill Lynch that this
Notice of Exclusive Control is lawful and authorized by the Security Agreement
(Special Collateral Account) among Internet Capital Group, Inc., ICG Holdings,
Inc., 1999 Internet Capital L.P. and PNC Bank, National Association, as
Administrative Agent.
<PAGE>
All future instructions on the In-Registration Company Pledged
Collateral Account shall be given solely by the undersigned on behalf of PNC
Bank, National Association unless further evidence of authority is provided to
Merrill Lynch.
__________________________________
print name
__________________________________
signature date
__________________________________
Title (an authorized officer)
2
<PAGE>
EXHIBIT B
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
________, 200_
Merrill Lynch, Pierce, Fenner & Smith Incorporated
_______________________________
_______________________________
_______________________________
Attention:_____________________
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), Internet Capital Group Operations, Inc. ("ICG Operations"),
1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and PNC Bank, National Association, as
Administrative Agent (the "Administrative Agent") for the Banks under that
certain Amended and Restated Credit Agreement, dated as of March 28, 2000 (the
"Credit Agreement"), among ICG and ICG Holdings, as borrowers, the Banks (as
defined in the Credit Agreement), the Guarantors (as defined in the Credit
Agreement), the Administrative Agent and the Agents (as defined in the Credit
Agreement). Capitalized terms used herein without definition shall have the
meanings ascribed thereto in the Account Control Agreement.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
6. The aggregate amount of dividends and interest income the Pledgors
propose to withdraw is ________________
7. The remaining balance of the Private Company Pledged Collateral Account,
after giving effect to the withdrawal, is ____________________
<PAGE>
8. Set forth below are payment instructions for the proposed
withdrawal:
_______________________________
_______________________________
_______________________________
ICG hereby warrants to Merrill Lynch that this notice is lawful and
authorized by the Security Agreement (Special Collateral Account) among ICG, ICG
Holdings, ICLP and the Administrative Agent.
Should you have any questions or require anything further in this
regard, please contact the undersigned at (610) 989-0111at your earliest
convenience.
Very truly yours,
Internet Capital Group, Inc.
By: _____________________________
Name: _______________________
Title: ______________________
cc: Mr. John Freyhof
Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
2
<PAGE>
EXHIBIT C
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
______, 200_
Merrill Lynch, Pierce, Fenner & Smith Incorporated
_______________________________
_______________________________
_______________________________
Attention: ___________________
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), 1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and PNC Bank, National
Association, as Administrative Agent (the "Administrative Agent") for the Banks
under that certain Amended and Restated Credit Agreement, dated as of March 28,
2000 (the "Credit Agreement"), among ICG and ICG Holdings, as borrowers, the
Banks (as defined in the Credit Agreement), the Guarantors (as defined in the
Credit Agreement), the Administrative Agent and the Agents (as defined in the
Credit Agreement). Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Account Control Agreement.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
8. The pledged securities the Pledgors propose to withdraw are
_________________.
9. The pledged securities the Pledgors propose to receive in exchange
therefore are _____________________________.
10. Set forth below are instructions for the proposed delivery of such
Pledged Securities:
_______________________________
<PAGE>
_______________________________
_______________________________
ICG hereby warrants to Merrill Lynch that this notice is lawful and
authorized by the Security Agreement (Special Collateral Account) among ICG, ICG
Holdings, ICLP and the Administrative Agent.
Should you have any questions or require anything further in this
regard, please contact the undersigned at (610) 989-0111 at your earliest
convenience.
Very truly yours,
Internet Capital Group, Inc.
By: ___________________________
Name: _____________________
Title: ____________________
cc: Mr. John Freyhof
Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
2
<PAGE>
EXHIBIT D
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
_____, 200_
Merrill Lynch, Pierce, Fenner & Smith Incorporated
_______________________________
_______________________________
_______________________________
Attention:_____________________
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), 1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and PNC Bank, National
Association, as Administrative Agent (the "Administrative Agent") for the Banks
under that certain Amended and Restated Credit Agreement, dated as of March 28,
2000 (the "Credit Agreement"), among ICG and ICG Holdings, as borrowers, the
Banks (as defined in the Credit Agreement), the Guarantors (as defined in the
Credit Agreement), the Administrative Agent and the Agents (as defined in the
Credit Agreement). Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Account Control Agreement.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
7. The pledged securities the Pledgors propose to exchange are
_________________.
8. Set forth below are instructions for the proposed exchange:
_______________________________
_______________________________
<PAGE>
_______________________________
ICG hereby warrants to Merrill Lynch that this notice is lawful and
authorized by the Security Agreement (Special Collateral Account) among ICG, ICG
Holdings, ICLP and the Administrative Agent.
Should you have any questions or require anything further in this
regard, please contact the undersigned at (610) 989-0111 at your earliest
convenience.
Very truly yours,
Internet Capital Group, Inc.
By: ___________________________
Name: _____________________
Title: ____________________
cc: Mr. John Freyhof
Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
2
<PAGE>
EXHIBIT E
LETTER OF DIRECTION
-------------------
[_________, 200_]
To: Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch")
____________________________
____________________________
____________________________
Attention:__________________
Ladies and Gentlemen:
This Letter of Direction is delivered in connection with that certain
Account Control Agreement (Private Company Pledged Securities) (the "Account
Control Agreement"), dated as of March 28, 2000, by and among Internet Capital
Group, Inc. ("ICG"), ICG Holdings, Inc. ("ICG Holdings"), 1999 Internet Capital
L.P. ("ICLP"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and PNC Bank, National Association, as Administrative Agent (the
"Administrative Agent") for the Banks under that certain Amended and Restated
Credit Agreement, dated as of March 28, 2000 (the "Credit Agreement"), among ICG
and ICG Holdings, as borrowers, the Banks (as defined in the Credit Agreement),
the Guarantors (as defined in the Credit Agreement), the Administrative Agent
and the Agents (as defined in the Credit Agreement). Capitalized terms used
herein without definition shall have the meanings ascribed thereto in the
Account Control Agreement.
The Broker is hereby authorized and directed to withdraw the pledged
securities referred to on Schedule A attached hereto and immediately deposit
each of them into the Public Company Pledged Collateral Account (as such term is
defined in the Account Control Agreement (Public Company Pledged Securities))
held pursuant to that certain Account Control Agreement (Public Company Pledged
Securities), dated as of March 28, 2000 (the "Account Control Agreement (Public
Company Pledged Securities)"), by and among ICG, ICG Holdings, ICLP, Merrill
Lynch and the Administrative Agent for the Banks under the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned duly authorized officer has
executed this Letter of Direction as of the day and year first above written.
Internet Capital Group, INC.
By:______________________________
Name:
Title:
The undersigned hereby acknowledge receipt of the foregoing Letter of
Direction as of the day first above written and are in agreement with the
instructions contained therein.
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By:________________________________
Name: Mr. John Freyhof
Title: Vice President
<PAGE>
SCHEDULE A
----------
[Insert list of Pledged Securities being transferred]
<PAGE>
Exhibit F
Form Of Account Control Agreement
(In-Registration Company Pledged Securities) Supplement
This SUPPLEMENT, dated as of ____________________ (this
"Supplement"), is made by __________________________, a _________________
corporation (the "Additional Pledgor"), MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED (the "Broker") and PNC BANK, NATIONAL ASSOCIATION, as in its
capacity as administrative agent for the Banks under that certain Credit
Agreement (as hereinafter defined) referred to below (the "Administrative
Agent"). All capitalized terms not defined herein shall have the meaning
ascribed to them in the Credit Agreement.
RECITALS
--------
WHEREAS, reference is hereby made to that certain Amended and Restated
Credit Agreement, dated as of March 28, 2000, among Internet Capital Group,
Inc., a Delaware corporation ("ICG"), ICG Holdings, Inc., a Delaware corporation
("ICG Holdings"; ICG and ICG Holdings being referred to herein collectively as
the "Borrowers"), the Guarantors party thereto, the Banks party thereto, the
Administrative Agent and the Agents (as amended, supplemented or otherwise
modified as of the date hereof, the "Credit Agreement"); and
WHEREAS, in connection with the Credit Agreement, the Borrowers
(collectively the "Pledgors" and each a "Pledgor") have entered into the
Security Agreement (Special Collateral Account), dated as of March 28, 2000, in
favor of the Administrative Agent for the ratable benefit of the Banks (as
amended, supplemented or otherwise modified as of the date hereof, the "Security
Agreement (Special Collateral Account)"); and
WHEREAS, Broker has established securities accounts designated as (i)
Account No. 438-07A50 entitled Internet Capital Group, Inc. In-Registration
Private Co. Pledged Securities Account for PNC Bank, N.A. as Administrative
Agent, (ii) Account No. 438-07A53 entitled ICG Holdings, Inc. In-Registration
Private Co. Pledged Securities Account for PNC Bank, as Administrative Agent,
and (iii) Account No. 438-07A62 entitled 1999 Internet Capital L.P.
In-Registration Private Co. Pledged Securities Account for PNC Bank, as
Administrative Agent (collectively, the "In-Registration Company Pledged
Collateral Account "); and
WHEREAS, pursuant to the Security Agreement (Special Collateral
Account), the Pledgors have granted the Administrative Agent a security interest
in the In-Registration
<PAGE>
Company Pledged Collateral Account and the pledged securities from time to time
deposited in the In-Registration Company Pledged Collateral Account; and
WHEREAS, the Administrative Agent, the Pledgors and the Broker have
entered into an Account Control Agreement (In-Registration Company Pledged
Securities) dated as of March 28, 2000 (the "Account Control Agreement
(In-Registration Company Pledged Securities)") to perfect the security interest
of the Administrative Agent in the In-Registration Company Pledged Collateral
Account by providing for the Administrative Agent to have control over the
In-Registration Company Pledged Collateral Account; and
WHEREAS, Section 17 of the Account Control Agreement (In-Registration
Company Pledged Securities) specifies that additional Persons may acquire the
duties and rights of a Pledgor by becoming party to the Security Agreement
(Special Collateral Account) and the Account Control Agreement (In-Registration
Company Pledged Securities); and
WHEREAS, the Additional Pledgor has agreed to execute and deliver this
Supplement in order to become a party to the Account Control Agreement
(In-Registration Company Pledged Securities).
NOW, THEREFORE, IT IS AGREED:
1. Account Control Agreement (In-Registration Company Pledged
----------------------------------------------------------
Securities). By executing and delivering this Supplement, the Additional
- ----------
Pledgor, as provided in Section 17 of the Account Control Agreement
(In-Registration Company Pledged Securities) hereby becomes a party to the
Account Control Agreement (In-Registration Company Pledged Securities), as a
Pledgor thereunder with the same force and effect as if originally named therein
as a Pledgor and, without limiting the generality of the foregoing, hereby
expressly assumes all obligations and liabilities of a Pledgor thereunder. By
executing and delivering this Supplement, the Broker hereby represents and
warrants that each of the representations and warranties made by the Broker
contained in the Account Control Agreement (In-Registration Company Pledged
Securities) is true and correct on and as of the date hereof (after giving
effect to this Supplement) as if made on and as of such date.
2. Supplement to the Account Control Agreement (In-Registration Company
--------------------------------------------------------------------
Pledged Securities). This Supplement is supplemental to the Account Control
- -------------------
Agreement (In-Registration Company Pledged Securities), forms a part thereof and
is subject to the terms thereof. From and after the date of this Supplement, the
defined term " In-Registration Company Pledged Collateral Account" shall be
deemed to include each account listed on Annex I to this Supplement.
<PAGE>
3. Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Supplement
to be duly executed and delivered as of the date first above written.
[NAME OF ADDITIONAL PLEDGOR],
a ___________________ corporation
By_______________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By_______________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By_______________________
Name:
Title:
ANNEX I
to Supplement
I. Supplements To In-Registration Company Pledged Collateral Account
Account Number And Title
------------------------
<PAGE>
EXHIBIT 1.1(P)(3)
Account Control Agreement
(Private Company Pledged Securities)
Account Control Agreement (Private Company Pledged Securities), dated
as of March 28, 2000 (this "Agreement"), among INTERNET CAPITAL GROUP, INC., a
Delaware corporation ("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG
Holdings") and 1999 INTERNET CAPITAL L.P., a Delaware limited partnership
("ICLP" and together with ICG and ICG Holdings, each a "Pledgor" and
collectively the "Pledgors"), MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, a Delaware corporation ("Broker") and PNC BANK, NATIONAL
ASSOCIATION, a national banking association (the "Administrative Agent"), in its
capacity as Administrative Agent for the Banks under that certain Amended and
Restated Credit Agreement, dated as of March 28, 2000 (the "Credit Agreement"),
among ICG and ICG Holdings, as borrowers, the Banks (as defined therein), the
Guarantors (as defined therein), the Administrative Agent and the Agents (as
defined therein).
WITNESSETH:
WHEREAS, Broker has established securities accounts designated as (i)
Account No. 438-07A49 entitled Internet Capital Group, Inc. Private Co. Pledged
Securities Account for PNC Bank, N.A. as Administrative Agent, (ii) Account No.
438-07A52 entitled ICG Holdings, Inc. Private Co. Pledged Securities Account for
PNC Bank, N.A. as Administrative Agent, and (iii) Account No. 438-07A61 entitled
1999 Internet Capital L.P. Private Co. Pledged Securities Account for PNC Bank,
N.A. as Administrative Agent (collectively, the "Private Company Pledged
Collateral Account");
WHEREAS, pursuant to that certain Security Agreement (Special
Collateral Account), dated as of March 28, 2000 (the "Security Agreement
(Special Collateral Account)"), among the Pledgors and the Administrative Agent,
the Pledgors have granted the Administrative Agent a security interest in, among
other things, the Private Company Pledged Collateral Account and the pledged
securities from time to time deposited in the Private Company Pledged Collateral
Account;
WHEREAS, it is a condition to the financing transactions contemplated
by the Credit Agreement that the Administrative Agent obtain and continue to
maintain a perfected first priority security interest in the Private Company
Pledged Collateral Account and the Pledged Securities from time to time held
therein;
WHEREAS, the Administrative Agent, the Pledgors and the Broker are
entering into this Agreement to perfect the security interest of the
Administrative Agent in the Private Company
<PAGE>
Pledged Collateral Account by providing for the Administrative Agent to have
control over the Private Company Pledged Collateral Account;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. The Private Company Pledged Collateral Account. The Broker
hereby represents and warrants to the Administrative Agent and the Pledgors that
(a) in the ordinary course of its business, the Broker maintains securities
accounts for others, (b) the Private Company Pledged Collateral Account has been
established with the titles as recited above, and (c) except for the claims and
interest of the Administrative Agent and the Pledgors in the Private Company
Pledged Collateral Account (subject to any claim in favor of the Broker
permitted under Section 2), the manager executing this Agreement on behalf of
the Broker does not know of any claim to or interest in the Private Company
Pledged Collateral Account. All parties agree that the Private Company Pledged
Collateral Account is a "securities account" within the meaning of Article 8 of
the Uniform Commercial Code of the State of New York (the "UCC") and that all
property held by the Broker in the Private Company Pledged Collateral Account
will be treated as financial assets under the UCC. However, the Pledgors and the
Administrative Agent each acknowledge that the following assets are not covered
by this Agreement even if shown, for information purposes, on a periodic account
statement for the Private Company Pledged Collateral Account because the Broker
is not the legal custodian of such assets: Money Market Deposit Account (MMDA)
Balances, shares of ML Ready Assets Trusts, USA Government and USA Treasury
Money Market Funds and of the Merrill Lynch Institutional Funds, non-listed
limited partnership or limited liability interests, annuities and life insurance
contracts, precious metals, loan receivables, note receivables, bridge loans,
and similar such items. The Broker will not be responsible for assuring that any
of these assets are not acquired with cash from the Private Company Pledged
Collateral Account. The parties further acknowledge that no security entitlement
under the UCC shall exist with respect to any financial asset which may be held
by the Broker for any Pledgor (even though such financial asset may be shown on
a periodic statement as being held in the Account) which is registered in the
name of a Pledgor, payable to the order of a Pledgor or specially indorsed to a
Pledgor, except to the extent the foregoing have been specially indorsed to the
Broker or in blank.
Section 2. Priority of Lien. The Broker hereby acknowledges the
security interest granted to the Administrative Agent by the Pledgors. The
Broker hereby confirms that the Private Company Pledged Collateral Account is a
controlled securities account and cash account and that it will not advance any
margin or other credit to the Pledgors nor hypothecate any securities carried in
the Private Company Pledged Collateral Account except in connection with the
settlement of trading activity permitted to be conducted by the Pledgors
hereunder. The Broker hereby subordinates all liens, encumbrances, claims and
rights of setoff it may have, now or in the future, against the Private Company
Pledged Collateral Account or any property carried in the Private Company
Pledged Collateral Account or any free credit balance in the Private Company
Pledged Collateral Account other than in connection with activities in which the
Pledgors are permitted to engage hereunder, including the payment of the
Broker's customary
<PAGE>
fees, commissions and other charges pursuant to its agreement with the Pledgors
and for payment or delivery of financial assets purchased or sold for or from
the Private Company Pledged Collateral Account. The Broker will not agree with
any third party that the Broker will comply with entitlement orders concerning
the Private Company Pledged Collateral Account originated by such third party
without the prior written consent of the Administrative Agent and the Pledgors.
Section 3. Control. (a) The Broker will comply with entitlement orders
originated by the Administrative Agent concerning the Private Company Pledged
Collateral Account without further consent by the Pledgors. In furtherance of
the foregoing, the Broker will comply with all orders from the Administrative
Agent directing the Broker to hold, transfer or dispose of all amounts and other
financial assets in the Private Company Pledged Collateral Account as the
Administrative Agent may from time to time specify, in each case, without
obtaining the consent from the Pledgors, provided that, until such time as the
Administrative Agent delivers a written notice to the Broker that the
Administrative Agent is thereby exercising exclusive control over the Private
Company Pledged Collateral Account (a "Notice of Exclusive Control"), in
substantially the form of Exhibit A attached hereto, the Broker may comply with
the trading instructions and other entitlement orders of any Pledgor, or any of
the Pledgors' authorized representatives, with respect to the Private Company
Pledged Collateral Account, except as otherwise provided in Section 4 below. The
Administrative Agent shall promptly (and in any event, within five (5) days)
notify each Pledgor in writing of the Administrative Agent's exercise of
exclusive control over the Private Company Pledged Collateral Account (provided
that failure to so notify any Pledgor within five (5) days shall not impair or
otherwise affect in any way the validity, force and effect of the Notice of
Exclusive Control).
(b) So long as the Administrative Agent's Notice of
Exclusive Control is not in effect, the Broker may allow the Pledgors to
exercise (x) all voting, corporate and other rights pertaining to financial
assets held in the Private Company Pledged Collateral Account and (y) any and
all rights of conversion, exchange, subscription and any other rights,
privileges or options pertaining to such financial assets as if it were the
absolute owner thereof (including, without limitation, the right to exchange at
its discretion any and all of the financial assets upon the merger,
consolidation, reorganization, recapitalization or other financial change in the
corporate structure of the issuer of such financial assets).
(c) After the Broker receives a Notice of Exclusive
Control and has had a reasonable opportunity to comply, it will cease complying
with entitlement orders or other instructions concerning the Private Company
Pledged Collateral Account originated by any Pledgor or any of their
representatives and cease distributing interest and dividends on property in the
Private Company Pledged Collateral Account and cease making withdrawals to any
Pledgor and will not allow any Pledgor to exercise (x) any voting, corporate or
other rights pertaining to financial assets held in the account which would
normally be exercised through the Broker or (y) any rights of conversion,
exchange, subscription or other rights, privileges or options pertaining to such
financial assets. The Broker shall be entitled to rely upon any
<PAGE>
entitlement order or Notice of Exclusive Control that it reasonably believes to
be from the Administrative Agent. Until it receives a Notice of Exclusive
Control, the Broker shall be entitled to continue to act on investment
instructions from any Pledgor as are delivered in form satisfactory to the
Broker.
Section 4. Limited Withdrawals. Notwithstanding the provisions of
Section 3 above, the Broker shall not comply with any entitlement order from any
Pledgor requiring a free delivery of any financial assets from the Private
Company Pledged Collateral Account nor deliver any such financial assets to any
Pledgor nor pay any free credit balance or other amount owing from the Broker to
any Pledgor with respect to the Private Company Pledged Collateral Account (each
such delivery or payment being herein referred to as a "withdrawal"), except
that the Broker shall be permitted to make withdrawals payable to, or
deliverable at the direction of, any Pledgor consisting of (a) distributions of
interest or dividends earned in the Private Company Pledged Collateral Account
upon delivery to the Broker, on or prior to 11:00 A.M. Eastern Standard Time on
the date of any proposed disposition, of a written notice substantially in the
form of Exhibit B attached hereto, (b) certain permitted withdrawals of pledged
securities upon delivery to the Broker at least contemporaneously therewith of a
written notice substantially in the form of Exhibit C attached hereto, (c)
certain permitted exchanges of pledged securities upon delivery to the Broker,
on or before 3 days before any such proposed exchange, of a written notice
substantially in the form of Exhibit D attached hereto and (d) certain permitted
withdrawals of pledged securities upon delivery to the Broker of a letter of
direction substantially in the form of Exhibit E attached hereto.
Section 5. Statements, Confirmations and Notices of Adverse Claims. The
Broker will send copies of all statements and confirmations concerning the
Private Company Pledged Collateral Account to each Pledgor and the
Administrative Agent at the address set forth in Section 14 of this Agreement.
Upon receipt at the branch office of the Broker at which the Private Company
Pledged Collateral Account is maintained (which office is set forth in Section
14 hereof or to such other office as the Broker shall give notice to the
Administrative Agent and each Pledgor) of written notice of any lien,
encumbrance or adverse claim against the Private Company Pledged Collateral
Account or in any financial asset carried therein, the Broker will make
reasonable efforts promptly to notify the Administrative Agent and each Pledgor
thereof.
Section 6. Limited Responsibility of Broker. (a) Except for permitting a
withdrawal in violation of Section 3 or 4 above, failing to act in accordance
with a Letter of Direction in violation of Section 4A above or advancing margin
or other credit to any Pledgor in violation of Section 2 above, the Broker shall
have no responsibility or liability to the Administrative Agent for complying
with entitlement orders concerning the Private Company Pledged Collateral
Account from any Pledgor or any person reasonably believed by the Broker to be
such Pledgors's authorized representatives as specified in the Merrill Lynch
account agreement, which are received by the Broker before the Broker receives a
Notice of Exclusive Control and has had reasonable opportunity to act on it. The
Broker shall have no responsibility or liability to any Pledgor for complying
with a Notice of Exclusive Control or complying with entitlement orders
<PAGE>
concerning the Private Company Pledged Collateral Account originated by the
Administrative Agent, and shall have no responsibility to investigate the
appropriateness of any such entitlement order or Notice of Exclusive Control,
even if a Pledgor notifies the Broker that the Administrative Agent is not
legally entitled to originate any such entitlement order or Notice of Exclusive
Control, unless the Broker has been served at the address for notices set forth
below (as such address may from time to time be changed in accordance with
provisions hereof) with an injunction, restraining order or other legal process
issued by a court of competent jurisdiction (a "Court Order") enjoining it from
complying and has had a reasonable opportunity to act on such Court Order. The
Broker shall have no responsibility or liability to the Administrative Agent
with respect to the value of the Private Company Pledged Collateral Account or
any asset held therein. This Agreement does not create any obligation or duty of
the Broker other than those expressly set forth herein.
(b) The Broker shall be entitled to rely upon the
authenticity of, and the truth of any statement in any certificate, opinion of
counsel, evidence of indebtedness, notice, consent, instruction or other
document reasonably believed by the Broker to be genuine and to be signed by the
proper party or parties.
(c) The Broker shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in reliance upon the
advice of its legal counsel.
Section 7. Indemnification of Broker. (a) Each Pledgor agrees to
indemnify and hold harmless the Broker, its directors, officers, agents and
employees against any and all claims, causes of action, liabilities, lawsuits,
demands and damages, including, without limitation, any and all court costs and
reasonable attorney's fees, in any way related to or arising out of or in
connection with this Agreement or any action taken or not taken pursuant hereto,
except to the extent resulting from the Broker's gross negligence or willful
misconduct.
(b) The Administrative Agent shall indemnify and hold
harmless the Broker, its directors, officers, agents and employees against any
losses, liabilities, and damages, including, without limitation, any and all
court costs and reasonable attorney's fees incurred by the Broker as a
consequence of actions taken pursuant to instructions of the Administrative
Agent, except to the extent resulting from the Broker's gross negligence or
willful misconduct.
Section 8. Customer Agreement. In the event of a conflict between this
Agreement and any other agreement between the Broker and any Pledgor, the terms
of this Agreement will prevail. Each Pledgor and the Administrative Agent agree
that this Agreement supplements the applicable Merrill Lynch account agreement
with respect to the Private Company Pledged Collateral Account and that it does
not abridge any rights that the Broker might otherwise have, except as expressly
provided herein.
Section 9. Termination. Unless earlier terminated by the Broker
pursuant to this Section, this Agreement shall continue in effect until the
Administrative Agent has notified the
<PAGE>
Broker in writing that this Agreement, or its security interest in the Private
Company Pledged Collateral Account, is terminated, which notice shall not be
unreasonably withheld by the Administrative Agent upon any such termination.
Upon receipt of such notice (i) the obligations of the Broker under Sections 2,
3, 4 and 5 above with respect to the operation and maintenance of the Private
Company Pledged Collateral Account after the receipt of such notice shall
terminate, (ii) the Administrative Agent shall have no further right to
originate entitlement orders concerning the Private Company Pledged Collateral
Account, (iii) and any previous Notice of Exclusive Control delivered by the
Administrative Agent shall be deemed to be of no further force and effect, and
(iv) the Broker may remove the references to "Pledged Securities" and
"Administrative Agent" from the account titles. The Broker reserves the right,
unilaterally, to terminate this Agreement, such termination to be effective 30
business days after written notice thereof is given to each Pledgor and the
Administrative Agent.
Section 10. Complete Agreement. This Agreement and the instructions and
notices required or permitted to be executed and delivered hereunder set forth
the entire agreement of the parties with respect to the subject matter hereof,
and, subject to Section 8 above, supersede any prior agreement and
contemporaneous oral agreements of the parties concerning its subject matter.
Section 11. Amendments. No amendment, modification or (except as
otherwise specified in Section 9 above) termination of this Agreement, nor any
assignment of any rights hereunder (except to the extent contemplated under
Section 13 below), shall be binding on any party hereto unless it is in writing
and is signed by each of the parties hereto, and any attempt to so amend,
modify, terminate or assign except pursuant to such a writing shall be null and
void. No waiver of any rights hereunder shall be binding on any party hereto
unless such waiver is in writing and signed by the party against whom
enforcement is sought.
Section 12. Severability. If any term or provision set forth in this
Agreement shall be invalid or unenforceable, the remainder of this Agreement,
other than those provisions held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.
Section 13. Successors. The terms of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
corporate successors and assigns. This Agreement may be assigned by the
Administrative Agent to any successor of the Administrative Agent under its
security agreement with the Pledgors, provided that written notice thereof is
given by the Administrative Agent to the Broker.
Section 14. Notices. Except as otherwise expressly provided herein, any
notice, order, instruction, request or other communication required or permitted
to be given under this Agreement shall be in writing and deemed to have been
properly given when delivered in person, or when sent by telecopy or other
electronic means and electronic confirmation of error-free receipt is received
or upon receipt of notice sent by certified or registered United States mail,
<PAGE>
return receipt requested, postage prepaid, addressed to the party at the address
set forth below. Any party may change its address for notices in the manner set
forth above. Notices hereunder shall be addressed:
to Broker at:
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
100 Campus Drive, 3rd Floor
Florham Park, New Jersey 07963
Attention: Robert E. Mulholland
Telephone: (973) 301-7700
Telecopy: (973) 301-7779
<TABLE>
<S> <C>
to ICG at: to the Administrative Agent at:
Internet Capital Group, Inc. PNC Bank, National Association
103 The Springer Building One PNC Plaza - 22nd Floor
3411 Silverside Road 249 Fifth Avenue
Wilmington, Delaware 19801 Pittsburgh, PA 15222-2707
Attention: Vice President of Finance Operation Attention: Ms. Arlene Ohler
Telephone: (302) 478-6160 Telephone: (412) 762-3627
Telecopy: (302) 478-3667 Telecopy: (412) 762-8672
with a copy to: with a copy to:
Internet Capital Group Operations, Inc. VentureBank@PNC
800 The Safeguard Building 1000 Westlakes Drive
435 Devon Park Drive Suite 200
Wayne, PA 19087 Berwyn, PA 19312
Attention: Mr. James N. Borum Attention: Mr. John Freyhof
Mr. Henry N. Nassau Telephone: (610) 725-5752
Telephone: (610) 989-0111 Telecopy: (610) 725-5799
Telecopy: (610) 989-0112
</TABLE>
<PAGE>
to ICG Holdings at:
ICG Holdings, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
to ICLP at:
1999 Internet Capital L.P.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
Section 15. Counterparts. This Agreement may be executed in any number
of
<PAGE>
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing and delivering one or more
counterparts.
Section 16. Choice of Law. Regardless of any provision in any other
agreement relating to the Private Company Pledged Collateral Account, the
parties hereto agree that this Agreement (including the establishment and
maintenance of the Private Company Pledged Collateral Account, and all interest,
duties and obligations with respect to the Private Company Pledged Collateral
Account) shall be governed and construed in accordance with the law of the State
of New York and that the "securities intermediary's jurisdiction", within the
meaning of Section 8-110 of the UCC, of the Broker as securities intermediary in
respect of the Private Company Pledged Collateral Account, is the State of New
York.
Section 17. Additional Pledgors. At any time after the initial
execution and delivery of this Agreement, additional Persons may become parties
to this Agreement and thereby acquire the duties and rights of being Pledgors
hereunder by executing and delivering to the Administrative Agent and the Banks
a Security Agreement (Special Collateral Account) Joinder substantially in the
form of Exhibit 1.1(U)(2) to the Credit Agreement and an Account Control
-----------------
Agreement (Private Company Pledged Securities) Supplement substantially in the
form of Exhibit F attached hereto. No notice of the addition of any Pledgor
shall be required to be given to any pre-existing Pledgor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Accepted and agreed to as of the date first above written.
INTERNET CAPITAL GROUP, INC.
By: _________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
ICG HOLDINGS, INC.
By: _________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
1999 INTERNET CAPITAL L.P.
By: ICG HOLDINGS, INC., its general
partner
By:_________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: _________________________________
Name: Robert E. Mulholland
Title: First Vice President and
District Director
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By: _________________________________
Name:____________________________
Title:___________________________
<PAGE>
Exhibit A
Sample Notice of Exclusive Control
[Letterhead Of Administrative Agent]
Date: _______________
To: Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch")
_____________________________________
_____________________________________
_____________________________________
Attention:___________________________
(insert address of Merrill Lynch office
servicing Private Company Pledged Collateral Account as indicated on
Account Statement)
Re: Pledged Collateral Account number ______________________________
in the name of "Internet Capital Group, Inc.
Private Company Pledged Collateral Account for PNC Bank, National
Association, as Administrative Agent"
This is to notify Merrill Lynch that the above-referenced pledged
collateral account (the "Private Company Pledged Collateral Account") is now
under the exclusive control of PNC Bank, National Association, as Administrative
Agent. Merrill Lynch is hereby instructed to cease complying with instructions
given by or on behalf of Internet Capital Group, Inc., ICG Holdings, Inc., or
1999 Internet Capital L.P. relating to said Private Company Pledged Collateral
Account, to cease distributing interest and regular cash dividends earned on
property in the Private Company Pledged Collateral Account, and to refuse to
accept any other instructions from Internet Capital Group, Inc., ICG Holdings,
Inc., Internet Capital Group Operations, Inc. or 1999 Internet Capital L.P., as
the case may be, intended to exercise any authority with respect to the Private
Company Pledged Collateral Account unless instructed by the undersigned on
behalf of PNC Bank, National Association, as Administrative Agent.
PNC Bank, National Association warrants to Merrill Lynch that this
Notice of Exclusive Control is lawful and authorized by the Security Agreement
(Special Collateral Account) among Internet Capital Group, Inc., ICG Holdings,
Inc., 1999 Internet Capital L.P. and PNC Bank, National Association, as
Administrative Agent.
<PAGE>
All future instructions on the Private Company Pledged Collateral
Account shall be given solely by the undersigned on behalf of PNC Bank, National
Association unless further evidence of authority is provided to Merrill Lynch.
__________________________________
print name
__________________________________
signature date
__________________________________
Title (an authorized officer)
<PAGE>
EXHIBIT B
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
________, 200_
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
_______________________________
_______________________________
_______________________________
Attention: ___________________
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), Internet Capital Group Operations, Inc. ("ICG Operations"),
1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and PNC Bank, National Association, as
Administrative Agent (the "Administrative Agent") for the Banks under that
certain Amended and Restated Credit Agreement, dated as of March 28, 2000 (the
"Credit Agreement"), among ICG and ICG Holdings, as borrowers, the Banks (as
defined in the Credit Agreement), the Guarantors (as defined in the Credit
Agreement), the Administrative Agent and the Agents (as defined in the Credit
Agreement). Capitalized terms used herein without definition shall have the
meanings ascribed thereto in the Account Control Agreement.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
12. The aggregate amount of dividends and interest income the Pledgors
propose to withdraw is _______________________________________________
13. The remaining balance of the Private Company Pledged Collateral
Account, after giving effect to the withdrawal, is ____________________
<PAGE>
14. Set forth below are payment instructions for the proposed withdrawal:
_______________________________
_______________________________
_______________________________
ICG hereby warrants to Merrill Lynch that this notice is lawful and
authorized by the Security Agreement (Special Collateral Account) among ICG, ICG
Holdings, ICLP and the Administrative Agent.
Should you have any questions or require anything further in this
regard, please contact the undersigned at (610) 989-0111at your earliest
convenience.
Very truly yours,
Internet Capital Group, Inc.
By:__________________________
Name: ____________________
Title: ___________________
cc: Mr. John Freyhof
Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
<PAGE>
EXHIBIT C
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
______, 200_
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
____________________________
____________________________
____________________________
Attention: ________________
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), 1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and PNC Bank, National
Association, as Administrative Agent (the "Administrative Agent") for the Banks
under that certain Amended and Restated Credit Agreement, dated as of March 28,
2000 (the "Credit Agreement"), among ICG and ICG Holdings, as borrowers, the
Banks (as defined in the Credit Agreement), the Guarantors (as defined in the
Credit Agreement), the Administrative Agent and the Agents (as defined in the
Credit Agreement). Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Account Control Agreement.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
13. The pledged securities the Pledgors propose to withdraw are ___________
14. Set forth below are instructions for the proposed delivery of such
Pledged Securities:
______________________________
______________________________
______________________________
<PAGE>
ICG hereby warrants to Merrill Lynch that this notice is lawful and
authorized by the Security Agreement (Special Collateral Account) among ICG, ICG
Holdings, ICLP and the Administrative Agent.
Should you have any questions or require anything further in this regard,
please contact the undersigned at (610) 989-0111 at your earliest convenience.
Very truly yours,
Internet Capital Group, Inc.
By: _________________________
Name: ___________________
Title: __________________
cc: Mr. John Freyhof
Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
<PAGE>
EXHIBIT D
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
_____, 200_
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
__________________________
__________________________
__________________________
Attention: ______________
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), 1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and PNC Bank, National
Association, as Administrative Agent (the "Administrative Agent") for the Banks
under that certain Amended and Restated Credit Agreement, dated as of March 28,
2000 (the "Credit Agreement"), among ICG and ICG Holdings, as borrowers, the
Banks (as defined in the Credit Agreement), the Guarantors (as defined in the
Credit Agreement), the Administrative Agent and the Agents (as defined in the
Credit Agreement). Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Account Control Agreement.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
9. The pledged securities the Pledgors propose to exchange are ___________
10. The pledged securities the Pledgors propose to receive in exchange
therefor are _________________.
11. Set forth below are instructions for the proposed exchange:
<PAGE>
_______________________________
_______________________________
_______________________________
ICG hereby warrants to Merrill Lynch that this notice is lawful and
authorized by the Security Agreement (Special Collateral Account) among ICG, ICG
Holdings, ICLP and the Administrative Agent.
Should you have any questions or require anything further in this
regard, please contact the undersigned at (610) 989-0111 at your earliest
convenience.
Very truly yours,
Internet Capital Group, Inc.
By: _________________________
Name: ___________________
Title: __________________
cc: Mr. John Freyhof
Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
<PAGE>
EXHIBIT E
LETTER OF DIRECTION
-------------------
[_________, 200_]
To: Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch")
__________________________________
__________________________________
__________________________________
Attention:________________________
Ladies and Gentlemen:
This Letter of Direction is delivered in connection with that certain
Account Control Agreement (Private Company Pledged Securities) (the "Account
Control Agreement"), dated as of March 28, 2000, by and among Internet Capital
Group, Inc. ("ICG"), ICG Holdings, Inc. ("ICG Holdings"), 1999 Internet Capital
L.P. ("ICLP"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and PNC Bank, National Association, as Administrative Agent (the
"Administrative Agent") for the Banks under that certain Amended and Restated
Credit Agreement, dated as of March 28, 2000 (the "Credit Agreement"), among ICG
and ICG Holdings, as borrowers, the Banks (as defined in the Credit Agreement),
the Guarantors (as defined in the Credit Agreement), the Administrative Agent
and the Agents (as defined in the Credit Agreement). Capitalized terms used
herein without definition shall have the meanings ascribed thereto in the
Account Control Agreement.
The Broker is hereby authorized and directed to withdraw the pledged
securities referred to on Schedule A attached hereto and immediately deposit
each of them into the Public Company Pledged Collateral Account (as such term is
defined in the Account Control Agreement (Public Company Pledged Securities))
held pursuant to that certain Account Control Agreement (Public Company Pledged
Securities), dated as of March 28, 2000 (the "Account Control Agreement (Public
Company Pledged Securities)"), by and among ICG, ICG Holdings, ICLP, Merrill
Lynch and the Administrative Agent for the Banks under the Credit Agreement.
<PAGE>
IN WITNESS WHEREOF, the undersigned duly authorized officer has
executed this Letter of Direction as of the day and year first above written.
INTERNET CAPITAL GROUP, INC.
By:_________________________
Name:
Title:
The undersigned hereby acknowledge receipt of the foregoing Letter of
Direction as of the day first above written and are in agreement with the
instructions contained therein.
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By:__________________________
Name: Mr. John Freyhof
Title: Vice President
<PAGE>
Exhibit F
Form of Account Control Agreement
(Private Company Pledged Securities) Supplement
This SUPPLEMENT, dated as of ____________________ (this
"Supplement"), is made by __________________________, a _________________
corporation (the "Additional Pledgor"), MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED (the "Broker") and PNC BANK, NATIONAL ASSOCIATION, as in its
capacity as administrative agent for the Banks under that certain Credit
Agreement (as hereinafter defined) referred to below (the "Administrative
Agent"). All capitalized terms not defined herein shall have the meaning
ascribed to them in the Credit Agreement.
RECITALS
WHEREAS, reference is hereby made to that certain Amended and Restated
Credit Agreement, dated as of March 28, 2000, among Internet Capital Group,
Inc., a Delaware corporation ("ICG"), ICG Holdings, Inc., a Delaware corporation
("ICG Holdings"; ICG and ICG Holdings being referred to herein collectively as
the "Borrowers"), the Guarantors party thereto, the Banks party thereto, the
Administrative Agent and the Agents (as amended, supplemented or otherwise
modified as of the date hereof, the "Credit Agreement"); and
WHEREAS, in connection with the Credit Agreement, the Borrowers
(collectively the "Pledgors" and each a "Pledgor") have entered into the
Security Agreement (Special Collateral Account), dated as of March 28, 2000, in
favor of the Administrative Agent for the ratable benefit of the Banks (as
amended, supplemented or otherwise modified as of the date hereof, the "Security
Agreement (Special Collateral Account)"); and
WHEREAS, Broker has established securities accounts designated as (i)
Account No. 438-07A49 entitled Internet Capital Group, Inc. Private Co. Pledged
Securities Account for PNC Bank, N.A. as Administrative Agent, (ii) Account No.
438-07A52 entitled ICG Holdings, Inc. Private Co. Pledged Securities Account for
PNC Bank, as Administrative Agent, and (iii) Account No. 438-07A61 entitled 1999
Internet Capital L.P. Private Co. Pledged Securities Account for PNC Bank, as
Administrative Agent (collectively, the "Private Company Pledged Collateral
Account"); and
WHEREAS, pursuant to the Security Agreement (Special Collateral
Account), the Pledgors have granted the Administrative Agent a security interest
in the Private Company
<PAGE>
Pledged Collateral Account and the pledged securities from time to time
deposited in the Public Company Pledged Collateral Account; and
WHEREAS, the Administrative Agent, the Pledgors and the Broker have
entered into an Account Control Agreement (Public Company Pledged Securities)
dated as of March 28, 2000 (the "Account Control Agreement (Public Company
Pledged Securities)") to perfect the security interest of the Administrative
Agent in the Public Company Pledged Collateral Account by providing for the
Administrative Agent to have control over the Public Company Pledged Collateral
Account; and
WHEREAS, Section 17 of the Account Control Agreement (Public Company
Pledged Securities) specifies that additional Persons may acquire the duties and
rights of a Pledgor by becoming party to the Security Agreement (Special
Collateral Account) and the Account Control Agreement (Public Company Pledged
Securities); and
WHEREAS, the Additional Pledgor has agreed to execute and deliver this
Supplement in order to become a party to the Account Control Agreement (Public
Company Pledged Securities).
NOW, THEREFORE, IT IS AGREED:
1. Account Control Agreement (Public Company Pledged Securities). By
-------------------------------------------------------------
executing and delivering this Supplement, the Additional Pledgor, as provided in
Section 17 of the Account Control Agreement (Public Company Pledged Securities)
hereby becomes a party to the Account Control Agreement (Public Company Pledged
Securities), as a Pledgor thereunder with the same force and effect as if
originally named therein as a Pledgor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Pledgor thereunder. By executing and delivering this Supplement, the Broker
hereby represents and warrants that each of the representations and warranties
made by the Broker contained in the Account Control Agreement (Public Company
Pledged Securities) is true and correct on and as of the date hereof (after
giving effect to this Supplement) as if made on and as of such date.
2. Supplement to the Account Control Agreement (Public Company Pledged
-------------------------------------------------------------------
Securities). This Supplement is supplemental to the Account Control Agreement
- -----------
(Public Company Pledged Securities), forms a part thereof and is subject to the
terms thereof. From and after the date of this Supplement, the defined term
"Public Company Pledged Collateral Account" shall be deemed to include each
account listed on Annex I to this Supplement.
<PAGE>
3. Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
duly executed and delivered as of the date first above written.
[NAME OF ADDITIONAL PLEDGOR],
a ___________________ corporation
By_______________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By_______________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By_______________________
Name:
Title:
ANNEX I
to Supplement
I. Supplements To Public Company Pledged Collateral Account
Account Number and Title
------------------------
<PAGE>
EXHIBIT 1.1(P)(4)
Account Control Agreement
(Public Company Pledged Securities)
Account Control Agreement (Public Company Pledged Securities), dated as
of March 28, 2000 (this "Agreement"), among INTERNET CAPITAL GROUP, INC., a
Delaware corporation ("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG
Holdings"), and 1999 INTERNET CAPITAL L.P., a Delaware limited partnership
("ICLP" and together with ICG and ICG Holdings, each a "Pledgor" and
collectively the "Pledgors"), MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, a Delaware corporation ("Broker") and PNC BANK, NATIONAL
ASSOCIATION, a national banking association (the "Administrative Agent"), in its
capacity as Administrative Agent for the Banks under that certain Amended and
Restated Credit Agreement, dated as of March 28, 2000 (the "Credit Agreement"),
among ICG and ICG Holdings, as borrowers, the Banks (as defined therein), the
Guarantors (as defined therein), the Administrative Agent and the Agents (as
defined therein).
Witnesseth:
WHEREAS, Broker has established securities accounts designated as (i)
Account No. 438-07A48 entitled Internet Capital Group, Inc. Public Co.
Pledged Securities Account for PNC Bank, N.A. as Administrative Agent, (ii)
Account No. 438-07A51 entitled ICG Holdings, Inc. Public Co. Pledged
Securities Account for PNC Bank, N.A. as Administrative Agent, and (iii)
Account No. 438-07A60 entitled 1999 Internet Capital L.P. Public Co.
Pledged Securities Account for PNC Bank, N.A. as Administrative Agent
(collectively, the "Public Company Pledged Collateral Account");
WHEREAS, pursuant to that certain Security Agreement (Special
Collateral Account), dated as of March 28, 2000 (the "Security Agreement
(Special Collateral Account)"), among the Pledgors and the Administrative Agent,
the Pledgors have granted the Administrative Agent a security interest in the
Public Company Pledged Collateral Account and the pledged securities from time
to time deposited in the Public Company Pledged Collateral Account;
WHEREAS, it is a condition to the financing transactions contemplated
by the Credit Agreement that the Administrative Agent obtain and continue to
maintain a perfected first priority security interest in the Public Company
Pledged Collateral Account and the pledged securities from time to time held
therein;
WHEREAS, the Administrative Agent, the Pledgors and the Broker are
entering into this Agreement to perfect the security interest of the
Administrative Agent in the Public Company Pledged Collateral Account by
providing for the Administrative Agent to have control over the Public Company
Pledged Collateral Account;
<PAGE>
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. The Public Company Pledged Collateral Account. The Broker
hereby represents and warrants to the Administrative Agent and the Pledgors that
(a) in the ordinary course of its business, the Broker maintains securities with
the title accounts for others, (b) the Public Company Pledged Collateral Account
has been established with the titles as recited above, and (c) except for the
claims and interest of the Administrative Agent and the Pledgors in the Public
Company Pledged Collateral Account (subject to any claim in favor of the Broker
permitted under Section 2), the manager executing this Agreement on behalf of
the Broker does not know of any claim to or interest in the Public Company
Pledged Collateral Account. All parties agree that the Public Company Pledged
Collateral Account is a "securities account" within the meaning of Article 8 of
the Uniform Commercial Code of the State of New York (the "UCC") and that all
property held by the Broker in the Public Company Pledged Collateral Account
will be treated as financial assets under the UCC. However, the Pledgors and the
Administrative Agent each acknowledge that the following assets are not covered
by this Agreement even if shown, for information purposes, on a periodic account
statement for the Public Company Pledged Collateral Account because the Broker
is not the legal custodian of such assets: Money Market Deposit Account (MMDA)
Balances, shares of ML Ready Assets Trusts, USA Government and USA Treasury
Money Market Funds and of the Merrill Lynch Institutional Funds, non-listed
limited partnership or limited liability interests, annuities and life insurance
contracts, precious metals, loan receivables, note receivables, bridge loans and
similar such items. The Broker will not be responsible for assuring that any of
these assets are not acquired with cash from the Public Company Pledged
Collateral Account. The parties further acknowledge that no security entitlement
under the UCC shall exist with respect to any financial asset which may be held
by the Broker for any Pledgor (even though such financial asset may be shown on
a periodic statement as being held in the Account) which is registered in the
name of a Pledgor, payable to the order of a Pledgor or specially indorsed to a
Pledgor, except to the extent the foregoing have been specially indorsed to the
Broker or in blank.
Section 2. Priority of Lien. The Broker hereby acknowledges the
security interest granted to the Administrative Agent by the Pledgors. The
Broker hereby confirms that the Public Company Pledged Collateral Account is a
controlled securities account and cash account and that it will not advance any
margin or other credit to the Pledgors nor hypothecate any securities carried in
the Public Company Pledged Collateral Account except in connection with the
settlement of trading activity permitted to be conducted by the Pledgors
hereunder. The Broker hereby subordinates all liens, encumbrances, claims and
rights of setoff it may have, now or in the future, against the Public Company
Pledged Collateral Account or any property carried in the Public Company Pledged
Collateral Account or any free credit balance in the Public Company Pledged
Collateral Account other than in connection with activities in which the
Pledgors are permitted to engage hereunder, including the payment of the
Broker's customary fees, commissions and other charges pursuant to its agreement
with the Pledgors and for payment or delivery of financial assets purchased or
sold for or from the Public Company Pledged Collateral Account. The Broker will
not agree with any third party that the Broker will comply with entitlement
orders concerning the Public Company Pledged Collateral Account originated by
such third party without the prior written consent of the Administrative Agent
and
<PAGE>
the Pledgors.
Section 3. Control. (a) The Broker will comply with entitlement
orders originated by the Administrative Agent concerning the Public Company
Pledged Collateral Account without further consent by the Pledgors. In
furtherance of the foregoing, the Broker will comply with all orders from the
Administrative Agent directing the Broker to hold, transfer or dispose of all
amounts and other financial assets in the Public Company Pledged Collateral
Account as the Administrative Agent may from time to time specify, in each case,
without obtaining the consent from the Pledgors, provided that, until such time
as the Administrative Agent delivers a written notice to the Broker that the
Administrative Agent is thereby exercising exclusive control over the Public
Company Pledged Collateral Account (a "Notice of Exclusive Control"), in
substantially the form of Exhibit A attached hereto, the Broker may comply with
the trading instructions and other entitlement orders of any Pledgor, or any of
the Pledgors' authorized representatives, with respect to the Public Company
Pledged Collateral Account, except as otherwise provided in Section 4 below. The
Administrative Agent shall promptly (and in any event, within five (5) days)
notify each Pledgor in writing of the Administrative Agent's exercise of
exclusive control over the Public Company Pledged Collateral Account (provided
that failure to so notify any Pledgor within five (5) days shall not impair or
otherwise affect in any way the validity, force and effect of the Notice of
Exclusive Control).
(b) So long as the Administrative Agent's Notice
of Exclusive Control is not in effect, the Broker may allow the Pledgors to
exercise (x) all voting, corporate and other rights pertaining to financial
assets held in the Public Company Pledged Collateral Account and (y) any and all
rights of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such financial assets as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the financial assets upon the merger, consolidation,
reorganization, recapitalization or other financial change in the corporate
structure of the issuer of such financial assets).
(c) After the Broker receives a Notice of
Exclusive Control and has had a reasonable opportunity to comply, it will cease
complying with entitlement orders or other instructions concerning the Public
Company Pledged Collateral Account originated by any Pledgor or any of their
representatives and cease distributing interest and dividends on property in the
Public Company Pledged Collateral Account and cease making withdrawals to any
Pledgor and will not allow any Pledgor to exercise (x) any voting, corporate or
other rights pertaining to financial assets held in the account which would
normally be exercised through the Broker or (y) any rights of conversion,
exchange, subscription or other rights, privileges or options pertaining to such
financial assets. The Broker shall be entitled to rely upon any entitlement
order or Notice of Exclusive Control that it reasonably believes to be from the
Administrative Agent. Until it receives a Notice of Exclusive Control, the
Broker shall be entitled to continue to act on investment instructions from any
Pledgor as are delivered in form satisfactory to the Broker.
Section 4. Limited Withdrawals. Notwithstanding the provisions of
Section 3 above, the Broker shall not comply with any entitlement order from any
Pledgor requiring a free
<PAGE>
delivery of any financial assets from the Public Company Pledged Collateral
Account nor deliver any such financial assets to any Pledgor nor pay any free
credit balance or other amount owing from the Broker to any Pledgor with respect
to the Public Company Pledged Collateral Account (each such delivery or payment
being herein referred to as a "withdrawal"), except that the Broker shall be
permitted to make withdrawals payable to, or deliverable at the direction of,
any Pledgor consisting of (a) distributions of interest or dividends earned in
the Public Company Pledged Collateral Account upon delivery to the
Administrative Agent and the Broker, on or prior to 11:00 A.M. Eastern Standard
Time on the date of any proposed disposition, of a written notice substantially
in the form of Exhibit B attached hereto or (b) certain permitted withdrawals of
pledged securities upon delivery to the Broker at least contemporaneously
therewith of a written notice substantially in the form of Exhibit C attached
hereto, signed by the applicable Pledgor(s) and the Administrative Agent.
Section 5. Statements, Confirmations and Notices of Adverse Claims.
The Broker will send copies of all statements and confirmations concerning the
Public Company Pledged Collateral Account to each Pledgor and the Administrative
Agent at the address set forth in Section 14 of this Agreement. Upon receipt at
the branch office of the Broker at which the Public Company Pledged Collateral
Account is maintained (which office is set forth in Section 14 hereof or to such
other office as the Broker shall give notice to the Administrative Agent and
each Pledgor) of written notice of any lien, encumbrance or adverse claim
against the Public Company Pledged Collateral Account or in any financial asset
carried therein, the Broker will make reasonable efforts promptly to notify the
Administrative Agent and each Pledgor thereof.
Section 6. Limited Responsibility of Broker. (a) Except for
permitting a withdrawal in violation of Section 3 or 4 above or advancing margin
or other credit to any Pledgor in violation of Section 2 above, the Broker shall
have no responsibility or liability to the Administrative Agent for complying
with entitlement orders concerning the Public Company Pledged Collateral Account
from any Pledgor or any person reasonably believed by the Broker to be such
Pledgors's authorized representatives, as specified in the Merrill Lynch account
agreement, which are received by the Broker before the Broker receives a Notice
of Exclusive Control and has had reasonable opportunity to act on it. The Broker
shall have no responsibility or liability to any Pledgor for complying with a
Notice of Exclusive Control or complying with entitlement orders concerning the
Public Company Pledged Collateral Account originated by the Administrative
Agent, and shall have no responsibility to investigate the appropriateness of
any such entitlement order or Notice of Exclusive Control, even if a Pledgor
notifies the Broker that the Administrative Agent is not legally entitled to
originate any such entitlement order or Notice of Exclusive Control, unless the
Broker has been served at the address for notices set forth below (as such
address may from time to time be changed in accordance with provisions hereof)
with an injunction, restraining order or other legal process issued by a court
of competent jurisdiction (a "Court Order") enjoining it from complying and has
had a reasonable opportunity to act on such Court Order. The Broker shall have
no responsibility or liability to the Administrative Agent with respect to the
value of the Public Company Pledged Collateral Account or any asset held
therein. This Agreement does not create any obligation or duty of the Broker
other than those expressly set forth herein.
<PAGE>
(b) The Broker shall be entitled to rely upon
the authenticity of, and the truth of any statement in any certificate, opinion
of counsel, evidence of indebtedness, notice, consent, instruction or other
document reasonably believed by the Broker to be genuine and to be signed by the
proper party or parties.
(c) The Broker shall not be liable with
respect to any action taken or omitted to be taken by it in good faith
in reliance upon the advice of its legal counsel.
Section 7. Indemnification of Broker. (a) Each Pledgor agrees to
indemnify and hold harmless the Broker, its directors, officers, agents and
employees against any and all claims, causes of action, liabilities, lawsuits,
demands and damages, including, without limitation, any and all court costs and
reasonable attorney's fees, in any way related to or arising out of or in
connection with this Agreement or any action taken or not taken pursuant hereto,
except to the extent resulting from the Broker's gross negligence or willful
misconduct.
(b) The Administrative Agent shall indemnify and hold harmless the Broker,
its directors, officers, agents and employees against any losses, liabilities,
and damages, including, without limitation, any and all court costs and
reasonable attorney's fees incurred by the Broker as a consequence of actions
taken pursuant to instructions of the Administrative Agent, except to the extent
resulting from the Broker's gross negligence or willful misconduct.
Section 8. Customer Agreement. In the event of a conflict between
this Agreement and any other agreement between the Broker and any Pledgor, the
terms of this Agreement will prevail. Each Pledgor and the Administrative Agent
agree that this Agreement supplements the applicable Merrill Lynch account
agreement with respect to the Public Company Pledged Collateral Account, and
that it does not abridge any rights that the Broker might otherwise have, except
as expressly provided herein.
Section 9. Termination. Unless earlier terminated by the Broker
pursuant to this Section, this Agreement shall continue in effect until the
Administrative Agent has notified the Broker in writing that this Agreement, or
its security interest in the Public Company Pledged Collateral Account, is
terminated, which notice shall not be unreasonably withheld by the
Administrative Agent upon any such termination. Upon receipt of such notice (i)
the obligations of the Broker under Sections 2, 3, 4 and 5 above with respect to
the operation and maintenance of the Public Company Pledged Collateral Account
after the receipt of such notice shall terminate, (ii) the Administrative Agent
shall have no further right to originate entitlement orders concerning the
Public Company Pledged Collateral Account, (iii) any previous Notice of
Exclusive Control delivered by the Administrative Agent shall be deemed to be of
no further force and effect, and (iv) the Broker may remove the references to
"Pledged Securities" and "Administrative Agent" from the account titles. The
Broker reserves the right, unilaterally, to terminate this Agreement, such
termination to be effective 30 business days after written notice thereof is
given to each Pledgor and the Administrative Agent.
Section 10. Complete Agreement. This Agreement and the instructions
and notices required or permitted to be executed and delivered hereunder set
forth the entire agreement of the
<PAGE>
parties with respect to the subject matter hereof, and, subject to Section
8 above, supersede any prior agreement and contemporaneous oral agreements of
the parties concerning its subject matter.
Section 11. Amendments. No amendment, modification or (except as
otherwise specified in Section 9 above) termination of this Agreement, nor any
assignment of any rights hereunder (except to the extent contemplated under
Section 13 below), shall be binding on any party hereto unless it is in writing
and is signed by each of the parties hereto, and any attempt to so amend,
modify, terminate or assign except pursuant to such a writing shall be null and
void. No waiver of any rights hereunder shall be binding on any party hereto
unless such waiver is in writing and signed by the party against whom
enforcement is sought.
Section 12. Severability. If any term or provision set forth in this
Agreement shall be invalid or unenforceable, the remainder of this Agreement,
other than those provisions held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.
Section 13. Successors. The terms of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
corporate successors and assigns. This Agreement may be assigned by the
Administrative Agent to any successor of the Administrative Agent under its
security agreement with the Pledgors, provided that written notice thereof is
given by the Administrative Agent to the Broker.
Section 14. Notices. Except as otherwise expressly provided herein,
any notice, order, instruction, request or other communication required or
permitted to be given under this Agreement shall be in writing and deemed to
have been properly given when delivered in person, or when sent by telecopy or
other electronic means and electronic confirmation of error-free receipt is
received or upon receipt of notice sent by certified or registered United States
mail, return receipt requested, postage prepaid, addressed to the party at the
address set forth below. Any party may change its address for notices in the
manner set forth above. Notices hereunder shall be addressed:
to Broker at:
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
100 Campus Drive, 3rd Floor
Florham Park, New Jersey 07963
Attention: Robert E. Mulholland
Telephone: (973) 301-7700
Telecopy: (973) 301-7779
<PAGE>
to ICG at: to the Administrative Agent at:
Internet Capital Group, Inc. PNC Bank, National Association
103 The Springer Building One PNC Plaza - 22nd Floor
3411 Silverside Road 249 Fifth Avenue
Wilmington, Delaware 19801 Pittsburgh, PA 15222-2707
Attention: Vice President of Finance Operation Attention: Ms. Arlene Ohler
Telephone: (302) 478-6160 Telephone: (412) 762-3627
Telecopy: (302) 478-3667 Telecopy: (412) 762-8672
with a copy to: with a copy to:
Internet Capital Group Operations, Inc. VentureBank@PNC
800 The Safeguard Building 1000 Westlakes Drive
435 Devon Park Drive Suite 200
Wayne, PA 19087 Berwyn, PA 19312
Attention: Mr. James N. Borum Attention: Mr. John Freyhof
Mr. Henry N. Nassau Telephone: (610) 725-5752
Telephone: (610) 989-0111 Telecopy: (610) 725-5799
Telecopy: (610) 989-0112
to ICG Holdings at:
ICG Holdings, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
<PAGE>
to ICLP at:
1999 Internet Capital L.P.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
Section 15. Counterparts. This Agreement may be executed in any number
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing and delivering one or
more counterparts.
Section 16. Choice of Law. Regardless of any provision in any other
agreement relating to the Public Company Pledged Collateral Account, the parties
hereto agree that this Agreement (including the establishment and maintenance of
the Public Company Pledged Collateral Account, and all interest, duties and
obligations with respect to the Public Company Pledged Collateral Account) shall
be governed and construed in accordance with the law of the State of New York
and that the "securities intermediary's jurisdiction", within the meaning of
Section 8-110 of the UCC, of the Broker as securities intermediary in respect of
the Public Company Pledged Collateral Account, is the State of New York.
Section 17. Additional Pledgors. At any time after the initial execution
and delivery of this Agreement, additional Persons may become parties to this
Agreement and thereby acquire the duties and rights of being Pledgors hereunder
by executing and delivering to the Administrative Agent and the Banks a Security
Agreement (Special Collateral Account) Joinder substantially in the form of
Exhibit 1.1(U)(2) to the Credit Agreement and an Account Control Agreement
- -----------------
(Public Company Pledged Securities) Supplement substantially in the form of
Exhibit D attached hereto. No notice of the addition of any Pledgor shall be
required to be given to any pre-existing Pledgor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Accepted and agreed to as of the date first above written.
INTERNET CAPITAL GROUP, INC.
By:__________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
ICG HOLDINGS, INC.
By:__________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
1999 INTERNET CAPITAL L.P.
By: ICG HOLDINGS, INC., its general
partner
By:__________________________________
Name: John N. Nickolas
Title: Managing Director, Finance
and Assistant Treasurer
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:__________________________________
Name: Robert E. Mulholland
Title: Vice President and
District Director
<PAGE>
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By:____________________________
Name:_______________________
Title:______________________
<PAGE>
EXHIBIT A
SAMPLE NOTICE OF EXCLUSIVE CONTROL
[LETTERHEAD OF ADMINISTRATIVE AGENT]
Date:
---------------
To: Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch")
___________________________________________
___________________________________________
___________________________________________
Attention:_________________________________
(insert address of Merrill Lynch office
servicing Private Company Pledged Collateral Account as indicated on
Account Statement)
Re: Pledged Collateral Account number_____________________________
in the name of "Internet Capital Group, Inc.
Private Company Pledged Collateral Account for PNC Bank, National
Association, as Administrative Agent"
This is to notify Merrill Lynch that the above-referenced pledged
collateral account (the "Private Company Pledged Collateral Account") is now
under the exclusive control of PNC Bank, National Association, as Administrative
Agent. Merrill Lynch is hereby instructed to cease complying with instructions
given by or on behalf of Internet Capital Group, Inc., ICG Holdings, Inc., or
1999 Internet Capital L.P. relating to said Private Company Pledged Collateral
Account, to cease distributing interest and regular cash dividends earned on
property in the Private Company Pledged Collateral Account, and to refuse to
accept any other instructions from Internet Capital Group, Inc., ICG Holdings,
Inc., Internet Capital Group Operations, Inc. or 1999 Internet Capital L.P., as
the case may be, intended to exercise any authority with respect to the Private
Company Pledged Collateral Account unless instructed by the undersigned on
behalf of PNC Bank, National Association, as Administrative Agent.
PNC Bank, National Association warrants to Merrill Lynch that this
Notice of Exclusive Control is lawful and authorized by the Security Agreement
(Special Collateral Account) among Internet Capital Group, Inc., ICG Holdings,
Inc., 1999 Internet Capital L.P. and PNC Bank, National Association, as
Administrative Agent.
<PAGE>
All future instructions on the Private Company Pledged Collateral
Account shall be given solely by the undersigned on behalf of PNC Bank, National
Association unless further evidence of authority is provided to Merrill Lynch.
_______________________________
print name
_______________________________
signature date
_______________________________
Title (an authorized officer)
<PAGE>
EXHIBIT B
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
________, 200_
Merrill Lynch, Pierce, Fenner & Smith Incorporated
_______________________________
_______________________________
_______________________________
Attention:_____________________
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), Internet Capital Group Operations, Inc. ("ICG Operations"),
1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and PNC Bank, National Association, as
Administrative Agent (the "Administrative Agent") for the Banks under that
certain Amended and Restated Credit Agreement, dated as of March 28, 2000 (the
"Credit Agreement"), among ICG and ICG Holdings, as borrowers, the Banks (as
defined in the Credit Agreement), the Guarantors (as defined in the Credit
Agreement), the Administrative Agent and the Agents (as defined in the Credit
Agreement). Capitalized terms used herein without definition shall have the
meanings ascribed thereto in the Account Control Agreement.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
9. The aggregate amount of dividends and interest income the Pledgors
propose to withdraw is ___________________________________
10. The remaining balance of the Private Company Pledged Collateral
Account, after giving effect to the withdrawal, is_____________________
<PAGE>
11. Set forth below are payment instructions for the proposed
withdrawal:
_______________________________
_______________________________
_______________________________
ICG hereby warrants to Merrill Lynch that this notice is lawful and
authorized by the Security Agreement (Special Collateral Account) among ICG, ICG
Holdings, ICLP and the Administrative Agent.
Should you have any questions or require anything further in this
regard, please contact the undersigned at (610) 989-0111at your earliest
convenience.
Very truly yours,
Internet Capital Group, Inc.
By: _____________________________
Name: _______________________
Title: ______________________
cc: Mr. John Freyhof
Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
<PAGE>
EXHIBIT C
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
______, 200_
Merrill Lynch, Pierce, Fenner & Smith Incorporated
_______________________________
_______________________________
_______________________________
Attention: ___________________
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), 1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and PNC Bank, National
Association, as Administrative Agent (the "Administrative Agent") for the Banks
under that certain Amended and Restated Credit Agreement, dated as of March 28,
2000 (the "Credit Agreement"), among ICG and ICG Holdings, as borrowers, the
Banks (as defined in the Credit Agreement), the Guarantors (as defined in the
Credit Agreement), the Administrative Agent and the Agents (as defined in the
Credit Agreement). Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Account Control Agreement.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
11. The pledged securities the Pledgors propose to withdraw
are___________________________
12. Set forth below are instructions for the proposed delivery of such
Pledged Securities:
_______________________________
_______________________________
_______________________________
<PAGE>
ICG hereby warrants to Merrill Lynch that this notice is lawful and
authorized by the Security Agreement (Special Collateral Account) among ICG, ICG
Holdings, ICLP and the Administrative Agent.
Should you have any questions or require anything further in this regard,
please contact the undersigned at (610) 989-0111 at your earliest convenience.
Very truly yours,
Internet Capital Group, Inc.
By:__________________________________
Name:_____________________________
Title:____________________________
The undersigned hereby acknowledge receipt of the foregoing notice as of
the day first above written and are in agreement with the instructions contained
therein.
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By:__________________________________
Name: Mr. John Freyhof
Title: Vice President
<PAGE>
Exhibit D
Form of Account Control Agreement
(Public Company Pledged Securities) Supplement
This SUPPLEMENT, dated as of ____________________ (this "Supplement"),
is made by __________________________, a _________________ corporation (the
"Additional Pledgor"), MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (the
"Broker") and PNC BANK, NATIONAL ASSOCIATION, as in its capacity as
administrative agent for the Banks under that certain Credit Agreement (as
hereinafter defined) referred to below (the "Administrative Agent"). All
capitalized terms not defined herein shall have the meaning ascribed to them in
the Credit Agreement.
RECITALS
--------
WHEREAS, reference is hereby made to that certain Amended and Restated
Credit Agreement, dated as of March 28, 2000, among Internet Capital Group,
Inc., a Delaware corporation ("ICG"), ICG Holdings, Inc., a Delaware corporation
("ICG Holdings"; ICG and ICG Holdings being referred to herein collectively as
the "Borrowers"), the Guarantors party thereto, the Banks party thereto, the
Administrative Agent and the Agents (as amended, supplemented or otherwise
modified as of the date hereof, the "Credit Agreement"); and
WHEREAS, in connection with the Credit Agreement, the Borrowers
(collectively the "Pledgors" and each a "Pledgor") have entered into the
Security Agreement (Special Collateral Account), dated as of March 28, 2000, in
favor of the Administrative Agent for the ratable benefit of the Banks (as
amended, supplemented or otherwise modified as of the date hereof, the "Security
Agreement (Special Collateral Account)"); and
WHEREAS, Broker has established securities accounts designated as (i)
Account No. 438-07A48 entitled Internet Capital Group, Inc. Public Co. Pledged
Securities Account for PNC Bank, N.A. as Administrative Agent, (ii) Account No.
438-07A51 entitled ICG Holdings, Inc. Public Co. Pledged Securities Account for
PNC Bank, as Administrative Agent, and (iii) Account No. 438-07A60 entitled 1999
Internet Capital L.P. Public Co. Pledged Securities Account for PNC Bank, as
Administrative Agent (collectively, the "Public Company Pledged Collateral
Account"); and
WHEREAS, pursuant to the Security Agreement (Special Collateral Account),
the Pledgors have granted the Administrative Agent a security interest in the
Public Company
<PAGE>
Pledged Collateral Account and the pledged securities from time to time
deposited in the Public Company Pledged Collateral Account; and
WHEREAS, the Administrative Agent, the Pledgors and the Broker have entered
into an Account Control Agreement (Public Company Pledged Securities) dated as
of March 28, 2000 (the "Account Control Agreement (Public Company Pledged
Securities)") to perfect the security interest of the Administrative Agent in
the Public Company Pledged Collateral Account by providing for the
Administrative Agent to have control over the Public Company Pledged Collateral
Account; and
WHEREAS, Section 17 of the Account Control Agreement (Public Company
Pledged Securities) specifies that additional Persons may acquire the duties and
rights of a Pledgor by becoming party to the Security Agreement (Special
Collateral Account) and the Account Control Agreement (Public Company Pledged
Securities); and
WHEREAS, the Additional Pledgor has agreed to execute and deliver this
Supplement in order to become a party to the Account Control Agreement (Public
Company Pledged Securities).
NOW, THEREFORE, IT IS AGREED:
1. Account Control Agreement (Public Company Pledged Securities). By
-------------------------------------------------------------
executing and delivering this Supplement, the Additional Pledgor, as provided in
Section 17 of the Account Control Agreement (Public Company Pledged Securities)
hereby becomes a party to the Account Control Agreement (Public Company Pledged
Securities), as a Pledgor thereunder with the same force and effect as if
originally named therein as a Pledgor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Pledgor thereunder. By executing and delivering this Supplement, the Broker
hereby represents and warrants that each of the representations and warranties
made by the Broker contained in the Account Control Agreement (Public Company
Pledged Securities) is true and correct on and as of the date hereof (after
giving effect to this Supplement) as if made on and as of such date.
2. Supplement to the Account Control Agreement (Public Company Pledged
-------------------------------------------------------------------
Securities). This Supplement is supplemental to the Account Control Agreement
- -----------
(Public Company Pledged Securities), forms a part thereof and is subject to the
terms thereof. From and after the date of this Supplement, the defined term
"Public Company Pledged Collateral Account" shall be deemed to include each
account listed on Annex I to this Supplement.
<PAGE>
3. Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
duly executed and delivered as of the date first above written.
[NAME OF ADDITIONAL PLEDGOR],
a ___________________ corporation
By_______________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By_______________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By_______________________
Name:
Title:
ANNEX I
to Supplement
I. Supplements To Public Company Pledged Collateral Account
Account Number and Title
------------------------
<PAGE>
EXHIBIT 1.1(P)(5)
Account Control Agreement
(Subject to Pledge Securities)
Account Control Agreement (Subject to Pledge Securities), dated as of
March 28, 2000 (this "Agreement"), among INTERNET CAPITAL GROUP, INC., a
Delaware corporation ("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG
Holdings"), and 1999 INTERNET CAPITAL L.P., a Delaware limited partnership
("ICLP" and together with ICG and ICG Holdings, each a "Pledgor" and
collectively the "Pledgors"), MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED, a Delaware corporation ("Broker") and PNC BANK, NATIONAL
ASSOCIATION, a national banking association (the "Administrative Agent"), in its
capacity as Administrative Agent for the Banks under that certain Amended and
Restated Credit Agreement, dated as of March 28, 2000 (the "Credit Agreement"),
among ICG and ICG Holdings, as borrowers, the Banks (as defined therein), the
Guarantors (as defined therein), the Administrative Agent and the Agents (as
defined therein).
Witnesseth:
Whereas, Broker has established securities accounts designated as (i)
Account No. 438-07A63 entitled Internet Capital Group, Inc. Subject to Pledge
Account for PNC Bank, N.A. as Administrative Agent, (ii) Account No. 438-07A64
entitled ICG Holdings, Inc. Subject to Pledge Account for PNC Bank, as
Administrative Agent, and (iii) Account No. 438-07A65 entitled 1999 Internet
Capital L.P. Subject to Pledge Account for PNC Bank, as Administrative Agent
(collectively, the "Subject to Pledge Collateral Account");
Whereas, pursuant to that certain Security Agreement (Special
Collateral Account), dated as of March 28, 2000 (the "Security Agreement
(Special Collateral Account)"), among the Pledgors and the Administrative Agent,
the Pledgors have granted the Administrative Agent a security interest in the
Subject to Pledge Collateral Account and the pledged securities from time to
time deposited in the Subject to Pledge Collateral Account;
Whereas, it is a condition to the financing transactions contemplated
by the Credit Agreement that the Administrative Agent obtain and continue to
maintain a perfected first priority security interest in the Subject to Pledge
Collateral Account and the pledged securities from time to time held therein;
Whereas, the Administrative Agent, the Pledgors and the Broker are
entering into this Agreement to perfect the security interest of the
Administrative Agent in the Subject to Pledge Collateral Account by providing
for the Administrative Agent to have control over the Subject to Pledge
Collateral Account;
<PAGE>
Now, Therefore, the parties hereto hereby agree as follows:
Section 1. The Subject to Pledge Collateral Account. The Broker hereby
represents and warrants to the Administrative Agent and the Pledgors that (a) in
the ordinary course of its business, the Broker maintains securities accounts
for others, (b) the Subject to Pledge Collateral Account has been established
with the titles as recited above, and (c) except for the claims and interest of
the Administrative Agent and the Pledgors in the Subject to Pledge Collateral
Account (subject to any claim in favor of the Broker permitted under Section 2),
the manager executing this Agreement on behalf of the Broker does not know of
any claim to or interest in the Subject to Pledge Collateral Account. All
parties agree that the Subject to Pledge Collateral Account is a "securities
account" within the meaning of Article 8 of the Uniform Commercial Code of the
State of New York (the "UCC") and that all property held by the Broker in the
Subject to Pledge Collateral Account will be treated as financial assets under
the UCC. However, the Pledgors and the Administrative Agent each acknowledge
that the following assets are not covered by this Agreement even if shown, for
information purposes, on a periodic account statement for the Subject to Pledge
Collateral Account because the Broker is not the legal custodian of such assets:
Money Market Deposit Account (MMDA) Balances, shares of ML Ready Assets Trusts,
USA Government and USA Treasury Money Market Funds and of the Merrill Lynch
Institutional Funds, non-listed limited partnership or limited liability
interests, annuities and life insurance contracts, precious metals, loan
receivables, note receivables, bridge loans and similar such items. The Broker
will not be responsible for assuring that any of these assets are not acquired
with cash from the Subject to Pledge Collateral Account. The parties further
acknowledge that no security entitlement under the UCC shall exist with respect
to any financial asset which may be held by the Broker for any Pledgor (even
though such financial asset may be shown on a periodic statement as being held
in the Account) which is registered in the name of a Pledgor, payable to the
order of a Pledgor or specially indorsed to a Pledgor, except to the extent the
foregoing have been specially indorsed to the Broker or in blank.
Section 2. Priority of Lien. The Broker hereby acknowledges the
security interest granted to the Administrative Agent by the Pledgors. The
Broker hereby confirms that the Subject to Pledge Collateral Account is a
controlled securities account and cash account and that it will not advance any
margin or other credit to the Pledgors nor hypothecate any securities carried in
the Subject to Pledge Collateral Account except in connection with the
settlement of trading activity permitted to be conducted by the Pledgors
hereunder. The Broker hereby subordinates all liens, encumbrances, claims and
rights of setoff it may have, now or in the future, against the Subject to
Pledge Collateral Account or any property carried in the Subject to Pledge
Collateral Account or any free credit balance in the Subject to Pledge
Collateral Account other than in connection with activities in which the
Pledgors are permitted to engage hereunder, including the payment of the
Broker's customary fees, commissions and other charges pursuant to its agreement
with the Pledgors and for payment or delivery of financial assets purchased or
sold for or from the Subject to Pledge Collateral Account. The Broker will not
agree with any third party that the Broker will comply with entitlement orders
concerning the Subject to Pledge Collateral Account originated by such third
party without the prior written consent of the Administrative Agent and the
Pledgors.
<PAGE>
Section 3. Control. (a) The Broker will comply with entitlement orders
originated by the Administrative Agent concerning the Subject to Pledge
Collateral Account without further consent by the Pledgors. In furtherance of
the foregoing, the Broker will comply with all orders from the Administrative
Agent directing the Broker to hold, transfer or dispose of all amounts and other
financial assets in the Subject to Pledge Collateral Account as the
Administrative Agent may from time to time specify, in each case, without
obtaining the consent from the Pledgors, provided that, until such time as the
Administrative Agent delivers a written notice to the Broker and each Pledgor
that the Administrative Agent is thereby exercising exclusive control over the
Subject to Pledge Collateral Account (a "Notice of Exclusive Control"), in
substantially the form of Exhibit A attached hereto, the Broker may comply with
the trading instructions and other entitlement orders of any Pledgor, or any of
the Pledgors' authorized representatives, with respect to the Subject to Pledge
Collateral Account, except as otherwise provided in Section 4 below.
(b) So long as the Administrative Agent's Notice of
Exclusive Control is not in effect, the Broker may allow the Pledgors to
exercise (x) all voting, corporate and other rights pertaining to financial
assets held in the Subject to Pledge Collateral Account and (y) any and all
rights of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such financial assets as if it were the absolute owner
thereof (including, without limitation, the right to exchange at its discretion
any and all of the financial assets upon the merger, consolidation,
reorganization, recapitalization or other financial change in the corporate
structure of the issuer of such financial assets).
(c) After the Broker receives a Notice of Exclusive Control
and has had a reasonable opportunity to comply, it will cease complying with
entitlement orders or other instructions concerning the Subject to Pledge
Collateral Account originated by any Pledgor or any of their representatives and
cease distributing interest and dividends on property in the Subject to Pledge
Collateral Account and cease making withdrawals to any Pledgor and will not
allow any Pledgor to exercise (x) any voting, corporate or other rights
pertaining to financial assets held in the account which would normally be
exercised through the Broker or (y) any rights of conversion, exchange,
subscription or other rights, privileges or options pertaining to such financial
assets. The Broker shall be entitled to rely upon any entitlement order or
Notice of Exclusive Control that it reasonably believes to be from the
Administrative Agent. Until it receives a Notice of Exclusive Control, the
Broker shall be entitled to continue to act on investment instructions from any
Pledgor as are delivered in form satisfactory to the Broker.
Section 4. [Intentionally Omitted].
Section 5. Statements, Confirmations and Notices of Adverse Claims.
The Broker will send copies of all statements and confirmations concerning the
Subject to Pledge Collateral Account to each Pledgor and the Administrative
Agent at the address set forth in Section 14 of this Agreement. Upon receipt at
the branch office of the Broker at which the Subject to Pledge Collateral
Account is maintained (which office is set forth in Section 14 hereof or to such
other office as the Broker shall give notice to the Administrative Agent and
each Pledgor) of written notice of any lien, encumbrance or adverse claim
against the Subject to Pledge Collateral
<PAGE>
Account or in any financial asset carried therein, the Broker will make
reasonable efforts promptly to notify the Administrative Agent and each Pledgor
thereof.
Section 6. Limited Responsibility of Broker. (a) Except for permitting
a withdrawal in violation of Section 3 or 4 above or advancing margin or other
credit to any Pledgor in violation of Section 2 above, the Broker shall have no
responsibility or liability to the Administrative Agent for complying with
entitlement orders concerning the Subject to Pledge Collateral Account from any
Pledgor or any person reasonably believed by the Broker to be such Pledgors's
authorized representatives, as specified in the Merrill Lynch account agreement,
which are received by the Broker before the Broker receives a Notice of
Exclusive Control and has had reasonable opportunity to act on it. The Broker
shall have no responsibility or liability to any Pledgor for complying with a
Notice of Exclusive Control or complying with entitlement orders concerning the
Subject to Pledge Collateral Account originated by the Administrative Agent, and
shall have no responsibility to investigate the appropriateness of any such
entitlement order or Notice of Exclusive Control, even if a Pledgor notifies the
Broker that the Administrative Agent is not legally entitled to originate any
such entitlement order or Notice of Exclusive Control, unless the Broker has
been served at the address for notices set forth below (as such address may from
time to time be changed in accordance with provisions hereof) with an
injunction, restraining order or other legal process issued by a court of
competent jurisdiction (a "Court Order") enjoining it from complying and has had
a reasonable opportunity to act on such Court Order. The Broker shall have no
responsibility or liability to the Administrative Agent with respect to the
value of the Subject to Pledge Collateral Account or any asset held therein.
This Agreement does not create any obligation or duty of the Broker other than
those expressly set forth herein.
(b) The Broker shall be entitled to rely upon the
authenticity of, and the truth of any statement in any certificate, opinion of
counsel, evidence of indebtedness, notice, consent, instruction or other
document reasonably believed by the Broker to be genuine and to be signed by the
proper party or parties.
(c) The Broker shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in reliance upon the
advice of its legal counsel.
Section 7. Indemnification of Broker. (a) Each Pledgor agrees to
indemnify and hold harmless the Broker, its directors, officers, agents and
employees against any and all claims, causes of action, liabilities, lawsuits,
demands and damages, including, without limitation, any and all court costs and
reasonable attorney's fees, in any way related to or arising out of or in
connection with this Agreement or any action taken or not taken pursuant hereto,
except to the extent resulting from the Broker's gross negligence or willful
misconduct.
(b) The Administrative Agent shall indemnify and hold
harmless the Broker, its directors, officers, agents and employees against any
losses, liabilities, and damages, including, without limitation, any and all
court costs and reasonable attorney's fees incurred by the Broker as a
consequence of actions taken pursuant to instructions of the Administrative
Agent, except to the extent resulting from the Broker's gross negligence or
willful misconduct.
<PAGE>
Section 8. Customer Agreement. In the event of a conflict between this
Agreement and any other agreement between the Broker and any Pledgor, the terms
of this Agreement will prevail. Each Pledgor and the Administrative Agent agree
that this Agreement supplements the applicable Merrill Lynch account agreement
with respect to the Subject to Pledge Collateral Account, and that it does not
abridge any rights that the Broker might otherwise have, except as expressly
provided herein.
Section 9. Termination. Unless earlier terminated by the Broker
pursuant to this Section, this Agreement shall continue in effect until the
Administrative Agent has notified the Broker in writing that this Agreement, or
its security interest in the Subject to Pledge Collateral Account, is
terminated, which notice shall not be unreasonably withheld by the
Administrative Agent upon any such termination. Upon receipt of such notice (i)
the obligations of the Broker under Sections 2, 3, 4 and 5 above with respect to
the operation and maintenance of the Subject to Pledge Collateral Account after
the receipt of such notice shall terminate, (ii) the Administrative Agent shall
have no further right to originate entitlement orders concerning the Subject to
Pledge Collateral Account, (iii) any previous Notice of Exclusive Control
delivered by the Administrative Agent shall be deemed to be of no further force
and effect, and (iv) the Broker may remove the references to "Subject to Pledge"
and "Administrative Agent" from the account titles. The Broker reserves the
right, unilaterally, to terminate this Agreement, such termination to be
effective 30 business days after written notice thereof is given to each Pledgor
and the Administrative Agent.
Section 10. Complete Agreement. This Agreement and the instructions and
notices required or permitted to be executed and delivered hereunder set forth
the entire agreement of the parties with respect to the subject matter hereof,
and, subject to Section 8 above, supersede any prior agreement and
contemporaneous oral agreements of the parties concerning its subject matter.
Section 11. Amendments. No amendment, modification or (except as
otherwise specified in Section 9 above) termination of this Agreement, nor any
assignment of any rights hereunder (except to the extent contemplated under
Section 13 below), shall be binding on any party hereto unless it is in writing
and is signed by each of the parties hereto, and any attempt to so amend,
modify, terminate or assign except pursuant to such a writing shall be null and
void. No waiver of any rights hereunder shall be binding on any party hereto
unless such waiver is in writing and signed by the party against whom
enforcement is sought.
Section 12. Severability. If any term or provision set forth in this
Agreement shall be invalid or unenforceable, the remainder of this Agreement,
other than those provisions held invalid or unenforceable, shall be construed in
all respects as if such invalid or unenforceable term or provision were omitted.
Section 13. Successors. The terms of this Agreement shall be binding
upon, and shall inure to the benefit of, the parties hereto and their respective
corporate successors and assigns. This Agreement may be assigned by the
Administrative Agent to any successor of the Administrative Agent under its
security agreement with the Pledgors, provided that written
<PAGE>
notice thereof is given by the Administrative Agent to the Broker.
Section 14. Notices. Except as otherwise expressly provided herein, any
notice, order, instruction, request or other communication required or permitted
to be given under this Agreement shall be in writing and deemed to have been
properly given when delivered in person, or when sent by telecopy or other
electronic means and electronic confirmation of error-free receipt is received
or upon receipt of notice sent by certified or registered United States mail,
return receipt requested, postage prepaid, addressed to the party at the address
set forth below. Any party may change its address for notices in the manner set
forth above. Notices hereunder shall be addressed:
to Broker at:
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
100 Campus Drive, 3rd Floor
Florham Park, New Jersey 07963
Attention: Robert E. Mulholland
Telephone: (973) 301-7700
Telecopy: (973) 301-7779
to ICG at: to the Administrative Agent at:
Internet Capital Group, Inc. PNC Bank, National Association
103 The Springer Building One PNC Plaza - 22nd Floor
3411 Silverside Road 249 Fifth Avenue
Wilmington, Delaware 19801 Pittsburgh, PA 15222-2707
Attention: Vice President of Finance Operation Attention: Ms. Arlene Ohler
Telephone: (302) 478-6160 Telephone: (412) 762-3627
Telecopy: (302) 478-3667 Telecopy: (412) 762-8672
with a copy to: with a copy to:
Internet Capital Group Operations, Inc. VentureBank@PNC
800 The Safeguard Building 1000 Westlakes Drive
435 Devon Park Drive Suite 200
Wayne, PA 19087 Berwyn, PA 19312
Attention: Mr. James N. Borum Attention: Mr. John Freyhof
Mr. Henry N. Nassau Telephone: (610) 725-5752
Telephone: (610) 989-0111 Telecopy: (610) 725-5799
Telecopy: (610) 989-0112
<PAGE>
to ICG Holdings at:
ICG Holdings, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (619) 989-0112
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
to ICLP at:
1999 Internet Capital L.P.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
Section 15. Counterparts. This Agreement may be executed in any number
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may
<PAGE>
execute this Agreement by signing and delivering one or more counterparts.
Section 16. Choice of Law. Regardless of any provision in any other
agreement relating to the Subject to Pledge Collateral Account, the parties
hereto agree that this Agreement (including the establishment and maintenance of
the Subject to Pledge Collateral Account, and all interest, duties and
obligations with respect to the Subject to Pledge Collateral Account) shall be
governed and construed in accordance with the law of the State of New York and
that the "securities intermediary's jurisdiction", within the meaning of Section
8-110 of the UCC, of the Broker as securities intermediary in respect of the
Subject to Pledge Collateral Account, is the State of New York.
Section 17. Additional Pledgors. At any time after the initial
execution and delivery of this Agreement, additional Persons may become parties
to this Agreement and thereby acquire the duties and rights of being Pledgors
hereunder by executing and delivering to the Administrative Agent and the Banks
a Security Agreement (Special Collateral Account) Joinder substantially in the
form of Exhibit 1.1(U)(2) to the Credit Agreement and an Account Control
-----------------
Agreement (Subject to Pledge Securities) Supplement substantially in the form of
Exhibit B attached hereto. No notice of the addition of any Pledgor shall be
required to be given to any pre-existing Pledgor.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
Accepted and agreed to as of the date first above written.
INTERNET CAPITAL GROUP, INC.
By: _______________________________
Name: John N. Nickolas
Title: Managing Director,
Finance and Assistant Treasurer
ICG HOLDINGS, INC.
By: _______________________________
Name: John N. Nickolas
Title: Managing Director,
Finance and Assistant Treasurer
1999 INTERNET CAPITAL L.P.
By: ICG HOLDINGS, INC., its general
partner
By: _______________________________
Name: John N. Nickolas
Title: Managing Director,
Finance and Assistant Treasurer
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: _______________________________
Name: Robert E. Mulholland
Title: First Vice President and
District Director
<PAGE>
PNC BANK, NATIONAL ASSOCIATION, as
Administrative Agent
By: _______________________________
Name: ________________________
Title: ________________________
<PAGE>
Exhibit A
Sample Notice of Exclusive Control
[Letterhead of Administrative Agent]
Date: ________________
To: Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch")
_____________________________________
_____________________________________
_____________________________________
Attention:___________________________
(insert address of Merrill Lynch office
servicing Subject to Pledge Collateral Account as indicated on Account
Statement)
Re: Pledged Collateral Account number ________________________
in the name of "Internet Capital Group, Inc.
Subject to Pledge Collateral Account for PNC Bank, National Association,
as Administrative Agent"
This is to notify Merrill Lynch that the above-referenced Pledged
collateral account (the "Subject to Pledge Collateral Account") is now under the
exclusive control of PNC Bank, National Association, as Administrative Agent.
Merrill Lynch is hereby instructed to cease complying with instructions given by
or on behalf of Internet Capital Group, Inc., ICG Holdings, Inc. or 1999
Internet Capital L.P. relating to said Subject to Pledge Collateral Account, to
cease distributing interest and regular cash dividends earned on property in the
Subject to Pledge Collateral Account, and to refuse to accept any other
instructions from Internet Capital Group, Inc., ICG Holdings, Inc. or 1999
Internet Capital L.P., as the case may be, intended to exercise any authority
with respect to the Subject to Pledge Collateral Account unless instructed by
the undersigned on behalf of PNC Bank, National Association, as Administrative
Agent.
PNC Bank, National Association warrants to Merrill Lynch that this
Notice of Exclusive Control is lawful and authorized by the Security Agreement
(Special Collateral Account) between Internet Capital Group, Inc., ICG Holdings,
Inc. and 1999 Internet Capital L.P. and PNC Bank, National Association, as
Administrative Agent.
<PAGE>
All future instructions on the Subject to Pledge Collateral Account
shall be given solely by the undersigned on behalf of PNC Bank, National
Association unless further evidence of authority is provided to Merrill Lynch.
___________________________________
print name
___________________________________
signature date
___________________________________
Title (an authorized officer)
<PAGE>
EXHIBIT B
FORM OF ACCOUNT CONTROL AGREEMENT
(SUBJECT TO PLEDGE SECURITIES) SUPPLEMENT
This SUPPLEMENT, dated as of ____________________ (this
"Supplement"), is made by __________________________, a _________________
corporation (the "Additional Pledgor"), MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED (the "Broker") and PNC BANK, NATIONAL ASSOCIATION, as in its
capacity as administrative agent for the Banks under that certain Credit
Agreement (as hereinafter defined) referred to below (the "Administrative
Agent"). All capitalized terms not defined herein shall have the meaning
ascribed to them in the Credit Agreement.
RECITALS
WHEREAS, reference is hereby made to that certain Amended and Restated
Credit Agreement, dated as of March 28, 2000, among Internet Capital Group,
Inc., a Delaware corporation ("ICG"), ICG Holdings, Inc., a Delaware corporation
("ICG Holdings"; ICG and ICG Holdings being referred to herein collectively as
the "Borrowers"), the Guarantors party thereto, the Banks party thereto, the
Administrative Agent and the Agents (as amended, supplemented or otherwise
modified as of the date hereof, the "Credit Agreement"); and
WHEREAS, in connection with the Credit Agreement, the Borrowers
(collectively the "Pledgors" and each a "Pledgor") have entered into the
Security Agreement (Special Collateral Account), dated as of March 28, 2000, in
favor of the Administrative Agent for the ratable benefit of the Banks (as
amended, supplemented or otherwise modified as of the date hereof, the "Security
Agreement (Special Collateral Account)"); and
WHEREAS, Broker has established securities accounts designated as (i)
Account No. 438-07A63 entitled Internet Capital Group, Inc. Subject to Pledge
Account for PNC Bank, N.A. as Administrative Agent, (ii) Account No. 438-07A64
entitled ICG Holdings, Inc. Subject to Pledge Account for PNC Bank, as
Administrative Agent, and (iii) Account No. 438-07A65 entitled 1999 Internet
Capital L.P. Subject to Pledge Account for PNC Bank, as Administrative Agent
(collectively, the " Subject to Pledge Collateral Account"); and
WHEREAS, pursuant to the Security Agreement (Special Collateral
Account), the Pledgors have granted the Administrative Agent a security interest
in the Subject to Pledge
<PAGE>
Collateral Account and the pledged securities from time to time deposited in the
Subject to Pledge Collateral Account; and
WHEREAS, the Administrative Agent, the Pledgors and the Broker have
entered into an Account Control Agreement (Subject to Pledge Securities) dated
as of March 28, 2000 (the "Account Control Agreement (Subject to Pledge
Securities)") to perfect the security interest of the Administrative Agent in
the Subject to Pledge Collateral Account by providing for the Administrative
Agent to have control over the Subject to Pledge Collateral Account; and
WHEREAS, Section 17 of the Account Control Agreement (Subject to Pledge
Securities) specifies that additional Persons may acquire the duties and rights
of a Pledgor by becoming party to the Security Agreement (Special Collateral
Account) and the Account Control Agreement (Subject to Pledge Securities); and
WHEREAS, the Additional Pledgor has agreed to execute and deliver this
Supplement in order to become a party to the Account Control Agreement (Subject
to Pledge Securities).
NOW, THEREFORE, IT IS AGREED:
1. Account Control Agreement (Subject to Pledge Securities). By
--------------------------------------------------------
executing and delivering this Supplement, the Additional Pledgor, as provided in
Section 17 of the Account Control Agreement (Subject to Pledge Securities)
hereby becomes a party to the Account Control Agreement (Subject to Pledge
Securities), as a Pledgor thereunder with the same force and effect as if
originally named therein as a Pledgor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Pledgor thereunder. By executing and delivering this Supplement, the Broker
hereby represents and warrants that each of the representations and warranties
made by the Broker contained in the Account Control Agreement (Subject to Pledge
Securities) is true and correct on and as of the date hereof (after giving
effect to this Supplement) as if made on and as of such date.
2. Supplement to the Account Control Agreement (Subject to Pledge
--------------------------------------------------------------
Securities). This Supplement is supplemental to the Account Control Agreement
- -----------
(Subject to Pledge Securities), forms a part thereof and is subject to the terms
thereof. From and after the date of this Supplement, the defined term "Subject
to Pledge Collateral Account" shall be deemed to include each account listed on
Annex I to this Supplement.
<PAGE>
3. Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED
--------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be
duly executed and delivered as of the date first above written.
[NAME OF ADDITIONAL PLEDGOR],
a ___________________ corporation
By_______________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By_______________________
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By_______________________
Name:
Title:
ANNEX I
to Supplement
I. Supplements To Subject to Pledge Collateral Account
<PAGE>
Account Number and Title
------------------------
7
<PAGE>
EXHIBIT 1.1(R)
form of
[AMENDED AND RESTATED]
REVOLVING CREDIT NOTE
$ Pittsburgh, Pennsylvania
------------- March 31, 2000
FOR VALUE RECEIVED, the undersigned, INTERNET CAPITAL GROUP, INC., a
Delaware corporation ("ICG"), and ICG HOLDINGS, INC., a Delaware corporation
("ICG Holdings"; ICG and ICG Holdings being referred to herein individually as a
"Borrower" and collectively as the "Borrowers"), hereby, jointly and severally,
promises to pay to the order of _____________________________ (the "Bank") the
lesser of (i) the principal sum of ____________________ U.S. Dollars (U.S.
$______________), or (ii) the aggregate unpaid principal balance of all
Revolving Credit Loans made by the Bank to the Borrowers pursuant to Section 2
of the Amended and Restated Credit Agreement, dated as of March 28, 2000, by and
among the Borrowers, each of the Guarantors, the Banks, and PNC Bank, National
Association, in its capacity as administrative agent for the Banks (the
"Administrative Agent") (as hereafter amended, supplemented or modified from
time to time (the "Credit Agreement")), whichever is less, payable on the
earlier of the Expiration Date, the acceleration hereby or as otherwise provided
in the Credit Agreement.
The Borrowers shall pay interest on the unpaid principal balance
hereof from time to time outstanding from the date hereof at the rate or rates
per annum specified by the Borrowers pursuant to Section 4.1 of, or as otherwise
provided in, the Credit Agreement.
Upon the occurrence and during the continuation of an Event of
Default, the Borrowers shall pay interest on the entire principal amount of the
then outstanding Revolving Credit Loans evidenced by this Revolving Credit Note
at an increased rate of interest as more fully set forth in Section 4.3 of the
Credit Agreement. Such interest rate will accrue before and after any judgment
has been entered.
Interest on this Revolving Credit Note will be payable as set forth in
Section 5.3 of the Credit Agreement, on the Expiration Date and at such other
times as are specified in the Credit Agreement.
Subject to the provisions of the Credit Agreement, payments of both
principal and interest shall be made without setoff, counterclaim or other
deduction of any nature at the office of the Administrative Agent for the
benefit of the Banks located at 249 Fifth Avenue, Pittsburgh, Pennsylvania,
15222-2707, in lawful money of the United States of America in immediately
available funds.
This Note is one of the Revolving Credit Notes referred to in, and is
entitled to the benefits of, the Credit Agreement and other Loan Documents,
including the representations, warranties, covenants, conditions, security
interests or Liens contained or granted therein. The Credit Agreement, among
other things, contains provisions for acceleration of the maturity hereof upon
the happening of certain stated events and also for prepayment, in certain
<PAGE>
circumstances, on account of principal hereof prior to maturity upon the terms
and conditions therein specified.
All capitalized terms used herein shall, unless otherwise defined
herein, have the same meanings given to such terms in the Credit Agreement.
Except as otherwise provided in the Credit Agreement, each Borrower
waives presentment, demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement of
this Note and the Credit Agreement.
This Note shall bind each Borrower and its successors and assigns, and
the benefits hereof shall inure to the benefit of the Bank and its successors
and assigns. All references herein to any "Borrower" and any "Bank" shall be
deemed to apply to each Borrower and any Bank, respectively, and their
respective successors and assigns.
This Note and any other documents delivered in connection herewith and
the rights and obligations of the parties hereto and thereto shall for all
purposes be governed by and construed and enforced in accordance with the
internal laws of the Commonwealth of Pennsylvania without giving effect to its
conflicts of law principles.
IN WITNESS WHEREOF, the undersigned have each executed this Note by
its duly respective authorized officers with the intention that it constitute a
sealed instrument.
ATTEST/WITNESS: INTERNET CAPITAL GROUP, INC.
By: By:
--------------------------- ------------------------------
Name: Name:
------------------------- ----------------------------
Title:
---------------------------
[Seal]
ATTEST/WITNESS: ICG HOLDINGS, INC.
By: By:
--------------------------- ------------------------------
Name: Name:
------------------------- ----------------------------
Title:
---------------------------
[Seal]
<PAGE>
EXHIBIT 1.1(S)
form of
AMENDED AND RESTATED SECURITY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AGREEMENT is dated as of March 28, 2000,
and is made by and among INTERNET CAPITAL GROUP, INC., a Delaware corporation
("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG Holdings"; ICG and ICG
----- ------------
Holdings being referred to herein individually as a "Borrower" and collectively
--------
as the "Borrowers"), INTERNET CAPITAL GROUP OPERATIONS, INC., a Delaware
---------
corporation ("ICG Operations"), 1999 INTERNET CAPITAL L.P., a Delaware limited
--------------
partnership ("ICLP"; ICG Operations and ICLP being referred to herein
----
individually as a "Guarantor" and collectively as the "Guarantors") and each of
--------- ----------
the other Significant Subsidiaries (as defined in the Credit Agreement) which
become Guarantors from time to time pursuant to a Guarantor Joinder and
Assumption Agreement listed on Schedule I hereto (the "Grantor
---------- -------
Subsidiaries")(the Borrowers, the Guarantors and the Grantor Subsidiaries being
- ------------
collectively referred to herein as the "Grantors" and each as a "Grantor") and
-------- -------
PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the
Banks under that certain Credit Agreement referred to below (the "Administrative
--------------
Agent").
- -----
WITNESSETH THAT:
WHEREAS, ICG, ICG Operations, certain Banks (the "Existing Banks") and PNC
--------------
Bank, National Association, as agent for the Existing Banks ("PNC"), have
---
entered into that certain Existing Agreement (as defined in the Credit
Agreement) pursuant to which the Existing Banks agreed to make extensions of
credit available to ICG and ICG Operations; and
WHEREAS, pursuant to the Existing Agreement, ICG, ICG Operations and PNC
have entered into a Security Agreement dated as of April 30, 1999 (the "Existing
--------
Security Agreement") pursuant to which ICG and ICG Operations grant security
- ------------------
interests in the collateral described therein to PNC; and
WHEREAS, the Borrowers, the Agents and the Banks party thereto desire to
amend and restate the Existing Agreement pursuant to that certain Amended and
Restated Credit Agreement (as it may hereafter be amended or otherwise modified
from time to time, the "Credit Agreement") of even date herewith among the
----------------
Borrowers, the Guarantors party thereto, the Banks party thereto and the Agents;
and
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to make
certain loans to the Borrowers and the Guarantors have agreed to guaranty such
loans and other obligations; and
WHEREAS, the obligations of the Banks to make Loans under the Credit
Agreement are subject to the condition, among others, that each Borrower secure
its obligations to the Administrative Agent and the Banks under the Credit
Agreement and each Guarantor secure its obligations to the Administrative Agent
and the Banks under the Guaranty Agreement by the grant of security interests in
the Collateral, as defined and more fully set forth herein; and
<PAGE>
WHEREAS, each Grantor is (or will be with respect to after-acquired
property) the legal and beneficial owner and holder of its respective Collateral
(as defined in Section 1 hereof), and has agreed to grant a security interest in
such Collateral to the Administrative Agent on the terms and conditions set
forth herein; and
WHEREAS, pursuant to the Credit Agreement, the Grantors and Administrative
Agent desire to amend and restate the Existing Security Agreement as set forth
herein.
NOW, THEREFORE, intending to be legally bound hereby and for value
received, the parties hereto covenant and agree that effective upon the
Effective Date, the Existing Security Agreement is hereby amended and restated
in its entirety as follows:
I. Definitions. Terms which are defined in the Credit Agreement and not
-----------
otherwise defined herein are used herein as defined therein. In addition to the
words and terms defined elsewhere in this Security Agreement, the following
words and terms shall have the following meanings, respectively, unless the
context otherwise clearly requires:
A. "Code" shall mean the Uniform Commercial Code of each state as
enacted and in effect on the date hereof in each applicable jurisdiction, and as
the same may subsequently be amended from time to time.
B. "Collateral" shall mean, in the case of each Grantor, all of its
right, title and interest in, to and under the following described property,
whether now owned or hereafter acquired (words and terms defined in the Code
shall have the same meanings when used herein):
1. all general intangibles of the Grantor, including general
intangibles now in existence and those that shall hereafter arise;
2. all accounts of the Grantor, including accounts now in
existence and those that shall hereafter arise;
3. all inventory of the Grantor, including inventory which it
now owns and that which it shall hereafter acquire;
4. all chattel paper of the Grantor, including chattel paper
which it now owns and that which it shall hereafter acquire;
5. all investment property of the Grantor, including investment
property which it now owns and that which it shall hereafter acquire, provided,
------- --------
however, the Collateral shall not be deemed to include any Excluded Securities
(as such term is defined in Section 1 of the Security Agreement (Special
Collateral Account));
6. all equipment (including fixtures) of the Grantor, including
equipment which it now owns and that which it shall hereafter acquire;
7. all documents of the Grantor, including documents which it
now owns and those which it shall hereafter acquire;
184
<PAGE>
8. all instruments, letters of credit and advices of credit of
the Grantor, including those which it now owns and those which it shall
hereafter acquire;
9. all other property of the Grantor at any time delivered to or
in the possession of the Administrative Agent;
10. any other real and personal property of the Grantor
including, without limitation, any real or personal property which the Grantor
has given or may give in the future to the Administrative Agent to secure the
Secured Indebtedness; and
11. all additions to and substitutions for, and products and
proceeds (including insurance proceeds whether or not the Administrative Agent
is the loss payee thereof) of, any of the properties mentioned in clauses (i)
through (x) above, or any indemnity, warranty or guaranty payable by reason of
loss or damage to or otherwise with respect to any of such properties.
Without limiting the generality of the foregoing, the term
"Collateral" shall expressly include all royalty, licensing and know-
how agreements, all patents, copyrights, trademarks, tradenames,
service marks, trade secrets, know-how, goodwill, computer software,
computer programs, tapes, discs and other documents or transcribed
information of any type, whether expressed in ordinary or machine
readable language; provided, however, that the grant of a Lien herein
-------- -------
shall not extend to, and the term "Collateral" shall not include, any
chattel paper, contract rights or other general intangibles which are
now held or hereafter acquired by any Borrower to the extent that such
chattel paper, contract rights or other general intangibles are not
assignable or capable of being encumbered (A) as a matter of law or
(B) under the terms of any agreement applicable thereto (but solely to
the extent that any such restriction is enforceable under applicable
law) without the consent of the other party to such agreement where
such consent has not been obtained. Each Borrower hereby represents
and warrants to Administrative Agent that any contract rights and
other general intangibles acquired after the date hereof which are
excluded from the definition of Collateral pursuant hereto will not
involve payments owed to each Borrower in excess of $100,000 per year
in the aggregate for all such excluded contact rights and other
general intangibles.
C. "Secured Indebtedness" shall mean, collectively, (i) all
Obligations, including all Indebtedness, whether of principal, interest, fees,
expenses or otherwise, of any Borrower or any Guarantor to the Banks, whether
now existing or hereafter incurred under the Credit Agreement or any of the Loan
Documents, as any of the same may from time to time be amended, modified or
supplemented, together with any and all extensions, renewals, refinancings or
refundings thereof in whole or in part by the Banks, (ii) all out-of-pocket
costs, expenses and disbursements, including reasonable attorneys' fees and
legal expenses, incurred by the Banks or any one of them, or the Administrative
Agent, in the collection of any of the obligations referred to in clause (i)
above; and (iii) any advances made, subsequent to an Event of Default which is
continuing, by the Banks or any one of them, or the Administrative Agent, for
the reasonable maintenance, preservation, protection or enforcement of, or
realization upon, the Collateral, including
185
<PAGE>
advances for taxes, insurance, repairs and the like and reasonable expenses
incurred to sell or otherwise realize on, or prepare for sale or other
realization on, any of the Collateral.
II. Assignment and Grant of Security Interests. As security for the due and
------------------------------------------
punctual payment and performance of the Secured Indebtedness in full, each
Grantor hereby agrees that the Administrative Agent shall have, and each Grantor
hereby grants to and creates in favor of the Administrative Agent, for the
benefit of the Administrative Agent and the Banks as their respective interests
may appear, a continuing first priority security interest in and to each
Grantor's respective Collateral (except for Motor Vehicles) subject only to
Permitted Liens. Without limiting the generality of Section 4 below, each
Grantor further agrees that with respect to each item of Collateral as to which
(i) the creation of a valid and enforceable security interest is not governed
exclusively by the Code or (ii) the perfection of a valid and enforceable
security interest therein under the Code cannot be accomplished either by the
Administrative Agent or the Banks taking possession thereof or by the filing in
appropriate locations of appropriate Code financing statements executed by the
Grantor, such Grantor shall at its expense execute and deliver to the
Administrative Agent such documents, agreements, notices, assignments and
instruments and take such further actions as may be requested by the
Administrative Agent from time to time for the purpose of creating a valid and
perfected first priority Lien on such item, subject only to Permitted Liens,
enforceable against the Grantor and all third parties to secure the Secured
Indebtedness.
III. Representations and Warranties. Each Grantor jointly and severally
------------------------------
represents, warrants and covenants to the Administrative Agent that:
A. Such Grantor is the legal and beneficial owner and holder of its
respective Collateral and such Grantor has and shall continue to have good and
marketable title to the Collateral which such Grantor purports to own or which
is reflected as owned in its books and records.
B. Each Grantor has received value from each of the Banks for such
Grantor's grant of a security interest hereunder and, except for the security
interest granted to and created in favor of the Administrative Agent hereunder
and any Permitted Liens, all of such Collateral is and shall continue to be free
and clear of all Liens.
C. Such Grantor has full power to enter into, execute, deliver and carry
out this Security Agreement and to perform its obligations hereunder and all
such actions have been duly authorized by all necessary proceedings on its part.
This Security Agreement has been duly and validly executed and delivered by such
Grantor. This Security Agreement constitutes the legal, valid and binding
obligations of such Grantor, enforceable against it in accordance with its
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 limiting the right of specific
performance.
D. Neither the execution and delivery of this Security Agreement nor
compliance with the terms and provisions hereof (i) shall conflict with or
result in any breach of the terms and conditions of the declaration of trust,
articles of incorporation, by-laws, partnership agreement, limited liability
company agreement or equivalent documents of such Grantor or of any Law or
186
<PAGE>
of any material agreement or instrument to which such Grantor is a party or by
which it is bound or to which it is subject, (ii) shall constitute a default
thereunder or (iii) shall result in the creation or enforcement of any Lien
whatsoever upon any property (now or hereafter acquired) of such Grantor (other
than Liens granted to the Administrative Agent on behalf of the Banks under the
Loan Documents).
IV. Further Assurances. Each Grantor shall, from time to time, at its expense,
------------------
faithfully preserve and protect the Administrative Agent's security interest in
such Grantor's Collateral as a continuing first priority perfected security
interest, subject only to Permitted Liens, and shall do all such other acts and
things and shall, upon request therefor by the Administrative Agent, execute,
deliver, file and record all such other documents and instruments, including
financing statements, security agreements, pledges, assignments, documents and
powers of attorney with respect to such Grantor's Collateral, and pay all filing
fees and taxes related thereto as the Administrative Agent in its sole
discretion may deem necessary or advisable from time to time in order to
preserve, perfect or protect any security interest granted or purported to be
granted hereby or to enable the Administrative Agent to exercise and enforce its
rights and remedies hereunder with respect to any of the Collateral. Without
limiting the generality of the foregoing, to the extent Article 9 of the Code
does not govern the creation and/or perfection of the security interests
intended to be created hereunder, each Grantor agrees to execute and deliver
such further documents and instruments and do such further acts as the
Administrative Agent may from time to time require.
V. Covenants. Each Grantor jointly and severally covenants and agrees that (a)
---------
it shall maintain in good condition and repair, ordinary wear and tear excepted,
and shall protect and preserve its Collateral and such Collateral shall be
insured in accordance with Section 8.1.3 of the Credit Agreement; (b) it shall
not sell, assign or otherwise dispose of any portion of its Collateral except
sales or dispositions as permitted in Section 8.2.7 of the Credit Agreement; it
is acknowledged that the Secured Party's Security Interest hereunder is released
when such a sale or disposition occurs if it is permitted under such Section;
(c) it shall obtain and maintain sole and exclusive possession of its Collateral
except to the extent such Collateral shall now or hereafter be in the
Administrative Agent's possession; (d) it shall maintain and keep its chief
executive office, the location of the Collateral and the location of the records
pertaining thereto, at the location(s) specified on Schedule 1 hereto, or at
----------
such other location as it may reasonably designate from time to time by prior
written notice to the Administrative Agent; (e) it shall keep materially
accurate and complete books and records concerning its Collateral and such other
books and records as may be required under the Credit Agreement; (f) it shall
promptly furnish to each Bank such information and documents relating to its
Collateral as the Administrative Agent may reasonably request in order to
confirm the status of the Administrative Agent's security interest in such
Collateral; (g) it shall not take or omit to take any actions, the taking or the
omission of which might result in a material adverse alteration or impairment of
its Collateral or in a violation of this Security Agreement; (h) it shall not,
without the prior written consent of the Administrative Agent, waive or release
any material obligation of any party to any material part of its Collateral,
except in the ordinary course of Grantor's business or in connection with the
disposition of assets permitted under the Credit Agreement; (i) it shall execute
and deliver to the Administrative Agent and record such supplements to this
Security Agreement and additional assignments as the Administrative Agent
reasonably may request to evidence and confirm the
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<PAGE>
security interest herein contained; and (j) it shall cause each of its
Subsidiaries which may hereafter be created or acquired to enter into and become
a party and signatory to this Security Agreement and do all such acts and things
and execute, deliver and file all such documents and instruments as the
Administrative Agent may deem necessary and desirable to create and perfect a
first priority perfected security interest in the Collateral of such Subsidiary.
VI. Preservation of Security Interests. Each Grantor assumes full
----------------------------------
responsibility for taking and hereby agrees to take any and all necessary steps
to preserve and defend the Administrative Agent's right, title and security
interest in and to such Grantor's Collateral against the claims and demands of
all persons. The Administrative Agent shall be deemed to have exercised
reasonable care in the custody and preservation of a Grantor's Collateral in the
Administrative Agent's possession if, prior to the existence of an Event of
Default or Potential Default, the Administrative Agent takes such action for
that purpose as such Grantor shall reasonably request in writing, provided that
--------
such requested action shall not, in the judgment of the Administrative Agent,
impair the security interest in such Grantor's Collateral created hereby or the
Administrative Agent's rights in, or the value of, such Collateral, and provided
--------
further that such written request is received by the Administrative Agent in
- -------
sufficient time to permit the Administrative Agent to take the requested action.
VII. Administrative Agent's Rights with Respect to the Collateral. At any time
------------------------------------------------------------
and from time to time, whether or not an Event of Default shall have occurred,
and without notice to or consent of the Grantors, the Administrative Agent may,
at its option, do any or all of the following: (a) do anything which the
Grantors are required but fail to do hereunder, and in particular the
Administrative Agent may, if any of the Grantors fail to do so, (i) insure or
take any reasonable steps to protect the Collateral of any Grantor, (ii) pay any
or all taxes, levies, expenses and costs arising with respect to the Collateral
of any Grantor, or (iii) pay any or all premiums payable on any policy of
insurance required to be obtained or maintained hereunder, and add any amounts
paid under this Section 7 to the principal amount of any of the Notes and other
liabilities of any Borrower secured by this Security Agreement; (b) inspect the
Collateral of any Grantor at any reasonable time, in accordance with the terms
set forth in Section 8.1.6 of the Credit Agreement; and (c) pay any amounts
which the Grantors are required but fail to pay hereunder, and in particular the
Administrative Agent may, if any of the Grantors fails to do so, pay any amounts
the Administrative Agent reasonably elects to pay or advance hereunder on
account of insurance, taxes or other costs, fees or charges arising in
connection with the Collateral of any Grantor, either directly to the payee(s)
of such cost, fee or charge, directly to the Grantor or Grantors in question, or
to such payee(s) and such Grantor or Grantors jointly.
VIII. Remedies on Default. If there shall have occurred and be continuing an
-------------------
Event of Default under the terms of the Credit Agreement, then the
Administrative Agent shall have such rights and remedies with respect to the
Collateral or any part thereof and the proceeds thereof as are provided by the
Code and such other rights and remedies with respect thereto which it may have
at law or in equity or under this Security Agreement, including to the extent
not inconsistent with the provisions of the Code, the right to take over and
collect all or any of Grantor's accounts and all or any of the other Collateral
which consists of amounts owing to any Grantor. To this end, the Administrative
Agent shall have the right to (a) transfer all or any part of any of Grantor's
Collateral into the Administrative Agent's name or into the name of its nominee
or nominees and
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<PAGE>
thereafter receive all cash, stock and other dividends or distributions paid or
payable in respect thereof, and otherwise act with respect thereto as the
absolute owner thereof; (b) notify the obligors on any of Grantor's Collateral,
whether accounts or otherwise, to make payment thereon directly to the
Administrative Agent, whether or not the Grantor was theretofore making
collections thereon; (c) take control of and manage all or any Collateral of any
Grantor; (d) apply to the payment of the Secured Indebtedness, whether it be due
and payable or not, any moneys, including cash dividends and income from any
Collateral of any Grantor, now or hereafter in the hands of the Administrative
Agent, on deposit or otherwise, belonging to any Grantor, in accordance with
Section 9 hereof; (e) direct any insurer to make payment of any insurance
proceeds, directly to the Administrative Agent, and apply such moneys to the
payment of the Secured Indebtedness in accordance with Section 9 hereof; (f)
receive, open and dispose of all mail addressed to any Grantor and notify postal
authorities to change the address for delivery thereof to such address as the
Administrative Agent may designate; (g) endorse the name of the Grantor upon any
checks or other evidences of payment or any document or instrument that may come
into the possession of the Administrative Agent as proceeds of or relating to
such Grantor's Collateral; (h) demand, sue for, collect, compromise and give
acquittances for any and all Collateral of any Grantor; (i) prosecute, defend or
compromise any action, claim or proceeding with respect to any Collateral of any
Grantor; (j) notify the debtors of any Grantor of the assignment of their debts
and direct them to make payment to the Administrative Agent; and (k) take such
other action as the Administrative Agent may deem appropriate, including
extending or modifying the terms of payment of the debtors of any Grantors. In
addition, upon the occurrence and during the continuance of an Event of Default,
each Grantor, at the request of the Administrative Agent, shall assemble all or
any portion of such Grantor's Collateral at such locations as the Administrative
Agent shall designate which are reasonably convenient to such Grantor, and the
Administrative Agent may, with the consent of the Required Banks, sell, assign,
give an option or options to purchase or otherwise dispose of all or any part of
the Collateral at any public or private sale at such place or places and at such
time or times and upon such terms, whether for cash or on credit, and in such
manner, as the Administrative Agent may determine, and apply the proceeds so
received in accordance with Section 9 hereof. Written notice of sale mailed by
certified mail, return receipt requested, to the Grantor whose Collateral is to
be sold, at least fifteen (15) days prior to such sale shall be deemed
reasonable notice.
In the event of a breach by any of the Grantors in the performance of
any of the terms of this Security Agreement, the Administrative Agent may demand
specific performance of this Security Agreement and seek injunctive relief and
may exercise any other remedy, available at law or in equity, it being
recognized that the remedies of each of the Administrative Agent and the Banks
at law may not fully compensate each of the Administrative Agent and the Banks
for the damages they may suffer in the event of a breach hereof.
IX. Application of Proceeds. The security interests in the Collateral granted
-----------------------
to and created in favor of the Administrative Agent by this Security Agreement
shall be for the benefit of the each of the Administrative Agent and the Banks
as their respective interests in the Secured Indebtedness may appear. Each of
the rights, privileges and remedies provided to the Administrative Agent
hereunder or otherwise by law with respect to the Collateral shall be exercised
by the Administrative Agent only for the benefit of each of the Administrative
Agent and the Banks as such interests may appear, and any Collateral or proceeds
thereof held or
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<PAGE>
realized upon at any time by the Administrative Agent shall inure to the benefit
of each of the Administrative Agent and the Banks as their respective interests
in the Secured Indebtedness may appear and shall be applied after the occurrence
of an Event of Default as set forth in Section 9.2.5 of the Credit Agreement.
The Borrower shall be liable for any deficiency if the proceeds of any sale,
assignment, giving of an option or options to purchase or other disposition of
the Collateral is insufficient to pay all amounts to which the any of the
Administrative Agent or the Banks are entitled.
X. Attorneys-in-Fact. Each of the Grantors hereby irrevocably appoints the
-----------------
Administrative Agent, its officers, employees and Administrative Agents, or any
of them, as attorneys-in-fact, with full power of substitution, for such Grantor
for the purpose of carrying out the provisions of this Security Agreement and
taking any action and executing, delivering, filing and recording any
instruments which the Administrative Agent may deem necessary or advisable to
accomplish the purposes hereof, which power of attorney being given for security
is coupled with an interest and irrevocable. Each Grantor hereby ratifies and
confirms and agrees to ratify and confirm all action taken by the Administrative
Agent, its officers, employees or Administrative Agents pursuant to the
foregoing power of attorney.
XI. Indemnity and Expenses.
----------------------
A. The Grantors unconditionally and jointly and severally agree to
indemnify each of the Administrative Agent and the Banks from and against any
and all claims, losses and liabilities arising out of or resulting from this
Security Agreement (including enforcement of this Security Agreement), except
claims, losses or liabilities resulting from the gross negligence or willful
misconduct of the Administrative Agent, the Banks or the Administrative Agent on
behalf of the Banks.
B. The Grantors unconditionally and jointly and severally agree upon
demand to pay to each of the Administrative Agent and the Banks the amount of
any and all reasonable and necessary out-of-pocket costs, expenses and
disbursements for which reimbursement is customarily obtained, including fees
and expenses of their counsel, which the Administrative Agent or any of the
Banks may incur in connection with (i) the administration of this Security
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Administrative Agent or the
Banks hereunder or (iv) the failure by the Grantors to perform or observe any of
the provisions hereof.
XII. Security Interest Absolute; Waiver of Notices. All rights of the
---------------------------------------------
Administrative Agent and the Banks hereunder, all security interests hereunder,
and all obligations of the Grantors hereunder shall be absolute and
unconditional, irrespective of: (a) any lack of validity or enforceability of
the Credit Agreement, the Notes or any of the other Loan Documents; (b) any
change in the time, manner or place or payment of, or in any other term of, all
or any of the Secured Indebtedness or any other amendment or waiver of or any
consent to any departure from the Credit Agreement, the Notes or any of the
other Loan Documents; (c) any exchange, release or non-perfection of any other
Collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Secured Indebtedness; or (d) any other
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<PAGE>
circumstance which might otherwise constitute a defense available to, or a
discharge of, any Grantor or any third party mortgagors, pledgors or grantors of
security interests. Each Grantor (other than the Borrower with respect to
notices otherwise provided for in the Credit Agreement) waives any and all
notice with respect to acceptance by the Banks of this Security Agreement, the
provisions of the Credit Agreement, the Notes or any of the other Loan Documents
or any other note, instrument or agreement relating to the Secured Indebtedness,
and any default in connection with the Secured Indebtedness. Each Grantor
(other than any Borrower with respect to notices otherwise provided for in the
Credit Agreement) waives any presentment, demand, notice of dishonor or
nonpayment, protest, notice of protest and any other notice of any kind in
connection with the Secured Indebtedness.
Each Grantor (other than any Borrower) waives and agrees not to enforce any
of the rights of such Grantor against any Borrower or any other Grantor,
including: (i) any right of such Grantor to be subrogated in whole or in part to
any right or claim with respect to any Secured Indebtedness or any portion
thereof to any of the Administrative Agent or the Banks which might otherwise
arise from payment by any Grantor to any of the Administrative Agent or the
Banks on the account of the Secured Indebtedness or any portion thereof; and
(ii) any right of any Grantor to require the marshalling of assets of any
Borrower or any other Grantor which might otherwise arise from payment by any
Grantor to any of the Administrative Agent or the Banks on account of the
Secured Indebtedness or any portion thereof. If any amount shall be paid to any
Grantor in violation of the preceding sentence, such amount shall be deemed to
have been paid to such Grantor for the benefit of, and held in trust for the
benefit of, the Administrative Agent on behalf of the Banks and shall forthwith
be paid to the Administrative Agent to be credited and applied upon the Secured
Indebtedness, whether matured or unmatured in accordance with the terms of the
Credit Agreement. Each Grantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by the Credit
Agreement and that the waivers set forth in this Section are knowingly made in
contemplation of such benefits.
XIII. Termination. Upon payment in full of the Secured Indebtedness and
-----------
termination of the Credit Agreement, the Line of Credit Commitments and the
Revolving Credit Commitments, this Security Agreement shall terminate and be of
no further force and effect, and the Administrative Agent, at the Grantors'
expense, shall thereupon promptly return to each Grantor such of its Collateral
and such other documents delivered by each Grantor hereunder as may then be in
the Administrative Agent's possession. Upon any such termination, the
Administrative Agent will, at the Grantor's expense, execute and deliver to the
Grantor such documents as that Grantor shall reasonably request to evidence such
termination. The Administrative Agent, upon request of any Grantor, shall
release the Administrative Agent's security interest in any of such Grantor's
Collateral which is sold prior to the occurrence of an Event of Default (but not
the proceeds thereof), provided such sale is permitted by, and made in
--------
accordance with, the provisions of the Credit Agreement.
XIV. Modifications, Amendments and Waivers. Any and all agreements amending or
-------------------------------------
changing any provision of this Security Agreement or the rights of any of the
Administrative Agent, the Banks or the Grantors hereunder, and any and all
waivers or consents to Events of Default or other departures from the due
performance of the Grantors hereunder shall be made only
191
<PAGE>
pursuant to the provisions of Section 11.1 of the Credit Agreement, except that
any amendment or change that affects less than all of the Grantors shall be
effective with the written consent of the affected Grantors.
XV. No Implied Waivers; Cumulative Remedies. No course of dealing and no
---------------------------------------
failure or delay on the part of the Administrative Agent in exercising any
right, remedy, power or privilege hereunder shall operate as a waiver thereof or
of any other right, remedy, power or privilege of the Administrative Agent
hereunder; and no single or partial exercise of any such right, remedy, power or
privilege shall preclude any other or further exercise thereof or the exercise
of any other right, remedy, power or privilege. The rights and remedies of the
Administrative Agent under this Security Agreement are cumulative and not
exclusive of any rights or remedies which it may otherwise have.
XVI. Notices. All notices, statements, requests, demands and other
-------
communications given to or made upon the Grantors, any of the Administrative
Agent or the Banks in accordance with the provisions of this Security Agreement
shall be given or made as provided in Section 11.7 of the Credit Agreement.
XVII. Severability.
------------
A. Each Grantor agrees that the provisions of this Agreement are
severable, and in an action or proceeding involving any state or federal
bankruptcy, insolvency or other law affecting the rights of creditors generally:
1. if any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction and shall not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Agreement in
any jurisdiction; and
2. if this Agreement would be held or determined to be void,
invalid or unenforceable on account of the amount of the aggregate liability of
a Grantor (other than the Borrower) under this Agreement, then, notwithstanding
any other provision of this Agreement to the contrary, the aggregate amount of
such liability shall, without any further action by any of the Administrative
Agent or the Banks, such Grantor or any other person, be automatically limited
and reduced to the highest amount which is valid and enforceable as determined
in such action or proceeding.
B. If the grant of a security interest hereunder by any one or more Grantors is
held or determined to be void, invalid or unenforceable, in whole or in part,
such holding or determination shall not impair or affect:
1. the validity and enforceability of the security interest
granted hereunder by any other Grantor, which shall continue in full force and
effect in accordance with its terms; or
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<PAGE>
2. the validity and enforceability of any clause or provision
not so held to be void, invalid or unenforceable.
XVIII. Governing Law. This Security Agreement shall be deemed to be a contract
-------------
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed in accordance with the internal laws of said
Commonwealth, without reference to its conflicts of law principles, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of security interests hereunder, or remedies hereunder
with respect to any particular Collateral, is governed by the laws of a
jurisdiction other than the law of the Commonwealth of Pennsylvania.
XIX. Successors and Assigns. This Security Agreement shall be freely
----------------------
assignable and transferable by the Administrative Agent in connection with the
assignment or transfer of the Secured Indebtedness; provided, however, the
-------- -------
duties and obligations of the Grantors may not be delegated or transferred by
the Grantors, without the written consent of the Required Banks. The rights and
privileges of the Administrative Agent and each of the Banks shall inure to
their benefit and the benefit of their respective successors and assigns (as
permitted under the Credit Agreement), and the duties and obligations of the
Grantors shall bind the Grantors and their respective successors and assigns.
Except to the extent otherwise required by the context of this Security
Agreement, the word "Banks" where used in this Security Agreement shall include,
without limitation, any holder of a Note, or assignee of an interest therein,
originally issued to a Bank under the Credit Agreement, and each such holder of
a Note, or assignee of an interest therein, shall be bound by and have the
benefits of this Security Agreement to the same extent as if such holder had
been a signatory hereto.
XX. Election. Each Grantor acknowledges that the Administrative Agent may, in
--------
its sole discretion, elect to exercise its rights under this Security Agreement
against any one or more of the Grantors, or the Collateral of any one or more of
the Grantors, without any duty or responsibility to pursue any other Grantor,
and that such an election by the Administrative Agent shall not be a defense to
any action the Administrative Agent may elect to take against any one or more of
the Grantors.
XXI. Counterparts. This Security Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed and delivered, shall be deemed an original, but all
such counterparts shall constitute but one and the same instrument.
XXII. Consent to Jurisdiction; Waiver of Jury Trial. Each of the Grantors
---------------------------------------------
hereby irrevocably consents to the non-exclusive jurisdiction of the Court of
Common Pleas of Chester County, Pennsylvania and the United States District
Court for the Eastern District of Pennsylvania, and waives personal service of
any and all process upon it and consents that all such service of process be
made by certified or registered mail directed to the Grantors at the addresses
set forth or referred to in Section 16 hereof and service so made shall be
deemed to be completed upon actual receipt thereof. Each of the Grantors waives
any objection to jurisdiction and venue of any action instituted against it as
provided herein and agrees not to assert any defense based on lack of
jurisdiction or venue, AND THE ADMINISTRATIVE AGENT AND THE BANKS
193
<PAGE>
AND EACH OF THE GRANTORS WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM WITH RESPECT TO THIS SECURITY AGREEMENT TO THE FULL EXTENT
PERMITTED BY LAW.
[SIGNATURES BEGIN ON NEXT PAGE]
194
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO AMENDED AND RESTATED SECURITY AGREEMENT]
WITNESS the due execution hereof as of the day and year first above
written.
PNC BANK, NATIONAL ASSOCIATION, as
Administrative Agent for the Banks
By:___________________________________
Title:
INTERNET CAPITAL GROUP, INC.
By:___________________________________
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
ICG HOLDINGS, INC.
By:___________________________________
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
INTERNET CAPITAL GROUP OPERATIONS, INC.
By:___________________________________
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
1999 INTERNET CAPITAL L.P.
By: ICG HOLDINGS, INC., its general partner
By:___________________________________
Name: John N. Nickolas
Title: Managing Director, Finance and
Assistant Treasurer
195
<PAGE>
SCHEDULE 1
TO
AMENDED AND RESTATED SECURITY AGREEMENT
List of Grantors; Collateral Information
----------------------------------------
A. INTERNET CAPITAL GROUP, INC.
Collateral and books and records located at chief executive office at 103
Springer Building, 3411 Silverside Road, Wilmington, Delaware 19803.
All real and personal properties are located in the following counties:
State/County Assets (Brief Description)
------------ --------------------------
Pennsylvania/Chester/Wayne See description of Collateral in
Delaware/New Castle/Wilmington Security Agreement
California/San Francisco/San Francisco
Massachusetts/Suffolk/Boston
Washington/King
B. ICG HOLDINGS, INC.
Collateral and books and records located at chief executive office at 103
Springer Building, 3411 Silverside Road, Wilmington, Delaware 19803.
All real and personal properties are located in the following counties:
State/County Assets (Brief Description)
------------ --------------------------
Pennsylvania/Chester/Wayne See description of Collateral in
Delaware/New Castle/Wilmington Security Agreement
196
<PAGE>
C. INTERNET CAPITAL GROUP OPERATIONS, INC.
Collateral and books and records located at chief executive office at 800
The Safeguard Building, 435 Devon Park Drive, Wayne, PA 19087.
All real and personal properties are located in the following counties:
State/County Assets (Brief Description)
------------ --------------------------
Pennsylvania/Chester/Wayne See description of Collateral in
Delaware/New Castle/Wilmington Security Agreement
California/San Francisco/San Francisco
Massachusetts/Suffolk/Boston
Washington/King
D. 1999 INTERNET CAPITAL L.P.
Collateral and books and records located at chief executive office at 103
Springer Building, 3411 Silverside Road, Wilmington, Delaware 19803.
All real and personal properties are located in the following counties:
State/County Assets (Brief Description)
------------ --------------------------
Pennsylvania/Chester/Wayne See description of Collateral in
Delaware/New Castle/Wilmington Security Agreement
197
<PAGE>
EXHIBIT 1.1(O)(1)
SECURITY AGREEMENT
(SPECIAL COLLATERAL ACCOUNT)
Dated as of March 28, 2000
Among
INTERNET CAPITAL GROUP, INC.,
ICG HOLDINGS, INC.,
1999 INTERNET CAPITAL L.P.
and
PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
SECTION HEADING PAGE
<S> <C> <C>
Section 1. Grant of Security....................................................................... 2
Section 2. Security for Obligations................................................................ 3
Section 3. Maintaining the Account................................................................. 3
Section 4. Periodic Withdrawals of Cash............................................................ 4
Section 5. Periodic Withdrawals or Additions of Pledged Securities................................. 5
Section 6. periodic exchanges of pledged private company restricted securities..................... 6
Section 7. intentionally omitted................................................................... 6
Section 8. Investing of Amounts in the Accounts.................................................... 6
Section 9. Agreements, Representations and Warranties of Pledgor................................... 7
Section 10. Special Provisions Re: Accounts......................................................... 10
Section 11. Transfers and Other Liens............................................................... 11
Section 12. Administrative Agent Appointed Attorney-in-Fact......................................... 11
Section 13. Administrative Agent May Perform........................................................ 11
Section 14. Remedies................................................................................ 12
Section 15. Application of Proceeds................................................................. 14
Section 16. Indemnity and Expenses.................................................................. 14
Section 17. Security Interest Absolute.............................................................. 15
Section 18. Amendments; Waivers; Etc................................................................ 16
Section 19. Notices................................................................................. 16
Section 20. Continuing Security Interest; Assignments Under the Credit Agreement.................... 18
Section 21. Governing Law; Terms; Etc............................................................... 18
</TABLE>
EXHIBIT A - FORM OF NOTICE OF PERIODIC WITHDRAWAL OF CASH
EXHIBIT B - FORM OF NOTICE OF PERIODIC WITHDRAWAL OF PLEDGED
SECURITIES
EXHIBIT C - FORM OF NOTICE OF PERIODIC EXCHANGE OF PLEDGED PRIVATE
COMPANY RESTRICTED SECURITIES
EXHIBIT D - FORM OF SUPPLEMENT TO SECURITY AGREEMENT (SPECIAL
COLLATERAL ACCOUNT)
EXHIBIT E - FORM OF ACCOUNT CONTROL AGREEMENT (PUBLIC COMPANY
PLEDGED SECURITIES)
EXHIBIT F - FORM OF ACCOUNT CONTROL AGREEMENT (IN-REGISTRATION
COMPANY PLEDGED SECURITIES)
EXHIBIT G - FORM OF ACCOUNT CONTROL AGREEMENT (PRIVATE COMPANY
PLEDGED SECURITIES)
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of March 28, 2000,
is by and among Internet Capital Group, Inc., a Delaware corporation ("ICG"),
ICG Holdings, Inc., a Delaware corporation ("ICG Holdings") and 1999 Internet
Capital L.P. ("ICLP") and together with ICG, ICG Holdings and ICLP, each a
"Pledgor" or a "Borrower", as the case may be), and PNC Bank, National
Association, a national banking association (the "Administrative Agent"), as
Administrative Agent for the Banks party to the Credit Agreement (defined
below).
PRELIMINARY STATEMENTS:
A. Pursuant to that certain Amended and Restated Credit Agreement,
dated as of March 28, 2000 (the "Credit Agreement"), among ICG, ICG Holdings,
the Banks party thereto (as defined therein), the Guarantors party thereto (as
defined therein), PNC Bank, National Association, as Administrative Agent for
the benefit of the Banks party thereto and the Agents, ICG and ICG Holdings, as
borrowers, have arranged for the availability of certain revolving credit loans
from time to time. Capitalized terms used herein without definition shall have
the meanings described thereto in the Credit Agreement.
B. The Administrative Agent and the Banks are hereinafter collectively
referred to as the "Secured Parties".
C. In order to induce the Banks to enter into the transactions
contemplated in the Credit Agreement and to provide financing to ICG and ICG
Holdings, as borrowers, the Pledgors have agreed to deliver the Pledged
Securities into a controlled securities account and grant to the Administrative
Agent for the benefit of the Secured Parties a first priority Lien in such
account and such Pledged Securities securing all amounts payable to the Secured
Parties under the Financing Documents.
D. Further to the foregoing, the Pledgors have (I) delivered the
Pledged Securities to the offices of Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Broker") located in Wilmington, Delaware for further delivery
to the Broker's offices located at 100 Campus Drive, Florham Park, New Jersey
07932, and (II) opened with the Broker, at its offices located at 100 Campus
Drive, Florham Park, New Jersey 07932, (i) interest bearing deposit accounts
designated as (a) Account No. 438-07A48 entitled Internet Capital Group, Inc.
Public Co. Pledged Securities Account for PNC Bank, N.A. as Administrative
Agent, (b) Account No. 438-07A51 entitled ICG Holdings, Inc. Public Co. Pledged
Securities Account for PNC Bank, N.A. as Administrative Agent, and (c) Account
No. 438-07A60 entitled 1999 Internet Capital L.P. Public Co. Pledged Securities
Account for PNC Bank, N.A. as Administrative Agent (collectively, the "Public
Company Pledged Collateral Account"), in the name of the Pledgors but under the
sole dominion and control of the Administrative Agent and subject to the terms
of this Agreement, (ii) interest bearing deposit accounts designated as (a)
Account No. 438-07A50 entitled Internet Capital Group, Inc. In-Registration
Private Co. Pledged Securities Account for PNC Bank, N.A. as Administrative
Agent, (b) Account No. 438-07A53 entitled ICG Holdings, Inc. In-Registration
Private Co. Pledged Securities Account for PNC Bank, N.A. as Administrative
Agent, and (c) Account No. 438-07A62 entitled 1999 Internet Capital L.P. In-
Registration Private Co. Pledged Securities Account for PNC Bank, N.A. as
Administrative Agent
<PAGE>
(collectively, the "In-Registration Company Pledged Collateral Account"), in the
name of the Pledgors but under the sole dominion and control of the
Administrative Agent and subject to the terms of this Agreement and (iii)
interest bearing deposit accounts designated as (a) Account No. 438-07A49
entitled Internet Capital Group, Inc. Private Co. Pledged Securities Account for
PNC Bank, N.A. as Administrative Agent, (b) Account No. 438-07A52 entitled ICG
Holdings, Inc. Private Co. Pledged Securities Account for PNC Bank, N.A. as
Administrative Agent, and (c) Account No. 438-07A61 entitled 1999 Internet
Capital L.P. Private Co. Pledged Securities Account for PNC Bank, N.A. as
Administrative Agent (collectively, the "Private Company Pledged Collateral
Account") in the name of the Pledgors but under the sole dominion and control of
the Administrative Agent and subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
the Secured Parties to make the advances under the Loan Documents and to enter
into the Credit Agreement and this Agreement, each Pledgor hereby agrees with
the Administrative Agent for the ratable benefit of the Secured Parties as
follows:
I. Section 1. Grant of Security.
Each Pledgor hereby assigns and pledges to the Administrative Agent for
its benefit and the ratable benefit of the Secured Parties, and hereby grants to
the Administrative Agent for its benefit and the ratable benefit of the Secured
Parties a security interest in any and all right, title and interest of such
Pledgor, whether now owned or existing or hereafter created, acquired or
arising, in and to:
(a) the Public Company Pledged Securities Account, all funds
held therein and all cash, certificates and instruments, if any, from time to
time representing or evidencing the Public Company Pledged Securities Account;
(b) the In-Registration Company Pledged Securities Account, all
funds held therein and all cash, certificates and instruments, if any, from time
to time representing or evidencing the In-Registration Company Pledged
Securities Account;
(c) the Private Company Pledged Securities Account, all funds
held therein and all cash, certificates and instruments, if any, from time to
time representing or evidencing the Private Company Pledged Securities Account;
(d) any and all investment property and any other securities
(whether certificated or uncertificated), security entitlements, securities
accounts, commodity contracts and commodity accounts held in, by or for the
benefit of the Public Company Pledged Securities Account, the In-Registration
Company Pledged Securities Account or the Private Company Pledged Securities
Account, including the Pledged Securities;
(e) any and all substitutions and additions to the foregoing
property; and
(f) any and all income, dividends, distributions and sums
distributable or payable from, upon, or in respect of the foregoing property;
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<PAGE>
(g) any and all rights and privileges incident to the
foregoing property; and
(h) any and all proceeds of the foregoing;
provided, however, that for so long as no Event of Default shall have occurred
- -------- -------
and be continuing under the Credit Agreement, Excluded Securities (as defined
hereinafter) shall not be deemed to be Collateral for purposes of this
Agreement. "Excluded Securities" shall mean:
(i) all Subject to Pledge Private Company Restricted
Securities, until a Supplement to the Security Agreement (Account Control
Agreement) has been executed and delivered to the Administrative Agent with
respect to Subject to Pledge Private Company Restricted Securities which are
being subjected to the security interest and lien contemplated hereby in
accordance with Section 5(c) hereof;
(ii) all Public Company Restricted Securities issued by non-
U.S. Persons; and
(iii) all Private Company Restricted Securities issued by non-
U.S. Persons.
(all of the foregoing, other than, prior to an Event of Default, the
Excluded Pledged Securities, being herein sometimes referred to as the
"Collateral"). All terms which are used in this Agreement which are defined in
the Uniform Commercial Code of the Commonwealth of Pennsylvania ("UCC") shall
have the same meanings herein as such terms are defined in the UCC, unless this
Agreement shall otherwise specifically provide.
II. Section 2. Security for Obligations.
The pledge, assignment and security interest granted under this Agreement by
each Pledgor secure all Obligations, including, without limitation (a) the
payment of all amounts payable to the Secured Parties now or hereafter existing
under the Loan Documents, whether for principal, interest, premiums, fees,
expenses or otherwise, and (b) any and all expenses and charges, legal or
otherwise, suffered or incurred by the Administrative Agent or any of the Banks
in collecting or enforcing any of such indebtedness, obligations or liabilities
or in realizing on or protecting or preserving any security therefor, including,
without limitation, the lien and security interest granted hereby (all of the
foregoing being hereinafter referred to as the "Secured Obligations").
III. Section 3. Maintaining the Accounts.
(a) Except as expressly provided in this Agreement, so long as any
amount shall remain unpaid or there shall be any commitment to extend credit to
any Borrower under the Loan Documents:
(i) the Pledgors will maintain the Public Company Pledged Securities
Account, the In-Registration Company Pledged Securities Account and the Private
Company Pledged Securities Account with the Broker;
(ii) it shall be a term and condition of the Public Company Pledged
Securities Account, the In-Registration Company Pledged Securities Account and
the Private Company Pledged Securities Account, notwithstanding any term or
condition to the contrary in any other
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<PAGE>
agreement relating to such Account, that except as otherwise provided by the
terms of this Agreement, no amount (including interest on Permitted Investments)
shall be paid or released to or for the account of, or withdrawn by or for the
account of, any Pledgor or any other Person from such Public Company Pledged
Securities Account, such In-Registration Company Pledged Securities Account or
such Private Company Pledged Securities Account; and
(iii) the Public Company Pledged Securities Account, the
In-Registration Company Pledged Securities Account and the Private Company
Pledged Securities Account shall be subject to such applicable laws, and such
applicable regulations of the Federal Reserve Board and of any other appropriate
banking or governmental authority, as may now or hereafter be in effect; the
Public Company Pledged Securities Account, the In-Registration Company Pledged
Securities Account and the Private Company Pledged Securities Account shall not
be subject to debit or withdrawal, and no Person shall have any control over or
right of withdrawal from the Public Company Pledged Securities Account, the In-
Registration Company Pledged Securities Account or the Private Company Pledged
Securities Account other than as provided in this Agreement.
(b) The initial delivery of Material Contracts, Consents,
Certificates and Powers relating to Pledged Securities shall be made to the
Broker and deposited in the Public Company Pledged Securities Account, In-
Registration Company Pledged Securities Account or the Private Company Pledged
Securities Account, as the case may be, and the Pledgors shall provide evidence
satisfactory to the Administrative Agent of such delivery and deposit. The
Pledgors shall deliver Material Contracts, Consents, Certificates and Powers
relating to Pledged Securities from time to time after the Closing Date in
accordance with the terms of Sections 8.1.17, 8.1.18 and 8.1.19 of the Credit
Agreement and the Pledgors shall provide evidence satisfactory to the
Administrative Agent of such deposit and delivery.
IV. Section 4. Periodic Withdrawals of Cash.
(a) Beginning on April 1, 2000, and on the first day of each calendar
month in each year thereafter (each, a "Periodic Withdrawal Date"), so long as
any amounts remain in the Public Company Pledged Securities Account, the
In-Registration Company Pledged Securities Account or the Private Company
Pledged Securities Account, as the case may be, the Pledgors shall be permitted
to withdraw an amount equal to the sum of all cash dividends (other than
liquidating dividends and distributions) and income which have been paid or have
accrued with respect to the investment property in the Public Company Pledged
Securities Account, the In-Registration Company Pledged Securities Account or
the Private Company Pledged Securities Account, as the case may be, subject to
the provisions of Section 4(b) hereof.
(b) No withdrawals pursuant to this Section 4 shall be permitted unless
the Pledgors have delivered (x) to the Administrative Agent a written notice
substantially in the form of Exhibit A attached hereto specifying (A) the
---------
applicable Periodic Withdrawal Date, (B) the aggregate amount of the dividends
and interest income the Pledgors propose to withdraw, (C) the anticipated
remaining balance of the Public Company Pledged Securities Account, the
In-Registration Company Pledged Securities Account or the Private Company
Pledged Securities Account, as the case may be, after giving effect to the
withdrawal, (D) their instructions as to the
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<PAGE>
manner and place of payment of such withdrawal and (E) that no Default or Event
of Default shall have occurred which is continuing under any of the Loan
Documents and (y) to the Broker, the notice referred to in Sections 4(a) of the
applicable Account Control Agreement.
V. Section 5. Periodic Withdrawals or Additions of Pledged Securities.
(a) Beginning on the date hereof and on each Business Day hereafter
(each, a "Periodic Pledged Securities Withdrawal Date"), so long as any Pledged
Securities shall remain in the Public Company Pledged Securities Account, the
In-Registration Company Pledged Securities Account or the Private Company
Pledged Securities Account, as the case may be, the Pledgors shall be permitted
to withdraw Pledged Securities, subject to the provisions of Section 5(b)
hereof.
(b) No dispositions pursuant to this Section 5 shall be permitted
unless the Pledgors have delivered (x) to the Administrative Agent and the
Broker, on or prior to the date of the proposed disposition, a written notice
substantially in the form of Exhibit B attached hereto specifying (A) the
---------
applicable Periodic Pledged Securities Withdrawal Date, (B) the Pledged
Securities the Pledgors propose to withdraw, (C) their instructions as to the
manner and place of payment for such disposition, (D) that (x) following any
such proposed disposition, the Pledgors are in compliance with the Borrowing
Base as provided in the Credit Agreement, (y) the Administrative Agent has
received a Compliance Certificate from the Pledgors demonstrating such
compliance and (z) any such proposed disposition does not result in the
disposition of Pledged Securities with a value (in the case of Public Company
Restricted Securities and Public Company Unrestricted Securities), or a cost
basis (in the case of Private Company Restricted Securities and In-Registration
Company Securities), in each case as determined from time to time in accordance
with the terms of the "Borrowing Base" definition provided for in the Credit
Agreement, in excess of ten percent (10%) of the dollar amount equal to the sum
of clauses (i) through (v) of such definition of "Borrowing Base" calculated
from time to time in accordance with the terms of such definition, determined in
each case as of the date of any such proposed withdrawal, without giving effect
to the proposed withdrawal and (E) no Default or Event of Default shall have
occurred which is continuing under any of the Loan Documents and (y) to the
Broker, the notice referred to in Section 4(b) of the applicable Account Control
------------
Agreement and in the case of proposed withdrawals of Public Company Restricted
Securities or Public Company Unrestricted Securities, the consent of the
Administrative Agent required pursuant to Section 4(b) of the Account Control
------------
Agreement (Public Company Pledged Securities).
(c) In addition, any Pledgor may, on any Periodic Pledged Securities
Withdrawal Date, subject any Subject to Pledge Private Company Restricted
Securities to the lien and security interest contemplated in Section 1 hereof by
executing and delivering to the Administrative Agent a Supplement to Security
Agreement (Special Collateral Account) substantially in the form attached hereto
as Exhibit D.
VI. Section 6. Periodic Exchanges of Pledged Private Company Restricted
Securities.
(a) Beginning on the date hereof and on each Business Day hereafter
(each, a "Periodic Pledged Private Company Restricted Securities Exchange
Date"), the Pledgors shall
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<PAGE>
be permitted to exchange Pledged Private Company Restricted Securities for
Public Company Restricted Securities, Public Company Unrestricted Securities or
Private Company Restricted Securities, as the case may be, subject to the
provisions of Section 6(b) hereof.
(b) No dispositions pursuant to this Section 6 shall be permitted
unless (i) the Pledgors have delivered (x) to the Administrative Agent, on or
prior to the date of the proposed exchange, a written notice substantially in
the form of Exhibit C attached hereto specifying (A) the applicable Periodic
---------
Pledged Private Company Restricted Securities Exchange Date, (B) the Pledged
Private Company Restricted Securities the Pledgors propose to exchange, (C) the
Public Company Restricted Securities, the Public Company Unrestricted Securities
or the Private Company Restricted Securities which are to be delivered to the
Broker in exchange for the applicable Pledged Private Company Restricted
Securities within __ days of the Periodic Pledged Private Company Restricted
Securities Exchange Date and held by the Broker in accordance with the terms of
the applicable Account Control Agreement, (D) their respective instructions as
to the manner and place of such exchange, (E) that following any such proposed
exchange, the Pledgors are in compliance with the Borrowing Base as provided in
the Credit Agreement and (F) no Default or Event of Default shall have occurred
which is continuing under any of the Loan Documents and (y) to the Broker, the
notice referred to in Section 4(c) of the Account Control Agreement (Private
------------
Company Pledged Securities).
VII. Section 7. [intentionally omitted].
VIII. Section 8. Investing of Amounts in the Accounts.
Any monies paid to or retained by the Broker in the Public Company Pledged
Securities Account, the In-Registration Company Pledged Securities Account or
the Private Company Pledged Securities Account, as the case may be, shall, until
paid to or applied as provided herein, be invested by the Broker at the written
authorization and direction of the Pledgors from time to time and at the risk
and expense of the Pledgors in Permitted Investments, which Permitted
Investments shall at all times be held in the applicable Account and subject to
the lien and security interest contemplated by this Agreement, and in the
absence of a written authorization and direction from the Pledgors, there shall
be no obligation to invest such money; provided, that after an Event of Default
shall have occurred and be continuing, such money shall be so invested in
Permitted Investments at the Administrative Agent's direction and at the risk
and expense of the Pledgors. There shall be promptly deposited on the last
Business Day of each month in the Account any gain (including interest received)
realized as the result of any such investment (net of any fees, commissions and
other expenses, if any, incurred in connection with such investment) unless a
Default or Event of Default shall have occurred and be continuing in which case
such gains shall be held pursuant to Section 14. The Broker shall have no
liability for any loss resulting from any Permitted Investment other than by
reason of its willful misconduct, gross negligence or bad faith. The Broker may
sell any Permitted Investment (without regard to its maturity date) whenever the
Administrative Agent in its reasonable discretion deems it necessary to make any
distribution required by this Agreement and the Administrative Agent shall not
be liable to any Person for any loss suffered because of any such sale.
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<PAGE>
IX. Section 9. Agreements, Representations and Warranties of Pledgor.
Each Pledgor covenants, represents and warrants as follows:
(a) Each Pledgor is a corporation, or limited partnership in the case
of ICLP, in each case duly organized and validly existing in good standing under
the laws of the State of Delaware, is the sole and lawful owner of the
Collateral purported to be owned by it, and has full right, power and authority
to enter into this Agreement and to perform each and all of the matters and
things herein provided for. The execution and delivery of this Agreement, and
the observance and performance of each of the matters and things herein set
forth, will not (i) contravene or constitute a default under any provision of
law or any judgment, injunction, order or decree binding upon any Pledgor or any
provision of any Pledgor's charter, articles of incorporation, by-laws or
limited partnership agreement or any covenant, indenture or agreement of or
affecting any Pledgor or any of its property or (ii) result in the creation or
imposition of any lien or encumbrance on any property of any Pledgor except for
the lien and security interest granted to the Administrative Agent hereunder.
(b) Each Pledgor's chief executive office and principal place of
business is at 103 The Springer Building, 3411 Silverside Road, Wilmington,
Delaware 19801 and no Pledgor has any other executive offices or places of
business. Each Pledgor shall not move its chief executive office or maintain a
place of business at a location other than as specified in the immediately
preceding sentences without first providing the Administrative Agent 30 days'
prior written notice of such Pledgor's intent to do so; provided that each
Pledgor shall at all times maintain its chief executive office in the United
States of America and, with respect to any new chief executive office or place
of business, each Pledgor shall have taken all action reasonably requested by
the Secured Party to maintain the lien and security interest of the
Administrative Agent in the Collateral at all times fully perfected and in full
force and effect.
(c) All of the Pledged Securities have been duly and validly issued
and are fully paid and non-assessable and the Collateral and every part thereof
is and shall be free and clear of all security interests, liens (including,
without limitation, mechanics', laborers' and statutory liens), attachments,
levies and encumbrances of every kind, nature and description, whether voluntary
or involuntary, except for the lien and security interest of the Administrative
Agent therein, the rights of the Broker set forth in Section 7 of the applicable
Account Control Agreement, as the case may be, the contractual restrictions
applicable to the transfer of the Pledged Securities and Permitted Liens. Each
Pledgor shall warrant and defend the Collateral against any claims and demands
of all persons at any time claiming the same or any interest in the Collateral
adverse to the Administrative Agent.
(d) This Agreement and the pledge and assignment of the Collateral
pursuant hereto will, when the filings and other actions contemplated by this
Agreement have been duly made or taken, and upon delivery of the Pledged
Securities to the Broker in accordance with the terms hereof and the other Loan
Documents, create a valid security interest in the Collateral enforceable
against third parties, senior in right to all other creditors and subject to no
prior Liens, in favor of the Administrative Agent for the benefit of the Secured
Parties, prior to all other Liens and securing the payment of the Secured
Obligations, subject to Section 9(c) above.
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<PAGE>
(e) The Pledged Securities listed on Schedules A, B, C and D to the
Borrowing Base Certificate constitute all the Pledged Securities and ICG, ICG
Holdings and 1999 Internet Capital LP are the direct and beneficial owners of
all such Pledged Securities.
(f) The Pledgors shall notify the Administrative Agent and the Broker
of any disposition of any Securities in any Acquisition Entity that constitutes
Pledged Collateral in accordance with the terms of Section 8.1.13 of the Credit
Agreement and shall provide to the Administrative Agent, the Banks and the
Broker written notice of any Acquisition in a Person, and updated Schedules A,
B, C and D, as applicable, to the Borrowing Base Certificate reflecting any such
additional Acquisition, in each case in accordance with the terms of Section
8.1.15 of the Credit Agreement.
(g) No consent of any other Person and no authorization, approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body or other third party is required either for (i) the grant by any
Pledgor of the assignment and security interest granted hereby or for the
execution, delivery or performance of this Agreement by any Pledgor, (ii) the
perfection or maintenance of the pledge, assignment and security interest
created hereby, except for the filing of financing and continuation statements
under the UCC, or (iii) the exercise by the Administrative Agent of its voting
or other rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required in connection
with the disposition of any portion of the Collateral by laws affecting the
offering and sale of securities generally.
(h) Each Pledgor shall promptly pay when due all taxes, assessments
and governmental charges and levies upon or against any Pledgor or any of the
Collateral, in each case before the same become delinquent and before penalties
accrue thereon, unless and to the extent that the same are being contested in
good faith by appropriate proceedings which prevent foreclosure or other
realization upon any of the Collateral, and such Pledgor shall have established
adequate reserves therefor.
(i) Except to the extent expressly permitted by Sections 4, 5 and 6
hereof, without the Administrative Agent's prior written consent, neither
Pledgor shall, nor shall it permit the Broker to, invest, purchase, sell,
exchange, redeem, reinvest, assign, or otherwise dispose of the Collateral or
any part thereof or any interest therein.
(j) Each Pledgor agrees to execute and deliver, and shall cause the
Broker to execute and deliver, to the Administrative Agent such further
agreements, assignments, instruments and documents and to do all such other
things as the Administrative Agent may reasonably deem necessary or appropriate
to assure the Administrative Agent its lien and security interest hereunder,
including an Account Control Agreement (Public Company Pledged Securities), an
Account Control Agreement (In-Registration Company Pledged Securities) or an
Account Control Agreement (Private Company Pledged Securities), as applicable,
in each case in the form attached hereto as Exhibit E, Exhibit F or Exhibit G,
as the case may be, and such financing statements, and amendments thereof or
supplements thereto, and such other instruments and documents as the
Administrative Agent may from time to time reasonably require in order to comply
with the UCC. Each Pledgor hereby agrees that a carbon, photographic or other
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<PAGE>
reproduction of this Agreement or any such financing statement is sufficient for
filing as a financing statement by the Administrative Agent without notice
thereof to any Pledgor wherever the Administrative Agent in its sole discretion
desires to file the same. In the event for any reason the law of any
jurisdiction other than Pennsylvania becomes or is applicable to the Collateral
or any part thereof, or to any of the Secured Obligations, each Pledgor agrees
to execute and deliver all such instruments and documents and to do all such
other things as the Administrative Agent in its sole discretion deems necessary
or appropriate to preserve, protect and enforce the lien and security interest
of the Administrative Agent under the law of such other jurisdiction. Each
Pledgor agrees to mark its books and records to reflect the lien and security
interest of the Administrative Agent in the Collateral.
(k) On failure of any Pledgor to perform any of the covenants and
agreements herein contained, the Administrative Agent may, at its option,
perform the same and in so doing may expend such sums as the Administrative
Agent may reasonably deem advisable in the performance thereof, including,
without limitation, the payment of any taxes, liens and encumbrances,
expenditures made in defending against any adverse claims, and all other
expenditures which the Administrative Agent may be compelled to make by
operation of law or which the Administrative Agent may make by agreement or
otherwise for the protection of the security hereof. All such sums and amounts
so expended shall be repayable by Pledgors immediately without notice or demand,
shall constitute additional Secured Obligations secured hereunder and shall bear
interest from the date said amounts are expended at the rate per annum
prescribed in the Credit Agreement. No such performance of any covenant or
agreement by the Administrative Agent on behalf of the Pledgors, and no such
advancement or expenditure therefor, shall relieve any Pledgor of any default
under the terms of this Agreement or in any way obligate the Administrative
Agent to take any further or future action with respect thereto. The
Administrative Agent, in making any payment hereby authorized, may do so
according to any bill, statement or estimate procured from the appropriate
public office or holder of the claim to be discharged without inquiry into the
accuracy of such bill, statement or estimate or into the validity of any tax
assessment, sale, forfeiture, tax lien or title or claim. The Administrative
Agent, in performing any act hereunder, shall be the sole judge of whether any
Pledgor is required to perform same under the terms of this Agreement. The
Administrative Agent is hereby authorized to charge any depository or other
account of any Pledgor maintained with the Administrative Agent for the amount
of such sums and amounts so expended.
X. Section 10. Special Provisions Re: Accounts.
(a) The Collateral is, and shall hereafter be, held in the Public
Company Pledged Securities Account, the In-Registration Company Pledged
Securities Account or the Private Company Pledged Securities Account, as the
case may be, by the Broker as the bailee of the Administrative Agent, except to
the extent otherwise agreed to in writing by the Administrative Agent. Each
Pledgor shall cause the Broker to, and hereby irrevocably authorizes and directs
the Broker to, furnish to the Administrative Agent a copy of each monthly
statement pertaining to the Public Company Pledged Securities Account, the
In-Registration Company Pledged Securities Account or the Private Company
Pledged Securities Account, as the case may be, and the Pledged Collateral and
such other information requested by the Administrative Agent which would
ordinarily be available if requested by a Pledgor.
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<PAGE>
(b) Each Pledgor shall not terminate the Public Company Pledged
Securities Account, the In-Registration Company Pledged Securities Account or
the Private Company Pledged Securities Account, as the case may be, without the
Administrative Agent's prior written consent and, except to the extent expressly
permitted by Sections 4, 5 and 6 and this Section 10, no Pledgor shall transfer
the Collateral or any part thereof from the Public Company Pledged Securities
Account, the In-Registration Company Pledged Securities Account or the Private
Company Pledged Securities Account, as the case may be, without the
Administrative Agent's prior written consent (provided that it is understood and
agreed that if for any reason the Collateral or any part thereof is at any time
transferred from the Public Company Pledged Securities Account, the
In-Registration Company Pledged Securities Account or the Private Company
Pledged Securities Account, as the case may be, in violation of the provisions
hereof or any other Loan Document, the Administrative Agent shall nevertheless
retain a security interest therein).
(c) Upon the occurrence of an Event of Default, the Administrative
Agent may at such time or at any time thereafter direct the Broker to withdraw
the Collateral or any part thereof from the Public Company Pledged Securities
Account, the In-Registration Company Pledged Securities Account or the Private
Company Pledged Securities Account, as the case may be, and deliver such
Collateral to the Administrative Agent and/or to transfer such Collateral or any
part thereof into the Administrative Agent's name or into the name of its
nominee or nominees.
(d) Unless and until an Event of Default has occurred and is
continuing:
(i) each Pledgor shall be entitled to exercise or direct the Broker
to exercise all voting and/or consensual powers pertaining to the Collateral or
any part thereof, for all purposes not inconsistent with the terms of this
Agreement or the terms of any other document relating to the Secured Obligations
secured hereby; and
(ii) each Pledgor shall be entitled to receive all cash dividends
(other than liquidating dividends and distributions) and income from the
investment property in the Account as more fully provided in Section 4.
XI. Section 11. Transfers and Other Liens.
Except as otherwise permitted by the terms of Sections 4, 5 and 6 hereof and
consistent with the terms of the Credit Agreement, no Pledgor shall (i) sell,
assign (by operation of law or otherwise) or otherwise dispose of, or grant any
option with respect to, any of the Collateral, or (ii) create or suffer to exist
any Lien upon or with respect to any of the Collateral except for the pledge,
assignment and security interest created by this Agreement.
XII. Section 12. Administrative Agent Appointed Attorney-in-Fact.
In addition to any other powers of attorney contained herein, each Pledgor
hereby appoints the Administrative Agent, its nominee, and any other person whom
the Administrative Agent may designate, as such Pledgor's attorney-in-fact, with
full power to ask, demand, collect, receive,
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receipt for, sue for, compound and give acquittance for any and all sums or
properties which may be or become due, payable or distributable on or in respect
of the Collateral or any part thereof, with full power to settle, adjust or
compromise any claim thereunder or therefor as fully as such Pledgor could
itself do, to endorse or sign such Pledgor's name on any assignments, stock
powers, or other instruments of transfer and on any checks, notes, acceptances,
money orders, drafts and any other forms of payment or security that may come
into the Administrative Agent's possession and on all documents of satisfaction,
discharge or receipt required or requested in connection therewith, and, in its
discretion, to file any claim or take any other action or proceeding, either in
its own name or in the name of any Pledgor, or otherwise, which the
Administrative Agent may deem necessary or appropriate to collect or otherwise
realize upon all or any part of the Collateral, or effect a transfer thereof, or
which may be necessary or appropriate to protect and preserve the right, title
and interest of the Secured Party in and to such Collateral and the security
intended to be afforded hereby. Each Pledgor hereby ratifies and approves all
acts of any such attorney and agrees that neither the Administrative Agent nor
any such attorney will be liable for any acts or omissions nor for any error of
judgment or mistake of fact or law other than such person's gross negligence or
willful misconduct. The Administrative Agent may file one or more financing
statements disclosing its security interest in all or any part of the Collateral
without any Pledgor's signature appearing thereon, and each Pledgor also hereby
grants the Administrative Agent a power of attorney to execute any such
financing statements, and any amendments or supplements thereto, on behalf of
such Pledgor without notice thereof to such Pledgor. The foregoing powers of
attorney, being coupled with an interest, are irrevocable until the Secured
Obligations have been fully paid and satisfied and all agreements of the
Administrative Agent to extend credit to or for the account of any Pledgor have
expired or otherwise have been terminated. Notwithstanding the foregoing, the
Administrative Agent agrees not to exercise any such power of attorney until
after the occurrence of an Event of Default.
XIII. Section 13. Administrative Agent May Perform.
If any Pledgor fails to perform any agreement contained herein, the
Administrative Agent may itself perform, or cause performance of, such
agreement, and the expenses of the Administrative Agent incurred in connection
therewith shall be payable by the Pledgors under Section 16(b) hereof.
XIV. Section 14. Remedies.
(a) The occurrence of any one or more of the following events shall
constitute an "Event of Default" hereunder:
(i) an "Event of Default" arising under any Loan Document, including
without limitation the Credit Agreement, shall occur and be continuing; or
(ii) default in the observance or performance of any covenant set
forth in Section 3 hereof.
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<PAGE>
(b) Upon the occurrence and during the continuation of any Event of
Default, the Administrative Agent shall have, in addition to all other rights
provided herein or by law, the rights and remedies of a secured party under the
UCC (regardless of whether the UCC is the law of the jurisdiction where the
rights or remedies are asserted and regardless of whether the UCC applies to the
affected Collateral), and, upon acceleration of the Obligations under the Credit
Agreement, the Administrative Agent may, without demand and without
advertisement, notice, hearing or process of law, all of which each Pledgor
hereby waives, at any time or times, liquidate, sell and deliver that portion of
the Collateral (and any other property of any Pledgor attached thereto or found
therein) held by or for it, which the Administrative Agent in its good faith
judgment, exercised from time to time, deems necessary to satisfy any amounts
remaining unpaid or owing on the Obligations, at any broker's board or at any
public or private sale, for cash, upon credit or otherwise, at such prices and
upon such terms as the Administrative Agent deems advisable, in its sole
discretion. In the exercise of any such remedies, the Administrative Agent may
sell all the Collateral as a unit even though the sales price thereof may be in
excess of the amount remaining unpaid on the Secured Obligations. The
Administrative Agent is authorized at any sale or other disposition of the
Collateral, if it deems it advisable so to do, to restrict the prospective
bidders or purchasers to persons who will represent and agree that they are
purchasing for their own account for investment, and not with a view to the
distribution or resale of any of the Collateral. In addition to all other sums
due the Administrative Agent hereunder, each Pledgor shall pay the
Administrative Agent all costs and expenses incurred by the Administrative
Agent, including reasonable attorneys' fees and court costs, in obtaining,
liquidating or enforcing payment of Collateral or the Secured Obligations or in
the prosecution or defense of any action or proceeding by or against the
Administrative Agent or any Pledgor concerning any matter arising out of or
connected with this Agreement or the Collateral or the Secured Obligations,
including, without limitation, any of the foregoing arising in, arising under or
related to a case under the United States Bankruptcy Code (or any successor
statute). Any requirement of reasonable notice shall be met if such notice is
personally served on or mailed, postage prepaid, to each Pledgor in accordance
with Section 19 hereof at least 10 days before the time of sale or other event
giving rise to the requirement of such notice; provided however, no notification
need be given to a Pledgor if such Pledgor has signed, after an Event of Default
has occurred, a statement renouncing any right to notification of sale or other
intended disposition. The Administrative Agent shall not be obligated to make
any sale or other disposition of the Collateral regardless of notice having been
given. The Administrative Agent may be the purchaser at any such sale. Each
Pledgor hereby waives all of its rights of redemption from any such sale. The
Administrative Agent may postpone or cause the postponement of the sale of all
or any portion of the Collateral by announcement at the time and place of such
sale, and such sale may, without further notice, be made at the time and place
to which the sale was postponed or the Administrative Agent may further postpone
such sale by announcement made at such time and place.
(c) Without in any way limiting the foregoing, upon the occurrence and
during the continuation of any Event of Default, all rights of any Pledgor to
exercise the voting and/or consensual powers which it is entitled to exercise
pursuant to Section 10(d)(i) hereof and/or to receive and retain the income and
distributions which it is entitled to receive and retain pursuant to Section
10(d)(ii) hereof, shall, at the option of the Administrative Agent, cease and
thereupon become vested in the Administrative Agent, which, in addition to all
other rights provided herein
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<PAGE>
or by law, shall then be entitled solely and exclusively to exercise all voting
and other consensual powers pertaining to the Collateral and/or to receive and
retain the income and distributions which any Pledgor would otherwise have been
authorized to retain pursuant to Section 10(d) hereof and shall then be entitled
solely and exclusively to exercise any and all rights of conversion, exchange or
subscription or any other rights, privileges or options pertaining to any
Collateral as if the Administrative Agent were the absolute owner thereof.
Without limiting the foregoing, the Administrative Agent may by written demand
direct the Broker to deliver the Collateral, or any part thereof, and/or to
liquidate the Collateral, or any part thereof, and deliver the proceeds
therefrom to the Administrative Agent. In the event the Administrative Agent in
good faith believes any of the Collateral constitutes restricted securities
within the meaning of any applicable securities laws, any disposition thereof in
compliance with such laws shall not render the disposition commercially
unreasonable.
(d) The powers conferred upon the Administrative Agent hereunder are
solely to protect its interest in the Collateral and shall not impose on it any
duty to exercise such powers. The Administrative Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if such Collateral is accorded treatment substantially equivalent
to that which the Administrative Agent accords its own property, consisting of
similar type assets, it being understood, however, that the Administrative Agent
shall have no responsibility for (i) ascertaining or taking any action with
respect to calls, conversions, exchanges, maturities, tenders or other matters
relating to any Collateral, whether or not the Administrative Agent has or is
deemed to have knowledge of such matters, (ii) taking any necessary steps to
preserve rights against any parties with respect to any Collateral, or (iii)
initiating any action to protect the Collateral against the possibility of a
decline in market value. This Agreement constitutes an assignment of rights only
and not an assignment of any duties or obligations of any Pledgor in any way
related to the Collateral, and the Administrative Agent shall have no duty or
obligation to discharge any such duty or obligation. The Administrative Agent
shall have no responsibility for taking any necessary steps to preserve rights
against any parties with respect to any Collateral or initiating any action to
protect the Collateral against the possibility of a decline in market value.
Neither the Administrative Agent nor any party acting as attorney for the
Administrative Agent shall be liable for any acts or omissions or for any error
of judgment or mistake of fact or law other than their gross negligence or
willful misconduct.
(e) Failure by the Administrative Agent to exercise any right, remedy
or option under this Agreement or any other agreement between any Pledgor and
the Administrative Agent or provided by law, or delay by the Administrative
Agent in exercising the same, shall not operate as a waiver; and no waiver by
the Administrative Agent shall be effective unless it is in writing and then
only to the extent specifically stated. The rights and remedies of the
Administrative Agent under this Agreement shall be cumulative and not exclusive
of any other right or remedy which the Administrative Agent may have. For
purposes of this Agreement, an Event of Default shall be construed as continuing
after its occurrence until the same is waived in writing by the Administrative
Agent.
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<PAGE>
XV. Section 15. Application of Proceeds.
(a) The proceeds and avails of the Collateral at any time received by
the Administrative Agent after the occurrence and during the continuation of any
Event of Default shall, when received by the Administrative Agent in cash or its
equivalent, be applied by the Administrative Agent as follows:
(i) First, to the payment and satisfaction of all sums paid and costs
and expenses incurred by the Administrative Agent hereunder or otherwise in
connection herewith, including such monies paid or incurred in connection with
protecting, preserving or realizing upon the Collateral or enforcing any of the
terms hereof, including reasonable attorneys' fees and court costs, together
with any interest thereon (but without preference or priority of principal over
interest or of interest over principal), to the extent the Administrative Agent
is not reimbursed therefor by the Pledgors; and
(ii) Second, to the payment and satisfaction of the remaining Secured
Obligations, whether or not then due (in whatever order the Administrative Agent
elects), both for interest and principal.
Any surplus remaining after the full payment and satisfaction of the foregoing
shall be returned to the Pledgors or to whomsoever the Administrative Agent
reasonably determines is lawfully entitled thereto.
(b) The Administrative Agent may, without notice to any Pledgor
except as required by law and at any time or from time to time, charge, set off
and otherwise apply all or any part of the Secured Obligations against the
Account or any part thereof.
XVI. Section 16. Indemnity and Expenses.
(a) Each Pledgor agrees to indemnify the Administrative Agent from
and against any and all claims, losses and liabilities growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), except claims, losses or liabilities resulting from the
Administrative Agent's gross negligence or willful misconduct (as determined by
a court of final appeal).
(b) Each Pledgor agrees upon demand to pay to the Administrative
Agent the amount of any and all reasonable out of pocket expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, that
the Administrative Agent may incur in connection with (i) the administration of
this Agreement, (ii) the custody, preservation, use or operation of, or the sale
of, collection from or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of the Secured Parties hereunder or
(iv) the failure by any Pledgor to perform or observe any of the provisions
hereof.
XVII. Section 17. Security Interest Absolute.
The obligations of each Pledgor under this Agreement are independent of the
Secured Obligations, and a separate action or actions may be brought and
prosecuted against any Pledgor
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<PAGE>
to enforce this Agreement, irrespective of whether any action is brought against
the other Pledgor or whether the other Pledgor is joined in any such action or
actions. All rights of the Administrative Agent and the pledge, assignment and
security interest hereunder, and all obligations of each Pledgor hereunder,
shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of any Financing Document
or any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other amendment or
waiver of or any consent to any departure from any Financing Document,
including, without limitation, any increase in the Secured Obligations resulting
from the extension of additional credit to the Borrowers or any of their
respective subsidiaries or otherwise;
(c) the failure of any Pledgor to receive any benefit from or as a
result of its execution, delivery and performance of this Agreement;
(d) any taking, exchange, release or nonperfection of any other
Pledged Collateral, or any taking, release or amendment or waiver of or consent
to departure from any guaranty, for all or any of the Secured Obligations;
(e) any manner of application of Pledged Collateral, or proceeds
thereof, to all or any of the Secured Obligations, or any manner of sale or
other disposition of any Pledged Collateral for all or any of the Secured
Obligations or any other assets of the Borrowers or any of their respective
Subsidiaries;
(f) any change, restructuring or termination of the corporate
structure or existence of any Borrower or any of their respective Subsidiaries;
or
(g) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, any Pledgor or a third party grantor of a
security interest.
XVIII. Section 18. Amendments; Waivers; Etc.
(a) No amendment or waiver of any provision of this Agreement, and no
consent to any departure by any Pledgor herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Administrative
Agent and each Pledgor in the case of amendments, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
(b) No failure on the part of the Administrative Agent to exercise,
and no delay in exercising, any right, power or privilege hereunder shall
operate as a waiver thereof or consent thereto; nor shall any single or partial
exercise of any such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
-15-
<PAGE>
XIX. Section 19. Notices.
Except as otherwise specified herein, all notices hereunder shall be in writing
(including, without limitation, notice by telecopy) and shall be given to the
relevant party at its address or telecopier number set forth below (or, if no
such address is set forth below, at the address of the Pledgors as shown on the
records of the Administrative Agent), or such other address or telecopier number
as such party may hereafter specify by notice to the other given by United
States certified or registered mail, by telecopy or by other telecommunication
device capable of creating a written record of such notice and its receipt.
Notices hereunder shall be addressed:
<TABLE>
<S> <C>
to ICG at: to the Administrative Agent at:
Internet Capital Group, Inc. PNC Bank, National Association
103 The Springer Building One PNC Plaza - 22nd Floor
3411 Silverside Road 249 Fifth Avenue
Wilmington, Delaware 19801 Pittsburgh, PA 15222-2707
Attention: Vice President of Finance Operation Attention: Ms. Arlene Ohler
Telephone: (302) 478-6160 Telephone: (412) 762-3627
Telecopy: (302) 478-3667 Telecopy: (412) 762-8672
with a copy to: with a copy to:
Internet Capital Group Operations, Inc. VentureBank@PNC
800 The Safeguard Building 1000 Westlakes Drive
435 Devon Park Drive Suite 200
Wayne, PA 19087 Berwyn, PA 19312
Attention: Mr. James N. Borum Attention: Mr. John Freyhof
Mr. Henry N. Nassau Telephone: (610) 725-5752
Telephone: (610) 989-0111 Telecopy: (610) 725-5799
Telecopy: (610) 989-0112
to ICG Holdings at:
ICG Holdings, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
</TABLE>
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<PAGE>
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
to ICLP at:
1999 Internet Capital L.P.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
Attention: General Counsel
Telephone: (302) 478-6160
Telecopy: (302) 478-3667
with a copy to:
Internet Capital Group Operations, Inc.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
Attention: Mr. James N. Borum
Mr. Henry N. Nassau
Telephone: (610) 989-0111
Telecopy: (610) 989-0112
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section and a confirmation of such telecopy has been received
by the sender, (ii) if given by mail, five (5) days after such communication is
deposited in the mail, certified or registered with return receipt requested,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the addresses specified in this Section.
XX. Section 20. Continuing Security Interest; Assignments Under the Credit
XXI. Agreement.
This Agreement shall create a continuing security interest in the Collateral and
shall (a) except as expressly provided herein, remain in full force and effect
until the payment in full in cash of the Secured Obligations, (b) be binding
upon each Pledgor, their respective successors and assigns and (c) inure,
together with the rights and remedies of the Administrative Agent hereunder, to
the
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<PAGE>
benefit of the Secured Parties and their respective successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), the
Administrative Agent may assign or otherwise transfer all or any portion of its
rights and obligations under the Loan Documents to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to Secured Parties herein or otherwise, in each case as provided
in and subject to the provisions of the Loan Documents.
Upon the payment in full in cash of the Secured Obligations, or upon withdrawal
of all amounts on deposit in, and all Pledged Securities delivered to, the
Public Company Pledged Securities Account, the In-Registration Company Pledged
Securities Account or the Private Company Pledged Securities Account, as the
case may be, pursuant to the express terms of this Agreement, the pledge,
assignment and security interest granted hereby shall terminate and all rights
to such Collateral shall revert to the Pledgors. Upon any such termination, the
Administrative Agent will, at the Pledgors' expense, execute and deliver to the
Pledgors such documents as the Pledgors shall reasonably request to evidence
such termination.
XXII. Section 21. Governing Law; Terms; Etc.
(a) This Agreement shall be deemed to have been made in the
Commonwealth of Pennsylvania and shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania. The headings in
this Agreement are for convenience of reference only and shall not limit or
otherwise affect the meaning of any provision hereof. Unless otherwise defined
herein or in the Credit Agreement, terms used in Article 8 or 9 of the UCC are
used herein as therein defined. This Agreement may be executed in any number of
counterparts, and by different parties hereto on separate counterpart signature
pages, and all such counterparts taken together shall be deemed to constitute
one and the same instrument.
(b) Each Pledgor hereby submits to the non-exclusive jurisdiction of
the United States District Court for the Eastern District of Pennsylvania and of
any Pennsylvania state court sitting in Philadelphia, Pennsylvania for purposes
of all legal proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby. Each Pledgor irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of the venue of any such proceeding brought in such a court
and any claim that any such proceeding brought in such a court has been brought
in an inconvenient form. EACH PLEDGOR AND THE SECURED PARTIES EACH HEREBY
IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
(c) Each Pledgor irrevocably consents to the service of any and all
process in any such action, suit or proceeding by the mailing of copies of such
process to such Pledgor at the address set forth above, or by any other method
permitted by law. Each Pledgor agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.
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<PAGE>
XIII. Section 22. Additional Pledgors.
At any time after the initial execution and delivery of this
Agreement, additional Persons may become parties to this Agreement and thereby
acquire the duties and rights of being Pledgors hereunder by executing and
delivering to the Administrative Agent and the Banks a Security Agreement
(Special Collateral Account) Joinder substantially in the form of Exhibit
-------
1.1(U)(2) to the Credit Agreement. No notice of the addition of any Pledgor
- ---------
shall be required to be given to any pre-existing Pledgor.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the Pledgors have caused this Agreement to be duly executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
INTERNET CAPITAL GROUP, INC.
By:________________________________
Name: John N. Nickolas
Title: Managing Director, Finance and Assistant Treasurer
ICG HOLDINGS, INC.
By:________________________________
Name: John N. Nickolas
Title: Managing Director, Finance and Assistant Treasurer
1999 INTERNET CAPITAL L.P.
By: ICG HOLDINGS, INC., its general partner
By:________________________________
Name: John N. Nickolas
Title: Managing Director, Finance and Assistant Treasurer
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<PAGE>
Acknowledged and agreed as of the date first above written.
PNC BANK, NATIONAL ASSOCIATION,
as Administrative Agent
By:________________________________
Name: ___________________________
Title: ___________________________
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<PAGE>
EXHIBIT A
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
_______, 200_
PNC Bank, National Association
c/o Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
Attention: Mr. John Freyhof
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), 1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and PNC Bank, National
Association, as Administrative Agent (the "Administrative Agent") for the Banks
under that certain Amended and Restated Credit Agreement, dated as of March 28,
2000 (the "Credit Agreement"), among ICG and ICG Holdings, as borrowers, the
Banks (as defined in the Credit Agreement), the Guarantors (as defined in the
Credit Agreement), the Administrative Agent and the Agents (as defined in the
Credit Agreement). Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Account Control Agreement or the Security
Agreement (Special Collateral Account), dated as of March 28, 2000, among ICG,
ICG Holdings, ICLP and the Administrative Agent.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
1. The applicable Periodic Withdrawal Date shall be .
============
2. The aggregate amount of dividends and interest income the Pledgors
propose to withdraw is _______________________________________________
3. The remaining balance of the Private Company Pledged Securities
Account, after giving effect to the withdrawal, is ___________________
________________
<PAGE>
4. Set forth below are payment instructions for the proposed withdrawal:
_______________________________
_______________________________
_______________________________
5. No Default or Event of Default shall have occurred which is
continuing.
Should you have any questions or require anything further in this regard,
please contact the undersigned at (610) 989-0111 at your earliest convenience.
Very truly yours,
Internet Capital Group, Inc.
By: _______________________________
Name: _________________________
Title: ________________________
-2-
<PAGE>
EXHIBIT B
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
_______, 200_
PNC Bank, National Association
c/o Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
Attention: Mr. John Freyhof
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), 1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and PNC Bank, National
Association, as Administrative Agent (the "Administrative Agent") for the Banks
under that certain Amended and Restated Credit Agreement, dated as of March 28,
2000 (the "Credit Agreement"), among ICG and ICG Holdings, as borrowers, the
Banks (as defined in the Credit Agreement), the Guarantors (as defined in the
Credit Agreement), the Administrative Agent and the Agents (as defined in the
Credit Agreement). Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Account Control Agreement or the Security
Agreement (Special Collateral Account), dated as of March 28, 2000, among ICG,
ICG Holdings, ICLP and the Administrative Agent.
ICG hereby certifies [on behalf of ICG Holdings/ ICLP] as follows:
1. The applicable Periodic Pledged Securities Withdrawal Date shall be
.
============
2. The Pledged Securities the Pledgors propose to withdraw are
.
=================
<PAGE>
3. Set forth below are payment instructions for the proposed delivery of
Pledged Securities:
_______________________________
_______________________________
_______________________________
4. Following the disposition contemplated hereby, the Pledgors are in
compliance with the Borrowing Base as provided in the Credit Agreement.
5. The Administrative Agent has received a Compliance Certificate from the
Pledgors demonstrating such compliance.
6. The disposition proposed hereby does not result in the disposition of
Private Company Restricted Securities with a cost basis, determined from
time to time in accordance with the terms of the "Borrowing Base"
definition provided for in the Credit Agreement, in excess of ten percent
(10%) of the dollar amount equal to the sum of clauses (i) through (v) of
such definition of "Borrowing Base" calculated from time to time in
accordance with the terms of such definition, determined as of the date of
any such proposed disposition, without giving effect to the proposed
disposition.
7. No Default or Event of Default shall have occurred which is
continuing.
Should you have any questions or require anything further in this regard,
please contact the undersigned at (610) 989-0111 at your earliest convenience.
Very truly yours,
Internet Capital Group, Inc.
By: ____________________________________
Name: ______________________________
Title: _____________________________
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<PAGE>
EXHIBIT C
Internet Capital Group, Inc.
103 The Springer Building
3411 Silverside Road
Wilmington, Delaware 19801
____________, 200_
PNC Bank, National Association
c/o Venture Bank@PNC
1000 Westlakes Drive, Suite 200
Berwyn, Pennsylvania 19312
Attention: Mr. John Freyhof
Gentlemen:
Reference is made to that certain Account Control Agreement (Private
Company Pledged Securities) (the "Account Control Agreement"), dated as of March
28, 2000, by and among Internet Capital Group, Inc. ("ICG"), ICG Holdings, Inc.
("ICG Holdings"), 1999 Internet Capital L.P. ("ICLP"), Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch") and PNC Bank, National
Association, as Administrative Agent (the "Administrative Agent") for the Banks
under that certain Amended and Restated Credit Agreement, dated as of March 28,
2000 (the "Credit Agreement"), among ICG and ICG Holdings, as borrowers, the
Banks (as defined in the Credit Agreement), the Guarantors (as defined in the
Credit Agreement), the Administrative Agent and the Agents (as defined in the
Credit Agreement). Capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Account Control Agreement or the Security
Agreement (Special Collateral Account), dated as of March 28, 2000, among ICG,
ICG Holdings, ICLP and the Administrative Agent.
ICG hereby certifies [on behalf of ICG Holdings/ICLP] as follows:
1. The applicable Periodic Pledged Private Company Restricted Securities
Exchange Date shall be .
============
2. The Pledged Private Company Restricted Securities the Pledgors propose
to exchange are .
=================
3. Set forth below are the Public Company Restricted Securities, the
Public Company Unrestricted Securities or the Private Company Restricted
Securities which are to be
<PAGE>
delivered to the Broker in exchange for the applicable Pledged Private
Company Restricted Securities within ____ days of the Periodic Pledged
Private Company Restricted Securities Exchange Date and held by the Broker
in accordance with the terms of the applicable Account Control Agreement:
_______________________________
_______________________________
_______________________________
4. Set forth below are instructions for the proposed exchange:
_______________________________
_______________________________
_______________________________
5. Following such proposed exchange, the Pledgors shall be in compliance
with the Borrowing Base as provided in the Credit Agreement.
6. No Default or Event of Default shall have occurred which is continuing.
Should you have any questions or require anything further in this regard,
please contact the undersigned at (610) 989-0111 at your earliest convenience.
Very truly yours,
Internet Capital Group, Inc.
By: ___________________________________
Name: _____________________________
Title: ____________________________
<PAGE>
EXHIBIT D
FORM OF SUPPLEMENT TO SECURITY AGREEMENT
(SPECIAL COLLATERAL ACCOUNT)
This SUPPLEMENT, dated as of ____________________ (this "Supplement"), is made
by __________________________, a _________________ corporation (the "Pledgor"),
in favor of PNC BANK, NATIONAL ASSOCIATION, as in its capacity as administrative
agent for the Banks under that certain Credit Agreement (as hereinafter defined)
referred to below (the "Administrative Agent"). All capitalized terms not
defined herein shall have the meaning ascribed to them in the Credit Agreement.
RECITALS
--------
WHEREAS, reference is hereby made to that certain Amended and Restated
Credit Agreement, dated as of March 28, 2000, among Internet Capital Group,
Inc., a Delaware corporation ("ICG"), ICG Holdings, Inc., a Delaware corporation
("ICG Holdings"; ICG and ICG Holdings being referred to herein collectively as
the "Borrowers"), the Guarantors party thereto, the Banks party thereto, the
Administrative Agent and the Agents (as amended, supplemented or otherwise
modified as of the date hereof, the "Credit Agreement"); and
WHEREAS, in connection with the Credit Agreement, the Borrowers and certain
other pledgors (collectively the "Pledgors" and each a "Pledgor") have entered
into a Security Agreement (Special Collateral Account), dated as of March 28,
2000, in favor of the Administrative Agent for the benefit of the Banks (as
amended, supplemented or otherwise modified as of the date hereof, the "Security
Agreement (Special Collateral Account)"); and
WHEREAS, Section 5(c) of the Security Agreement (Special Collateral
Account) requires that should any Pledgor wish to cause a Subject to Pledge
Private Company Restricted Security to become subject to the lien and security
interest contemplated by the terms of Section 1 of the Security Agreement
(Special Collateral Account), such Pledgor must execute and deliver this
Supplement in order for such Security to become a Pledged Security in accordance
with the terms of the Security Agreement (Special Collateral Account).
NOW, THEREFORE, IT IS AGREED:
1. Security Agreement (Special Collateral Account). By executing and
-----------------------------------------------
delivering this Supplement, the Pledgor, as provided in Section 5(c) of the
Security Agreement (Special Collateral Account), hereby assigns and pledges to
the Administrative Agent for its benefit and the ratable benefit of the Secured
Parties, and hereby grants to the Administrative Agent for its benefit and the
ratable benefit of the Secured Parties a security interest in any and all right,
title and interest of such Pledgor, whether now owned or existing or hereafter
created, acquired or
<PAGE>
arising, in and to the Securities listed on Annex 1 hereto. The Pledgor hereby
represents and warrants that each of the representations and warranties
contained in Section 9 of the Security Agreement (Special Collateral Account) is
true and correct on and as of the date hereof (after giving effect to this
Supplement) as if made on and as of such date.
2. Supplement to the Security Agreement (Special Collateral Account)
-----------------------------------------------------------------
Borrowing Base Certificate. This Supplement is supplemental to the Security
- --------------------------
Agreement (Special Collateral Account), forms a part thereof and is subject to
the terms thereof. From and after the date of this Supplement, Schedules A, B, C
and D to the Borrowing Base Certificate shall be deemed to include each item
listed on Annex I to this Supplement.
3. Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
-------------
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Supplement to be duly
executed and delivered as of the date first above written.
[NAME OF PLEDGOR],
a ___________________ corporation
By_______________________
Name:
Title:
<PAGE>
ANNEX I
to Supplement
I. Supplements To Schedule A To The Borrowing Base Certificate
List of Public Company Unrestricted Securities
----------------------------------------------
II. Supplements To Schedule B To The Borrowing Base Certificate
List of Public Company Restricted Securities
--------------------------------------------
III. Supplements To Schedule C To The Borrowing Base Certificate
List of Pledged In-Registration Company Securities
--------------------------------------------------
IV. Supplements To Schedule D To The Borrowing Base Certificate
List of Pledged Private Company Restricted Securities
-----------------------------------------------------
<PAGE>
Exhibit E
Form of Account Control Agreement
(Public Company Pledged Securities)
<PAGE>
Exhibit F
Form of Account Control Agreement
(In-Registration Company Pledged Securities)
EXHIBIT G
Form of Account Control Agreement
(Private Company Pledged Securities)
<PAGE>
SECURITY AGREEMENT (SPECIAL COLLATERAL ACCOUNT) JOINDER
This JOINDER, dated as of ____________________ (this "Joinder"), is
-------
made by __________________________, a _________________ corporation (the
"Additional Pledgor"), in favor of PNC BANK, NATIONAL ASSOCIATION, as in its
- -------------------
capacity as administrative agent for the Banks under that certain Credit
Agreement (as hereinafter defined) referred to below (the "Administrative
--------------
Agent"). All capitalized terms not defined herein shall have the meaning
- -----
ascribed to them in the Credit Agreement.
RECITALS
WHEREAS, reference is hereby made to that certain Amended and Restated
Credit Agreement, dated as of March 28, 2000, among Internet Capital Group,
Inc., a Delaware corporation ("ICG"), ICG Holdings, Inc., a Delaware corporation
---
("ICG Holdings"; ICG and ICG Holdings being referred to herein collectively as
------------
the "Borrowers"), the Guarantors party thereto, the Banks party thereto, the
---------
Administrative Agent and the Agents (as amended, supplemented or otherwise
modified as of the date hereof, the "Credit Agreement"); and
----------------
WHEREAS, in connection with the Credit Agreement, the Borrowers
(collectively the "Pledgors" and each a "Pledgor") have entered into the
-------- -------
Security Agreement (Special Collateral Account), dated as of March 28, 2000, in
favor of the Administrative Agent for the ratable benefit of the Banks (as
amended, supplemented or otherwise modified as of the date hereof, the "Security
Agreement (Special Collateral Account)"); and
-------------------------
WHEREAS, Section 11.19 of the Credit Agreement requires that should the
Borrower at any time acquire or form any Subsidiary which shall be a Significant
Subsidiary, such Significant Subsidiary shall become party to the Guarantor
Joinder and Assumption Agreement and the Security Agreement (Special Collateral
Account); and
WHEREAS, the Additional Pledgor has agreed to execute and deliver this
Joinder in order to become a party to the Security Agreement (Special Collateral
Account).
NOW, THEREFORE, IT IS AGREED:
1. Security Agreement (Special Collateral Account). By executing and
----------------------------------------------
delivering this Joinder, the Additional Pledgor, as provided in Section 11.19 of
the Credit Agreement, hereby becomes a party to the Security Agreement (Special
Collateral Account), the Account Control Agreement (Public Company Pledged
Securities), the Account Control Agreement (In-Registration Company Pledged
Securities) and the Account Control Agreement (Private Company Pledged
Securities), as a Pledgor thereunder with the same force and effect as if
originally named therein as a Pledgor and, without limiting the generality of
the foregoing, hereby expressly assumes all obligations and liabilities of a
Pledgor thereunder. The Additional Pledgor hereby represents and warrants that
each of the representations and
<PAGE>
warranties contained in Section 9 of the Security Agreement (Special Collateral
Account) is true and correct on and as of the date hereof (after giving effect
to this Joinder) as if made on and as of such date.
2. Joinder to the Security Agreement (Special Collateral Account). This
-------------------------------------------------------------
Joinder is supplemental to the Security Agreement (Special Collateral Account),
forms a part thereof and is subject to the terms thereof. From and after the
date of this Joinder, Schedules A, B, C and D to the Borrowing Base Certificate
shall be deemed to include each item listed on Annex I to this Joinder.
3. Governing Law. THIS JOINDER SHALL BE GOVERNED BY, AND CONSTRUED
-------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Joinder to be duly
executed and delivered as of the date first above written.
[NAME OF ADDITIONAL PLEDGOR],
a ___________________ corporation
By_______________________
Name:
Title:
The place where Additional Pledgor keeps its records concerning the Collateral
is:
---------------------------------------------------------------------------.
The Additional Pledgor's chief executive office and chief place of business is
located at:
---------------------------------------------------------------------------.
<PAGE>
ANNEX I
to Joinder
I. SUPPLEMENTS TO SCHEDULE A TO THE BORROWING BASE CERTIFICATE
LIST OF PUBLIC COMPANY UNRESTRICTED SECURITIES
----------------------------------------------
II. SUPPLEMENTS TO SCHEDULE B TO THE BORROWING BASE CERTIFICATE
LIST OF PUBLIC COMPANY RESTRICTED SECURITIES
--------------------------------------------
III. SUPPLEMENTS TO SCHEDULE C TO THE BORROWING BASE CERTIFICATE
LIST OF PLEDGED IN-REGISTRATION COMPANY SECURITIES
--------------------------------------------------
IV. SUPPLEMENTS TO SCHEDULE D TO THE BORROWING BASE CERTIFICATE
LIST OF PLEDGED PRIVATE COMPANY RESTRICTED SECURITIES
------------------------------------------------------
<PAGE>
EXHIBIT 2.5
REVOLVING CREDIT LOAN REQUEST
TO: PNC Bank, National Association, as Administrative Agent
One PNC Plaza
22nd Floor
Pittsburgh, PA 15222
Telephone No.: (412) 762-3627
Telecopier No.: (412) 762-8672
Attn: Ms. Lisa Pierce
FROM: Internet Capital Group, Inc. ("Administrative Borrower")
-----------------------
RE: Amended and Restated Credit Agreement, dated as of March 28, 2000 by
and among Internet Capital Group, Inc., ICG Holdings, Inc., the Banks,
PNC Bank, National Association, in its capacity as administrative
agent for the Banks (the "Administrative Agent") and the Agents, as
--------------------
hereafter amended, supplemented or modified from time to time (the
"Credit Agreement").
-----------------
Capitalized terms not otherwise defined herein shall have the respective
meanings ascribed to them by the Credit Agreement.
A. Pursuant to Section 2.5 of the Credit Agreement, the Administrative
Borrower irrevocably requests [check one box under 1(a) below and fill
in blank space next to box as appropriate]:
1.(a) A new Revolving Credit Loan OR
A renewal of an outstanding Revolving Credit Loan now under the
Euro-Rate Option, OR
A conversion of an outstanding Loan now under the Base Rate
Option, OR
A conversion of an outstanding Loan now under the Euro-Rate
Option,
SUCH NEW, RENEWED OR CONVERTED LOAN SHALL BEAR INTEREST:
(Check one box under (b)(i) below and fill in blank spaces in line next
to box):
(b)(i) Under the Base Rate Option. Such Loan shall have a
Borrowing Date of __________, ___ (which date shall (i)
be the proposed Borrowing Date if the Administrative
Agent shall have received this Revolving Credit Loan
Request by 12:00 noon (Pittsburgh
time) on the proposed Borrowing Date, and (ii) shall be
the last day of the preceding Interest Period if a Euro-
Rate Loan is being converted into a Base Rate Loan)
198
<PAGE>
OR
(ii) Under the Euro-Rate Option. Such Loan shall have a
Borrowing Date of ___________________, ___ (which date
shall (i) be three (3) Business Days after the Business
Day of receipt by the Administrative Agent by 12:00 noon
(Pittsburgh time) of this Loan Request, and (ii) be the
last day of the preceding Interest Period if a Revolving
Credit Euro-Rate Option Loan is being renewed as a
Revolving Credit Euro-Rate Option Loan)
2. Such Loan is in the principal amount of US $___________.
3. Such Loan shall have an Interest Period of (fill out blank below if
the Administrative Borrower is selecting the Euro-Rate Option):
_____________________________________________
[one, two, three or six months]
B. As of the date hereof and the date of making of the above-requested
Loan (and after giving effect thereto): each Borrower has performed
and complied with all covenants and conditions of the Credit
Agreement; each Borrower's representations and warranties therein are
true and correct (except representations and warranties which
expressly relate solely to an earlier date or time, which
representations and warranties were true and correct on and as of the
specific dates or times referred to therein); no Event of Default or
Potential Default has occurred and is continuing or shall exist; and
the making of such Loan shall not contravene any Law applicable to any
Borrower.
The Administrative Borrower certifies to the Administrative Agent for the
benefit of the Banks as to the accuracy of the foregoing.
Date: March ____, 2000 INTERNET CAPITAL GROUP, INC.
By:____________________________
Name:__________________________
Title__________________________
199
<PAGE>
Exhibit 2.8
Application for Irrevocable PNC Bank, N.A. PNCBANK
Standby Letter of Credit 237 5th Avenue
3rd Floor Annex
Pittsburgh, PA 15222
The undersigned hereby applies for the establishment of an Irrevocable Standby
Letter of Credit by the Issuing Bank named below (or, if the undersigned's bank
is not the Issuing Bank then application is hereby made to the undersigned's
bank identified below for the establishment of such Credit by the Issuing Bank
as its correspondent bank), for the account of the undersigned, as set forth
below. This Application is delivered under, and such Credit when issued will be
subject to, the undersigned's Reimbursement Agreement for Standby Letters of
Credit executed in favor of the Issuing Bank.
Letter of Credit to be established as follows:
<TABLE>
<CAPTION>
<S> <C>
1. Date of Application 2. L/C No. (Bank Use Only):
3. For Account of (Applicant): 5. Issuing Bank:
PNC Bank,
Letter of Credit Department
(Address)
4. Account Number:
6. Applicant's Bank (if not the Issuing Bank): 7. Advising Bank (Specify if Known):
8. In Favor of (Beneficiary): 9. Amount:
10. Currency: [] US Dollars [] Other (Specify)_________
Additional Amount Specification:
Attention: 11.a. Expiration Date:
Telephone: Fax: b. Place of Expiry: [] Your Counters [] Other___________
(Specify)
12. Transmit Credit By (Check One)
[] Airmail [] Courier [] Teletransmission [] Other (Specify)_____________________
Available by sight draft(s) on you or your correspondent, at your option, and accompanied by the following documents:
13. [] Beneficiary's statement purportedly signed by one of its authorized officers reading as follows: (Indicate within quotation
marks the exact wording to appear on the statement to be presented.) "
"
14. [] Other Documents:
15. [] Other Instructions:
A. [] The wording of the credit should be similar to the attached specimen/addendum, all pages(s) which have been initialed by
us, forming a part hereof.
B. [] Documents(s) not required, issue with draft only.
C. [] Partial drawing(s) [] Permitted [] Not Permitted
D. [] Request advising bank to add their confirmation with charges for the account of [] applicant [] beneficiary.
E. [] All bank charges other than those of the issuing bank are for the account of [] applicant [] beneficiary
16. [] Special Instructions:
</TABLE>
<PAGE>
17. Your commission charges on this credit shall be ___% p.a. or Minimum $____
Other__________
This credit will be subject to the Uniform Customs and Practice for
Documentary Credits, 1993 Revision, Publication No. 500 of the International
Chamber of Commerce or subsequent revisions.
18. Correspondent Bank or Other Co-Applicant
<TABLE>
<CAPTION>
<S> <C>
(When Applicable) 19. Applicant
- --------------------------------------------------------------------------------------------------------------
Name Name
- --------------------------------------------------------------------------------------------------------------
By (Signature) By (Signature)
- --------------------------------------------------------------------------------------------------------------
Print Name Print Name
- --------------------------------------------------------------------------------------------------------------
Title Title
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 3.5
LINE OF CREDIT LOAN REQUEST
TO: PNC Bank, National Association, as Administrative Agent
One PNC Plaza
22nd Floor
Pittsburgh, PA 15222
Telephone No.: (412) 762-3627
Telecopier No.: (412) 762-8672
Attn: Ms. Lisa Pierce
FROM: Internet Capital Group, Inc. ("Administrative Borrower")
-----------------------
RE: Amended and Restated Credit Agreement, dated as of March 28, 2000 by
and among Internet Capital Group, Inc., ICG Holdings, Inc., the Banks,
PNC Bank, National Association, in its capacity as administrative
agent for the Banks (the "Administrative Agent") and the Agents, as
--------------------
hereafter amended, supplemented or modified from time to time (the
"Credit Agreement").
-----------------
Capitalized terms not otherwise defined herein shall have the respective
meanings ascribed to them by the Credit Agreement.
A. Pursuant to Section 3.5 of the Credit Agreement, the Administrative
Borrower irrevocably requests [check one box under 1(a) below and fill
in blank space next to box as appropriate]:
1.(a) A new Line of Credit Loan OR
A renewal of an outstanding Line of Credit Loan now under the
Euro-Rate Option, OR
A conversion of an outstanding Loan now under the Base Rate
Option, OR
A conversion of an outstanding Loan now under the Euro-Rate
Option,
SUCH NEW, RENEWED OR CONVERTED LOAN SHALL BEAR INTEREST:
(Check one box under (b)(i) below and fill in blank spaces in line next
to box):
(b)(i) Under the Base Rate Option. Such Loan shall have a
Borrowing Date of __________, ___ (which date shall (i)
be the proposed Borrowing Date if the Administrative
Agent shall have received this Line of Credit Loan
Request by 12:00 noon (Pittsburgh time)
200
<PAGE>
on the proposed Borrowing Date, and (ii) shall be the
last day of the preceding Interest Period if a Euro-Rate
Loan is being converted into a Base Rate Loan)
OR
(ii) Under the Euro-Rate Option. Such Loan shall have a
Borrowing Date of ___________________, ___ (which date
shall (i) be three (3) Business Days after the Business
Day of receipt by the Administrative Agent by 12:00 noon
(Pittsburgh time) of this Loan Request, and (ii) be the
last day of the preceding Interest Period if a Line of
Credit Euro-Rate Option Loan is being renewed as a Line
of Credit Euro-Rate Option Loan)
2. Such Loan is in the principal amount of US $___________.
3. Such Loan shall have an Interest Period of (fill out blank below if
the Administrative Borrower is selecting the Euro-Rate Option):
_____________________________________________
[one, two, three or six months]
B. As of the date hereof and the date of making of the above-requested
Loan (and after giving effect thereto): each Borrower has performed
and complied with all covenants and conditions of the Credit
Agreement; each Borrower's representations and warranties therein are
true and correct (except representations and warranties which
expressly relate solely to an earlier date or time, which
representations and warranties were true and correct on and as of the
specific dates or times referred to therein); no Event of Default or
Potential Default has occurred and is continuing or shall exist; and
the making of such Loan shall not contravene any Law applicable to any
Borrower.
The Administrative Borrower certifies to the Administrative Agent for the
benefit of the Banks as to the accuracy of the foregoing.
Date: March ____, 2000 INTERNET CAPITAL GROUP, INC.
By:___________________________
Name:_________________________
Title_________________________
201
<PAGE>
EXHIBIT 7.1.4
FORM OF
CLOSING DATE COMPLIANCE CERTIFICATE
March__, 2000
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent for the Banks Party
to the Amended and Restated Credit Agreement Referred to Below
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Ladies and Gentlemen:
I refer to the Amended and Restated Credit Agreement of even date herewith
(as amended, supplemented, restated or modified from time to time, the "Credit
Agreement"), among INTERNET CAPITAL GROUP, INC., a Delaware corporation ("ICG"),
ICG HOLDINGS, INC., a Delaware corporation ("ICG Holdings"; ICG and ICG Holdings
being referred to herein individually as a "Borrower" and collectively as the
"Borrowers"), the Banks party thereto, the Guarantors party thereto, PNC BANK,
NATIONAL ASSOCIATION, in its capacity as administrative agent for the Banks, and
the Agents under the Credit Agreement. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein with the same meanings and all
references to section numbers are to the Credit Agreement. All calculations
herein are performed according to the conditions set forth in Section 1.3 of the
Credit Agreement.
I, _________________________, [PRESIDENT/CHIEF EXECUTIVE OFFICER/CHIEF
FINANCIAL OFFICER/VICE PRESIDENT FINANCE/TREASURER/ASSISTANT TREASURER] of the
Administrative Borrower, do hereby certify on behalf of the Borrowers as of the
date hereof (the "Closing Date"),[or as of the date otherwise stated herein] as
follows:
1. MINIMUM LIQUIDITY (Section 8.2.16).
As of the Closing Date, (A) the Borrowers' Cash, Cash Equivalents and
Borrowing Base Availability are $__________, which is not less than (B) the
minimum permitted level of Cash, Cash Equivalents and Borrowing Base
Availability which is $ , such amounts computed as follows:
<TABLE>
<CAPTION>
<S> <C>
(A) Cash as of the Closing Date: $_________
(B) Cash Equivalents as of the Closing Date: $_________
</TABLE>
202
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(C) Borrowing Base Availability as of the Closing Date: $_________
[See Item C(1) from Borrowing Base Certificate]
2. MAXIMUM LEVERAGE RATIO (Section 8.2.17).
The ratio of (A) consolidated total indebtedness [on the Closing Date]
to (B) Consolidated Tangible Net Worth [as of the Closing Date] is _____
to 1.0, calculated as set forth below, which does not exceed .50 to 1.0.
(A) Consolidated Total Indebtedness for the Borrowers and their
respective Subsidiaries as of the Closing Date, without duplication,
is computed as follows:
(i) Loans under the Credit Agreement $_________
(ii) Borrowed money and amounts raised under or liabilities in
respect of any note purchase or acceptance credit facility, $_________
excluding convertible subordinated notes due 2004
(iii) Reimbursement obligations under any letter of credit $_________
(iv) Any other transaction (including forward sale or purchase
agreements, Capitalized Leases and conditional sales
agreements) having the commercial effect of a borrowing of
money entered into by such Person to finance its operations or
capital requirements (not including trade payables and accrued $_________
expenses incurred in the ordinary course not more than 30 days
past due)
(v) Any Guaranty of Indebtedness for borrowed money $_________
(vi) Any other indebtedness evidenced by a note, bond, debenture
or similar instrument that is accounted for as debt on the
balance sheet in accordance with GAAP $_________
(vii) All liabilities secured by any Lien on any property and all
other obligations, indebtedness or liabilities defined as $_________
"Indebtedness" in the Credit Agreement
(viii) Sum of Items (i) through (vii) equals consolidated total $_________
indebtedness of the Borrowers and their respective
Subsidiaries on the Closing Date, excluding the convertible
subordinated notes due 2004
</TABLE>
203
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(B) Consolidated Tangible Net Worth for the Borrowers and their $_________
respective Subsidiaries [as of the Closing Date] is computed as
follows, in each case determined on a consolidated basis in
accordance with GAAP:
(i) total stockholders' equity for the Borrowers and their $_________
respective Subsidiaries, including convertible subordinated
notes due 2004
(ii) minority interest in net assets of each of the Borrower's
Subsidiaries $_________
(iii) intangible assets for the Borrowers and their respective $_________
Subsidiaries
(iv) Sum of (x) Items (i) and (ii) minus (y) Item (iii) equals $_________
Consolidated Tangible Net Worth as of the Closing Date
</TABLE>
3. ACQUISITIONS (Section 8.1.15). Not applicable.
4. EVENTS OF DEFAULT OR POTENTIAL DEFAULT.
The Loan Parties are in compliance with all of the covenants under the
Credit Agreement and no event exists and is continuing which constitutes
an Event of Default or Potential Default.
5. REPRESENTATIONS AND WARRANTIES.
The representations and warranties contained in Article VI of the Credit
Agreement are true, in all material respects, on and as of the date
hereof with the same effect as though such representations and
warranties had been made on and as of the date hereof (except
representations and warranties which expressly relate solely to an
earlier date or time, which representations and warranties shall have
been true and correct on and as of the specific dates or times referred
to therein).
204
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of March, 2000.
INTERNET CAPITAL GROUP, INC.
By:
Name:______________________
Title:_____________________
205
<PAGE>
Exhibit 7.1.6
EXHIBIT 7.1.6
form of
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT OF CONTRACT RIGHTS
THIS AMENDED AND RESTATED ASSIGNMENT is made and entered into as of
the 28th day of March, 2000, by INTERNET CAPITAL GROUP, INC., a Delaware
corporation ("ICG"), and ICG HOLDINGS, INC., a Delaware corporation ("ICG
--- ---
Holdings"; ICG and ICG Holdings being referred to herein individually as an
- --------
"Assignor" or a "Borrower" and collectively as the "Assignors" or the
- --------- -------- ---------
"Borrowers"), in favor of PNC BANK, NATIONAL ASSOCIATION, in its capacity as
---------
administrative agent for the Banks under the Credit Agreement referred to below
(the "Assignee").
--------
WITNESSETH:
----------
WHEREAS, ICG, Internet Capital Group Operations, Inc., a Delaware
corporation ("ICG Operations"), certain Banks (the "Existing Banks") and PNC
-------------- --------------
Bank, National Association, as agent for the Existing Banks ("PNC"), have
---
entered into that certain Existing Agreement (as defined in the Credit
Agreement) pursuant to which the Existing Banks agreed to make extensions of
credit available to ICG and ICG Operations; and
WHEREAS, pursuant to the Existing Agreement, ICG, ICG Operations and
PNC have entered into a Collateral Assignment of Contract Rights dated as of
April 30, 1999 (the "Existing Collateral Assignment") pursuant to which ICG and
------------------------------
ICG Operations grant an assignment and security interest in all registration
rights of said parties under those certain material contracts described therein
relating to the securities of the Investment Entities (as defined in the
Existing Agreement) owned by said parties, pursuant to which said parties have
been granted by each of the Investment Entities certain demand and/or piggy-back
registration rights, among other rights; and
WHEREAS, the Borrowers, the Agents and the Banks party thereto desire
to amend and restate the Existing Agreement pursuant to that certain Amended and
Restated Credit Agreement (as the same may be amended, restated, modified or
supplemented from time to time, the "Credit Agreement") of even date herewith
----------------
among the Borrowers, the Guarantors party thereto, the Banks party thereto and
the Agents; and
WHEREAS, pursuant to the Credit Agreement, the Banks have agreed to
provide certain loans to each Borrower and in order to provide additional
security for the repayment of such loans, the parties hereto desire that
Assignee be granted an assignment and security interest in all registration
rights of the Assignors under those certain Material Contracts (as defined in
the Credit Agreement), listed on Schedule A attached hereto (collectively
----------
referred to as the "Assigned
---------
<PAGE>
Contracts") relating to the securities of the Acquisition Entities (as defined
- ---------
in the Credit Agreement) owned by the Assignors, pursuant to which the Assignors
have been granted by each of the Acquisition Entities certain demand and/or
piggy-back registration rights, among other rights, if any; and
WHEREAS, pursuant to the Credit Agreement, the Assignors and Assignee
desire to amend and restate the Existing Collateral Assignment as set forth
herein.
NOW, THEREFORE, in consideration of the promises and covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by each Assignor, and intending to be
legally bound, the parties hereto covenant and agree that effective upon the
Effective Date, the Existing Collateral Assignment is hereby amended and
restated in its entirety as follows, and each Assignor assigns to Assignee for
the benefit of the Assignee all of its right, title and interest in and to the
Assigned Contracts to the extent assignable and to the fullest extent permitted
by Law.
1. Except as otherwise expressly provided herein, capitalized terms
used in this Assignment shall have the respective meanings given to them in the
Credit Agreement.
2. Each Assignor does hereby assign, transfer and set over unto
Assignee for the benefit of the Banks, its respective successors and assigns,
all the rights, interests and privileges which each such Assignor has or may
have in or under the Assigned Contracts, including without limiting the
generality of the foregoing, the present and continuing right with full power
and authority, in its own name, or in the name of the Assignor, or otherwise,
but subject to the provisions and limitations of Section 3 hereof, (i) to make
claim for, enforce, perform, collect and receive any and all rights under the
Assigned Contracts, (ii) to do any and all things which Assignor is or may
become entitled to do under the Assigned Contracts, and (iii) to make all
waivers and agreements, give all notices, consents and releases and other
instruments and to do any and all other things whatsoever which Assignor is or
may become entitled to do under the Assigned Contracts.
3. The acceptance of this Assignment and the payment or performance
under the Assigned Contracts shall not constitute a waiver of any rights of
Assignee under the terms of the Credit Agreement or any other Loan Documents, it
being understood that this Assignment is for security purposes only.
Accordingly, notwithstanding anything to the contrary set forth herein, each
Assignor shall retain all rights with respect to the Assigned Contracts,
including without limitation, the right to enforce all rights of each such
Assignor thereunder, except in each case during a period when an Event of
Default (as such term is defined in the Credit Agreement) has occurred and is
continuing.
-2-
<PAGE>
4. Each Assignor, upon the occurrence and continuation of an Event of
Default, hereby authorizes Assignee, at Assignee's option, to do all acts
required or permitted under the Assigned Contracts as Assignee in its sole
discretion may deem proper. Each Assignor hereby irrevocably constitutes and
appoints Assignee, while this Assignment remains in force and effect and, in
each instance, to the full extent permitted by applicable Law, its true and
lawful attorney-in-fact, coupled with an interest and with full power of
substitution and revocation, for Assignor and in its name, place and stead, to
demand and enforce compliance with all the terms and conditions of the Assigned
Contracts and all benefits accrued thereunder, whether at law, in equity or
otherwise; provided, however, that Assignee shall not exercise any such power
-------- -------
unless and until an Event of Default shall have occurred and is continuing.
5. Assignee shall not be obligated to perform or discharge any
obligation or duty to be performed or discharged by any Assignor under the
Assigned Contracts, and each Assignor hereby agrees to indemnify Assignee for,
and to hold Assignee harmless from, any and all liability arising under the
Assigned Contracts, other than arising or resulting from Assignee's (or its
agents, employees or contractors) gross negligence or willful misconduct.
6. Each Assignor agrees that this Assignment and the designation and
directions herein set forth are irrevocable.
7. Neither this Assignment nor any action or inaction on the part of
Assignee shall constitute an assumption on the part of Assignee of any
obligations or duties under the Assigned Contracts.
8. Each Assignor covenants and warrants that:
(a) it has the power and authority to assign its Assigned
Contracts and there have been no prior assignments of its Assigned Contracts;
(b) each of its Assigned Contracts is a valid contract, and that
there are, to the extent ascertainable by Assignor, no defaults on the part of
any of the parties thereto;
(c) it will not further assign, pledge or otherwise encumber its
Assigned Contracts without the prior written consent of Assignee;
(d) it will not cancel, terminate or accept any surrender of its
Assigned Contracts, or (except as may otherwise be permitted by the Loan
Documents) amend or modify the same directly or indirectly in any respect
whatsoever, without having obtained the prior written consent of Assignee
thereto;
-3-
<PAGE>
(e) it will not waive or give any consent with respect to any material
default or material variation in the performance under its Assigned Contracts,
it will at all times take proper steps to enforce all of the provisions and
conditions thereof, and it will forthwith notify Assignee of any material
default under its Assigned Contracts;
(f) it will perform and observe, or cause to be performed and
observed, all of the terms, covenants and conditions on its part to be performed
and observed with respect to its Assigned Contracts;
(g) it will execute from time to time any and all additional
assignments or instruments of further assurance to Assignee, as Assignee may at
any time reasonably request;
(h) each of the Assigned Contracts permits Assignor to assign its
rights hereunder, and all consents from third parties, if required, have been
obtained prior to the execution hereof; and
(i) the Assignor has no other registration rights relating to its
securities of the Investment Entities other than those set forth in the Assigned
Contracts.
9. At such time as the Loans are indefeasibly paid in full, this
Assignment and all of each Assignee's right, title and interest hereunder with
respect to its Assigned Contracts shall terminate.
10. This Assignment shall inure to the benefit of Assignee, its
respective successors and assigns, and shall be binding upon each Assignor, its
successors, successors in title and assigns.
11. This Agreement shall be governed by and construed in accordance
with the internal laws of the Commonwealth of Pennsylvania without regard to its
conflicts of law principles.
[SIGNATURES BEGIN ON NEXT PAGE]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this instrument as of
the day and year first above written.
INTERNET CAPITAL GROUP, INC.
By:
---------------------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance and Assistant
Treasurer
[Seal]
ICG HOLDINGS, INC.
By:
---------------------------------------------
Name: John N. Nickolas
Title: Managing Director, Finance and Assistant
Treasurer
PNC BANK, NATIONAL ASSOCIATION,
As Administrative Agent
By:
---------------------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
TO
AMENDED AND RESTATED
COLLATERAL ASSIGNMENT OF CONTRACT RIGHTS
[List Of Material Contracts To Be Provided.]
<PAGE>
[LETTERHEAD OF DECHERT PRICE & RHODES]
March 31, 2000
PNC Bank, National Association,
as Administrative Agent
One PNC Plaza-22nd Floor
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
and each of the Banks from time to time parties
to the Credit Agreement referred to below
Re: Internet Capital Group, Inc. Credit Agreement
---------------------------------------------
Ladies and Gentlemen:
We have served as special counsel to Internet Capital Group, Inc. ("ICG")
and ICG Holdings, Inc. ("ICG Holdings" and together with ICG, each a "Borrower"
and collectively the "Borrowers"), each a Delaware corporation, 1999 Internet
Capital L.P., a Delaware limited partnership ("1999 LP" or the "Pledgor"), and
internet Capital Group Operations, Inc. ("ICG Operations") or the "Guarantor"),
a Delaware corporation, in connection with the $125,000,000 364-Day Secured Line
of Credit Facility and $125,000,000 Two-Year Secured Revolving Credit Facility
Amended and Restated Credit Agreement dated as of March 28, 2000 (the
"Agreement"), by and among the Borrowers, the Banks (as defined in the
Agreement), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as
administrative agent for the Banks under the Agreement (hereinafter referred to
in such capacity as the "Administrative Agent") and the Agents. This opinion is
delivered pursuant to the requirements set forth in 7.1.7 of the Agreement.
Capitalized terms used but not defined herein have the meanings ascribed to such
terms in the Loan Documents (as defined below).
<PAGE>
PNC Bank, National Association,
as Administrative Agent for the Banks
March 31, 2000
Page 2
In connection with our representation as described above, we have reviewed
executed copies of the following documents, each dated on or about the date
hereof (the "Loan Documents"):
1. the Agreement;
2. the Revolving Credit Notes;
3. the Line of Credit Notes;
4. the Security Agreement (Special Collateral Account);
5. the Amended and Restated Intercompany Subordination Agreement;
6. the Amended and Restated Patent, Trademark and Copyright
Security Agreement;
7. the Amended and Restated Security Agreement;
8. the Amended and Restated Pledge Agreement;
9. the Guaranty and Suretyship Agreement; and
10. the Collateral Assignment of Contract Rights.
In rendering this opinion we have examined, in addition to the Loan
Documents, (i) certified copies of the applicable organizational documents and
resolutions of each Borrower, the Pledgor and the Guarantor, (ii) certificates
of good standing for each Borrower, the Pledgor and the Guarantor issued by the
jurisdiction of its incorporation or formation, and (iii) such other documents
and records pertaining to each Borrower, the Pledgor and the Guarantor as in our
judgement are necessary or appropriate to enable us to render the opinions
expressed below.
For purposes of this opinion, we have assumed that:
(a) The execution and delivery of the Loan Documents and
other documents reviewed by us, and the entry into and performance of the
transactions contemplated by the Loan Documents by all parties other than the
Borrowers, the Pledgor and the Guarantor have been duly authorized by all
necessary corporate or limited partnership action, as applicable and the Loan
Documents constitute the valid and binding obligations of all such parties other
than the Borrowers, the Pledgor and the Guarantor.
(b) All natural persons who are signatories to the Loan
Documents were legally competent at the time of execution and delivery; all
signatures on the Loan Documents and other documents reviewed by us on behalf of
parties other than the Borrowers, the Pledgor and the Guarantor are genuine; the
copies of all documents submitted to us are
<PAGE>
PNC Bank, National Association,
as Administrative Agent for the Banks
March 31, 2000
Page 3
accurate and complete and conform to originals; and all material terms and
conditions of the relationship among the Borrowers, the Pledgor, the Guarantor,
the Administrative Agent and the Banks are correctly and completely reflected in
the Loan Documents.
(c) Each of Borrowers and the Pledgor has rights in each item of its
respective collateral existing on the date hereof and will have rights in each
such item of collateral arising after the date hereof.
(d) As to matters of fact material to our opinions, we have relied upon
representations of ICG, ICG Holdings, 1999 LP or ICG Operations or all of them,
as applicable, in the Loan Documents, and on certificates of officers of ICG,
ICG Holdings, 1999 LP or ICG Operations or all of them, as applicable, delivered
to the Administrative Agent, and of public officials, and we have made no
independent inquiry into the accuracy of such representations.
Our opinions set forth herein are based on our consideration of only
those statutes, rules, regulations and judicial decisions which, in our
experience, are normally applicable to, or normally relevant in connection with,
a transaction of the type contemplated in the Loan Documents. Whenever our
opinion with respect to the existence or absence of facts is indicated to be
based on our knowledge or awareness, we are referring to the current actual
knowledge of the attorneys of our firm who have rendered legal services to the
Borrowers, the Pledgor or the Guarantor in connection with the transactions
contemplated by the Loan Documents, which knowledge has been obtained by such
attorneys in their capacity as such. Except as expressly set forth herein, we
have not undertaken any independent investigation to determine the existence or
absence of such facts and no inference as to our knowledge concerning such facts
should be drawn from the fact that such representation has been undertaken by
us.
Based upon the foregoing, but subject to the assumption, limitations,
and qualifications set forth below, we are of the opinion that:
1. Each of the Borrowers and the Guarantor is a corporation validly
existing and in good standing under the laws of the State of Delaware. Pledgor
is a Delaware limited partnership validly existing and in good standing under
the laws of the State of Delaware. Each of the Borrowers, the Pledgor and the
Guarantor has the requisite corporate or limited partnership power, as
applicable, to own or lease its properties and to engage in the business it
presently conducts or presently proposes to conduct. Each of the Borrowers, the
Pledgor and the Guarantor has the requisite corporate or limited partnership
power, as applicable, and authority to execute and deliver each Loan Document to
which it is a party and to borrow under the Agreement, perform its obligations
thereunder and grant the security interests to be granted by it pursuant to the
applicable Loan Documents.
2. Each of the Borrowers, the Pledgor and the Guarantor have take all
necessary corporate or limited partnership action, as applicable, to authorize
its execution, delivery and performance of the Loan Documents, to grant the
security interests granted by it pursuant to the Loan Documents, to guarantee
the Guaranteed Obligations (as defined in the
<PAGE>
PNC Bank, National Association,
as Administrative Agent for the Banks
March 31, 2000
Page 4
Guaranty and Suretyship Agreement) and to borrow under the Agreement, as
applicable. Each Loan Document to which a Borrower, the Pledgor and the
Guarantor is a party has been duly executed and delivered by such Borrower, the
Pledgor and the Guarantor.
3. The execution and delivery by each Borrower, the Pledgor and the
Guarantor of the Loan Documents to which it is a party, each Borrower's
borrowings in accordance with the terms of the Loan Documents, performance of
each Borrower's, the Pledgor's and the Guarantor's obligations thereunder, the
granting of the security interests to be granted by each Borrower, the Pledgor
and the Guarantor and the guarantee of the Guaranteed Obligations by the Pledgor
and the Guarantor pursuant to the Loan Documents (a) will not result in any
breach or violation of any of the terms or provisions of, or constitute a
default under (1) the Certificate of Incorporation or By-Laws of such Borrower
or the Guarantor, or the Certificate of Limited Partnership or the Agreement of
Limited Partnership of the Pledgor, or (2) assuming that proceeds of borrowings
will be used in accordance with the terms of the Loan Documents, any federal or
Pennsylvania statute, the Delaware General Corporation Law, the Delaware Revised
Uniform Limited Partnership Act or any rule or regulation issued pursuant to any
Pennsylvania or federal statute, the Delaware General Corporation Law, the
Delaware Revised Uniform Limited Partnership Act or any order known to us issued
by any court or governmental agency or body applicable to such Borrower, the
Pledgor or the Guarantor and (b) will not result in a breach of, constitute a
default under, require any consent under (except for those consents which the
Borrowers must obtain as a post-closing condition, as specified in the schedules
to the Borrowing Base Certificate (as defined in the Agreement) delivered by the
Borrowers on the Closing Date (as defined in the Agreement)), or result in the
acceleration or required prepayment of any indebtedness pursuant to the terms
of, any agreement or instrument of which we have knowledge to which such
Borrower, the Pledgor or the Guarantor is a party or by which such Borrower, the
Pledgor or the Guarantor is bound or to which such Borrower, the Pledgor or the
Guarantor is subject, or (except for the liens created pursuant to the Loan
Documents) result in the creation or imposition of any lien upon any property of
such Borrower, the Pledgor or the Guarantor pursuant to the terms of any such
agreement or instrument.
4. No consent, approval, authorization, order, filing, registration or
qualification of or with any federal or Pennsylvania governmental agency or body
or any Delaware governmental agency or body acting pursuant to the Delaware
General Corporation Law or the Delaware Revised Uniform Limited Partnership Act
is required for the execution and delivery by the Borrowers, the Pledgor and the
Guarantor of the Loan Documents, the borrowings by the Borrowers in accordance
with the terms of the Loan Documents or the performance by the Borrowers, the
Pledgor and the Guarantor of their respective payment and other obligations
under the Loan Documents, the granting of any security interests under the Loan
Documents, or the guarantee of the Guaranteed Obligations, except for the filing
of any Financing Statements and a Federal Reserve Form U-l. We express no
opinion with respect to the Investment Company Act of 1940, as amended, which
opinion we understand will be provided to the Administrative Agent, for the
benefit of the Banks, by Davis Polk & Wardwell.
<PAGE>
PNC Bank, National Association,
as Administrative Agent for the Banks
March 31, 2000
Page 5
5. Each Loan Document to which a Borrower, the Pledgor or the Guarantor
is a party is the valid and legally binding obligation of such Borrower, the
Pledgor or the Guarantor, enforceable against such Borrower, the Pledgor or the
Guarantor in accordance with its terms.
6. To our knowledge, (a) there is no action, suit or proceeding now
pending before or by any court, arbitrator or governmental agency, body or
official to which either Borrower, the Pledgor or the Guarantor is a party or to
which the business, assets or property of either Borrower, the Pledgor or the
Guarantor is subject, and (b) no such action, suit or proceeding is threatened
to which either Borrower, the Pledgor or the Guarantor or the business, assets
or property of either Borrower, the Pledgor or the Guarantor would be subject,
that in the case of either clause (a) or (b), questions the validity of the Loan
Documents or the transactions contemplated thereby.
7. Assuming that each Borrower and the Pledgor will comply with the
provisions of the Loan Documents relating to the use of proceeds and the
maintenance of collateral levels required under the Amended and Restated Pledge
Agreement and the Security Agreement (Special Collateral Account), the making of
loans under the Loan Documents on the date hereof will not violate Regulation T,
U or X of the Board of Governors of the Federal Reserve System.
8. The Amended and Restated Pledge Agreement creates in favor of the
Administrative Agent, for the benefit of the Banks, a security interest under
the Pennsylvania Uniform Commercial Code (the "Pennsylvania UCC") in the
Pledged Securities, the Pledged Limited Liability Interests and the Pledged
Partnership Interests (as such terms are defined in the Amended and Restated
Pledge Agreement or the Agreement), except as limited by the obligation of the
Administrative Agent on behalf of the Banks to release any and all security
interests, liens, or other claims or interest in that portion of the Pledged
Collateral as contemplated by Sections 8.2.5 and 8.2.7 of the Agreement.
9. The Administrative Agent for the benefit of the Banks shall have a
perfected security interest in the Pledged Securities, the Pledged Limited
Liability Interests and the Pledged Partnership Interests under the Pennsylvania
UCC upon delivery to the Administrative Agent of the certificates representing
the Pledged Securities in registered form, endorsed in blank by an effective
endorsement or accompanied by updated stock, warrant, debenture or note powers,
as applicable, with respect thereto duly endorsed in blank by an effective
endorsement. Assuming the Administrative Agent does not have notice of any
adverse claim to the Pledged Securities, the Administrative Agent for the
benefit of the Banks shall acquire the security interest in the Pledged
Securities prior to any other lien or security interest therein.
10. The Amended and Restated Security Agreement and the Amended and
Restated Pledge Agreement create in favor of the Administrative Agent for the
benefit of the
<PAGE>
PNC Bank, National Association,
as Administrative Agent for the Banks
March 31, 2000
Page 6
Banks a security interest in the collateral described therein in which a
security interest may be created under Article 9 of the Pennsylvania (ICC (the
"Article 9 Collateral").
11. Upon the proper filing of each financing statement in the applicable
offices specified in the Agreement, assuming the representations made by each
Loan Party in the Amended and Restated Security Agreement with respect to the
location of its chief executive office and of its tangible Article 9 Collateral
are and remain true and correct, the security interest in favor of the
Administrative Agent for the benefit of the Banks in the Article 9 Collateral
described in such financing statement will be perfected to the extent a security
interest in such Article 9 Collateral can be perfected by filing a financing
statement under the provisions of the Pennsylvania UCC.
Our opinions are subject to the following further qualifications:
(a) The opinions expressed herein are limited by principles of equity
which may limit the availability of certain rights and remedies and do not
reflect the effect of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws or decisions relating to or
affecting debtors' obligations or creditors' rights generally. The opinions
expressed above also do not reflect the effect of laws and equitable doctrines
(including requirements that the parties to agreements act reasonably and in
good faith and, with respect to collateral, in a commercially reasonable manner,
and give reasonable notice prior to exercising rights and remedies) which may
limit the availability of any particular remedy but which will not, in our
judgment, make the remedies available to the Administrative Agent or the Banks
under the Loan Documents inadequate for the practical realization of the
benefits of the security provided for in the Loan Documents, except for the
economic consequence of any delay which may be imposed thereby or result
therefrom, and except that we express no opinion as to the rights of any of the
parties to the Loan Documents to accelerate the due dates of any payment due
thereunder or to exercise other remedies available to them on the happening of a
non-material breach of any such document or agreement.
(b) Without limiting the generality of the foregoing, we express no
opinion with respect to: (1) the availability of specific performace or other
equitable remedies for noncompliance with any of the provisions contained in the
Loan Documents; or (2) the enforceability of provisions contained in Loan
Documents relating to the effect of laws which may be enacted in the future.
(c) We have made no examination and express no opinion with respect to:
(1) the title to or ownership of the Pledged Securities; (2) the accuracy of any
descriptions of Collateral in any security agreement or financing statements;
(3) the existence or absence of any liens, charges or encumbrances on any
Pledged Securities; and (4) except as set forth in the last sentence of
paragraph 9 hereof, the priority of any lien or security interest.
<PAGE>
PNC Bank, National Association,
as Administrative Agent for the Banks
March 31, 2000
Page 7
(d) Without limiting the generality of the foregoing, we express no
opinion as to the legality, validity, binding nature or enforceability of (1)
any self-help provisions; (2) provisions in the Loan Documents purporting to
waive the effect of applicable laws; (3) provisions that purport to establish
evidentiary standards; (4) provisions that provide for the enforceability of
the remaining terms and provisions of the applicable Loan Document in
circumstances in which certain other terms and provisions of such Loan Documents
are illegal or unenforceable; (5) provisions that provide that certain rights or
obligations are absolute or unconditional; (6) provisions related to waivers of
remedies (or the delay or omission of enforcement of remedies), disclaimers,
liability limitations or limitations on the obligations of the Bank in
circumstances in which a failure of condition or default by any Loan Party is
not material; (7) provisions related to releases or waivers of legal or
equitable rights, discharges of defenses, or reimbursement or indemnification in
circumstances in which the person seeking reimbursement or indemnification has
breached its duties under the applicable Loan Document, or otherwise, or itself
has been negligent; (8) provisions which purport to authorize any person to sign
or file financing statements without the signature of the debtor (except to the
extent that a secured party may execute and file financing statements without
the signature of the debtor under Section 9-402(2) of the UCC); or (9) any
power-of-attorney given under the Loan Documents which is intended to bind
successors and assigns which have not granted such powers by a power-of-attorney
specifically executed by them.
(e) In giving the opinion set forth in paragraph 9 above, we have
assumed that (1) the Administrative Agent maintains possession and control of
certificates representing the Pledged Securities accompanied by appropriate
executed stock, warrant, debenture or note powers; (2) the Amended and Restated
Security Agreement has been duly executed by the parties thereto which are not
Loan Parties and is in full force and effect; (3) no part of the Pledged
Securities is subject to a security interest that constitutes the proceeds of
any property subject to a third party security interest; and (4) the Pledged
Securities or the proceeds thereof are not subject to (i) any lien of any
government or any agency or instrumentality thereof, including without
limitation, any federal, state or local tax lien, (ii) any claims of any federal
priority statute (31 U.S.C. ss. 3713), (iii) any lien arising under the Employee
Retirement Income Security Act of 1974, as amended or (iv) any lien arising by
operation of law other than under the Pennsylvania UCC (including without
limitation any attachment or execution lien) or other lien which does not
require possession or control to take priority over other security interests.
(f) The opinion expressed in Paragraph 1 hereof shall be deemed given
on, and not before, April 3, 2000 with respect to the good standing under the
laws of the State of Delaware of ICG.
We do not express any opinion herein concerning any laws of any
jurisdiction other than the laws of the Commonwealth of Pennsylvania, the
General Corporation Law of the State of Delaware, the Delaware Revised Uniform
Limited Partnership Act and the federal laws of the United States of America.
<PAGE>
PNC Bank, National Association,
as Administrative Agent for the Banks
March 31, 2000
Page 8
Our opinions are limited to the specific issues addressed and are
limited in all respects to laws and facts existing on the date hereof. By
rendering our opinions, we do not undertake to advise you of any changes in such
laws or facts which may occur after the date hereof.
The opinions set forth herein are expressed solely for your benefit
and for the benefit of any other parties which may subsequently become Banks,
assignees or participants as permitted under Section 11.12 of the Agreement.
Very truly yours,
<PAGE>
EXHIBIT 8.1.15
EXHIBIT 8.1.15
FORM OF
ACQUISITION NOTICE
_______________, [2000/2001]
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent for the Banks Party
to the Amended and Restated Credit Agreement Referred to Below
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Ladies and Gentlemen:
I refer to the Amended and Restated Credit Agreement, dated as of March 28,
2000 (as amended, supplemented, restated or modified from time to time, the
"Credit Agreement"), among INTERNET CAPITAL GROUP, INC., a Delaware corporation
("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG Holdings"; ICG and ICG
Holdings being referred to herein individually as a "Borrower" and collectively
as the "Borrowers"), the Banks party thereto and PNC BANK, NATIONAL ASSOCIATION,
in its capacity as administrative agent for the Banks, and the Agents under the
Credit Agreement. Unless otherwise defined herein, terms defined in the Credit
Agreement are used herein with the same meanings and all references to section
numbers are to the Credit Agreement.
In accordance with Section 8.1.15 of the Credit Agreement, I_____________,
[President/Chief Executive Officer] of the Administrative Borrower, do hereby
certify on behalf of the Borrowers that on the date set forth below the named
Borrower made an Acquisition as follows:
Borrower: ________________________________
Date of Acquisition: _______________________
[Public Company Unrestricted Securities,
Public Company Restricted Securities,
Pledged Private Company Restricted Securities,
Pledged In-registration Company Securities]: ________________________
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Notice this _____ day
of _______________, [2000/2001].
INTERNET CAPITAL GROUP, INC.
By:
-----------------------------
Name:
------------------------
Title:
-----------------------
<PAGE>
Exhibit 8.3.3
Exhibit 8.3.3
-------------
to Credit Agreement
-------------------
Internet Capital Group
Quarterly Performance Report
----------------------------
Current Income Statement Information
- ------------------------------------
Revenue
Operating Exp
Pretax
Other Income/Exp
Taxes
Net
Depr/Amor
EBITDA
- -------------------------------------------
Plan Income Statement Information
- ---------------------------------
Revenue
Operating Exp
Pretax
Other Income/Exp
Taxes
Net
Depr/Amor
EBITDA
- -------------------------------------------
Current Balance Sheet Information
- ---------------------------------
Cash & Cash Equivalents
Current Assets
Current Liabs
Quick Ratio
Shareholders Equity
Intangibles
Tangible Net Worth
- -------------------------------------------
ICG Cost Basis
Other Large Shareholders
Bankers (Lending)
<PAGE>
Exhibit 8.3.5
EXHIBIT 8.3.5
FORM OF
QUARTERLY COMPLIANCE CERTIFICATE
_______________, [2000/2001]
PNC BANK, NATIONAL ASSOCIATION
as Administrative Agent for the Banks Party
to the Amended and Restated Credit Agreement Referred to Below
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Ladies and Gentlemen:
I refer to the Amended and Restated Credit Agreement, dated as of March 28,
2000 (as amended, supplemented, restated or modified from time to time, the
"Credit Agreement"), among INTERNET CAPITAL GROUP, INC., a Delaware corporation
("ICG"), ICG HOLDINGS, INC., a Delaware corporation ("ICG Holdings"; ICG and ICG
Holdings being referred to herein individually as a "Borrower" and collectively
as the "Borrowers"), the Banks party thereto, the Guarantors party thereto, and
PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the
Banks, and the Agents under the Credit Agreement. Unless otherwise defined
herein, terms defined in the Credit Agreement are used herein with the same
meanings and all references to section numbers are to the Credit Agreement. All
calculations herein are performed according to the conditions set forth in
Section 1.3 of the Credit Agreement.
I, _________________________, [President/Chief Executive Officer/Chief
Financial Officer Treasurer/Assistant Treasurer/Vice President, Finance] of the
Administrative Borrower, do hereby certify on behalf of the Borrower as of the
fiscal [quarter/year] ended _________, [2000/2001] (the "Report Date"), as
follows:
1. Minimum Liquidity (Section 8.2.16).
As of the Report Date, (A) the Borrowers' Cash, Cash Equivalents and
Borrowing Base Availability are $__________, which is not less than (B) the
minimum permitted level of Cash, Cash Equivalents and Borrowing Base
Availability which is $__________, such amounts computed as follows:
(A) Cash as of the Report Date: $___________
(B) Cash Equivalents as of the Report Date: $___________
(C) Borrowing Base Availability as of the Report Date: $___________
[See Item C(1) from Borrowing Base Certificate]
<PAGE>
2. Maximum Leverage Ratio (Section 8.2.17).
The ratio of (A) consolidated total indebtedness on the Report Date to
(B) Consolidated Tangible Net Worth for the four quarters ending on the
Report Date is _____ to 1.0, calculated as set forth below, which does
not exceed .50 to 1.0.
(A) Consolidated Total Indebtedness for the Borrowers and their
-------------------------------
respective Subsidiaries as of the Report Date, without
duplication, is computed as follows:
(i) Loans under the Credit Agreement $_________
(ii) Borrowed money and amounts raised under or $_________
liabilities in respect of any note purchase
or acceptance credit facility, excluding
convertible subordinated notes due 2004
(iii) Reimbursement obligations under any letter $_________
of credit
(iv) Any other transaction (including forward $_________
sale or purchase agreements, Capitalized
Leases and conditional sales agreements)
having the commercial effect of a borrowing of
money entered into by such Person to finance
its operations or capital requirements (not
including trade payables and accrued expenses
incurred in the ordinary course not more
than 30 days past due)
(v) Any Guaranty of Indebtedness for borrowed money $_________
(vi) Any other indebtedness evidenced by a note, $_________
bond, debenture or similar instrument that is
accounted for as debt on the balance sheet in
accordance with GAAP
(vii) All liabilities secured by any Lien on any $_________
property and all other obligations,
indebtedness or liabilities defined as
"Indebtedness" in the Credit Agreement
(viii) Sum of Items (i) through (vii) equals $_________
consolidated total indebtedness of the Borrowers
and their respective Subsidiaries on the Report
Date, excluding the convertible subordinated
notes due 2004
(B) Consolidated Tangible Net Worth for the Borrowers $_________
-------------------------------
and their respective Subsidiaries as of the Report
Date is computed as follows, in each case determined
on a consolidated basis in accordance with GAAP:
<PAGE>
(i) total stockholders' equity for the Borrowers and $_________
their respective Subsidiaries, including
convertible subordinated notes due 2004
(ii) minority interest in net assets of each of the $_________
Borrower's Subsidiaries $
(iii) intangible assets for the Borrowers and their $_________
respective Subsidiaries
(iv) Sum of (x) Items (i) and (ii) minus (y) Item (iii) $_________
equals Consolidated Tangible Net Worth as of the
Report Date
3. Acquisitions (Section 8.1.15).
At no time did any Loan Party make Acquisitions in any other Persons,
whether as further Acquisitions in a Person in which an Acquisition has
previously been made or as a new Acquisition in a new Person, which was
not disclosed in a notice delivered in accordance with Section 8.1.15 of
the Credit Agreement.
4. Events of Default or Potential Default.
The Loan Parties are in compliance with all of the covenants under the
Credit Agreement and no event exists and is continuing which constitutes
an Event of Default or Potential Default. 5. Representations and
Warranties.
5. Representations and Warranties
The representations and warranties contained in Article VI of the Credit
Agreement are true, in all material respects, on and as of the date
hereof with the same effect as though such representations and warranties
had been made on and as of the date hereof (except representations and
warranties which expressly relate solely to an earlier date or time,
which representations and warranties shall have been true and correct on
and as of the specific dates or times referred to therein).
IN WITNESS WHEREOF, the undersigned has executed this Certificate this
_____ day of _______________, [2000/2001].
INTERNET CAPITAL GROUP, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
The Board of Directors
Internet Capital Group, Inc.:
We consent to the use of our report dated March 8, 2000 with respect to the
consolidated financial statements of Internet Capital Group, Inc. and
subsidiaries as of December 31, 1999 and 1998 and for each of the years in the
three-year period ended December 31, 1999, included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in this Registration Statement on Form S-4.
KPMG LLP
Philadelphia, Pennsylvania
April 12, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 6, 2000, with respect to the financial statements
of eCredit.com, Inc. included in the Registration Statement on Form S-4 and
related Prospectus of Internet Capital Group, Inc. to be filed on or about April
11, 2000.
/s/ Ernst & Young LLP
Boston, Massachusetts
April 7, 2000
<PAGE>
EXHIBIT NO. 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Internet Capital Group, Inc. of our report dated September 30, 1998 relating to
the consolidated statements of operations, of redeemable preferred stock and
stockholders' deficit and of cash flows of eCredit.com, Inc., which appears in
such Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 11, 2000
<PAGE>
EXHIBIT 23.4
Consent of Independent Accountants
The Board of Directors
eMerge Interactive, Inc.:
We consent to the use of our report dated December 6, 1999 with respect to the
consolidated financial statements of eMerge Interactive, Inc. as of December 31,
1997 and 1998 and September 30, 1999 and for each of the years in the two year
period ended December 31, 1998 and for the nine months ended September 30, 1999,
included herein and to the reference to our firm under the heading "Experts" in
the prospectus, which report appears in the Form S-4 of Internet Capital Group,
Inc.
/s/ KPMG LLP
Orlando, Florida
April 12, 2000
<PAGE>
Exhibit 23.5
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 18, 2000, except for the third paragraph of
Note 10 for which the date is March 30, 2000 with respect to the financial
statements of JusticeLink, Inc. (formerly LAWPlus, Inc.) included in the
Registration Statement on Form S-4 and related Prospectus of Internet Capital
Group, Inc. to be filed on or about April 12, 2000.
/s/ Ernst & Young LLP
Dallas, Texas
April 10, 2000
<PAGE>
Exhibit 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
related to the audit of Metalsite as a Component of Weirton Steel Corporation
for the period January 1, 1998 to November 15, 1998 and for the year ended
December 31, 1997 (and to all references to our Firm in this regard) included
in or made part of this registration statement.
Arthur Andersen, LLP
Pittsburgh, Pennsylvania
April 12, 2000
<PAGE>
Exhibit 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
related to the audit of Metalsite General Partner, LLC as of December 31, 1998
and for the period from Inception (November 15, 1998) through December 31, 1998
(and to all references to our Firm in this regard) included in or made part of
this registration statement.
Arthur Andersen, LLP
Pittsburgh, Pennsylvania
April 12, 2000
<PAGE>
Exhibit 23.8
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report,
and to all references to our Firm, included in or made part of this registration
statement.
/s/ ARTHUR ANDERSEN LLP
San Jose, California
April 11, 2000
<PAGE>
EXHIBIT NO. 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Internet Capital Group, Inc. of our report dated April 29, 1999 relating to the
financial statements of Syncra Software, Inc., which appears in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 11, 2000
<PAGE>
Exhibit 23.10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) dated December 3, 1999 with respect to the
September 30, 1999 financial statements of USgift.com Corporation included in or
made part of this registration statement.
Arthur Andersen, LLP
Atlanta, Georgia
April 6, 2000
<PAGE>
Exhibit 23.11
Consent of Independent Auditors
The Board of Directors
VerticalNet, Inc.:
We consent to the use of our report dated January 28, 2000 with respect to the
consolidated financial statements of VerticalNet, Inc. and subsidiaries as of
December 31, 1999 and 1998 and for each of the years in the three-year period
ended December 31, 1999, included herein in this Registration Statement on Form
S-4 of Internet Capital Group, Inc.
/s/ KPMG LLP
Philadelphia, Pennsylvania
April 11, 2000
<PAGE>
Exhibit 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME,
ON [_________], 2000
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF [COMPANY]
[ ________] STOCK MAY BE WITHDRAWN AT ANY TIME PRIOR TO 11:59 P.M.
ON THE EXPIRATION DATE
INTERNET CAPITAL GROUP, INC.
LETTER OF TRANSMITTAL
TO TENDER SHARES OF
[COMPANY]
PURSUANT TO THE EXCHANGE OFFER AGREEMENT
DATED [ _______], 2000
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M.,
NEW YORK CITY TIME, ON [__________], 2000, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
Name and Address of Number of
Registered Holder of [ ________ ]Stock Cert. No. Shares
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals:
- -------------------------------------------------------------------------------
* Indicate in this box the order (by certificate number) in which [COMPANY]
[______] Stock are to be purchased in the event of proration. Attach
additional signed list if necessary.
1st: 2nd: 3rd: 4th: 5th:
* If you do not designate an order, in the event less than all [COMPANY]
[______] Stock tendered are purchased due to proration, [COMPANY] [_______]
Stock will be selected for purchase by the Exchange Agent.
- -------------------------------------------------------------------------------
If additional space is required please attach a separate sheet.
THIS LETTER OF TRANSMITTAL MAY BE SENT TO CHASEMELLON SHAREHOLDER SERVICES,
L.L.C., THE EXCHANGE AGENT, AT ONE OF THE ADDRESSES INDICATED BELOW:
By Hand: By Mail:
CHASEMELLON SHAREHOLDER CHASEMELLON SHAREHOLDER
SERVICES, L.L.C. SERVICES, L.L.C.
120 Broadway, 13th Floor Post Office Box 3301
New York, NY 10271 South Hackensack, NJ 07606
Attn: Reorganization Department Attn: Reorganization Department
By Overnight Delivery:
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
85 Challenger Road - Mail Drop - Reorg
Ridgefield Park, NJ 07660
Attn: Reorganization Department
Telephone Assistance: 1-800-777-3674
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CARE-
FULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE INTERNET CAPITAL GROUP, INC.
COMMON STOCK FOR THEIR [COMPANY] [________] STOCK
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW)
THEIR [COMPANY] [__________] STOCK TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION
DATE.
2
<PAGE>
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus dated [______],
2000 (the "Prospectus") of Internet Capital Group, Inc., a Delaware corporation
("Internet Capital Group") and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitutes Internet Capital Group's Offer to
Exchange (the "Exchange Offer") a number of shares of Internet Capital Group's
Common Stock, par value $.001 per share (the "Common Stock"), equal to the
Exchange Ratio, upon the terms and subject to the conditions set forth in the
Prospectus and herein, for each properly tendered and not withdrawn share of
[________] Stock of [COMPANY], Inc., par value $.001 per share (the "[COMPANY]
Shares"), a [ ] corporation ("[COMPANY]"), up to a maximum of [AMOUNT] [COMPANY]
Shares. The Common Stock has been registered under the Securities Act of 1933,
as amended, pursuant to a Registration Statement of which the Prospectus is a
part.
The undersigned, as the registered owner(s) of the shares described
above, herewith submits for cancellation and exchange the enclosed
certificate(s) representing the undersigned's [COMPANY] Shares identified above
in exchange for the appropriate number of Shares of Common Stock in connection
with the Exchange Offer.
The Exchange Offer expires at 11:59 P.M., New York City time, on
[______], 2000, unless Internet Capital Group extends the expiration date.
Internet Capital Group reserves the right, at any time or from time to time, to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date to which the Exchange Offer is
extended.
Subject to the proper completion of this Letter of Transmittal, the
Exchange Agent is hereby requested to issue to the undersigned (unless otherwise
indicated below) a certificate for the number of shares of Common Stock equal to
the Exchange Ratio for each [COMPANY] Share so exchanged. The "Exchange Ratio"
will be [ ]. The Exchange Agent is further requested to issue a check to the
undersigned in lieu of any fractional shares of Common Stock, as provided in the
Exchange Offer Agreement.
The instructions included with this Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal may be directed to the Exchange Agent at
1-800-777-3674.
I (We) understand that the new certificate will be sent to the
registered owner(s) of such shares at the address for such owner as shown on the
stock records of Internet Capital Group, unless the alternative instructions
below are completed.
[ ] I have lost my [COMPANY], [_______]Stock certificate(s) for
___________ shares and require assistance with respect to obtaining a
replacement certificate. I understand that an indemnity and surety bond will be
required.
3
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
To be completed ONLY if the certificate(s) and/or check(s)
are to be issued in the name of and mailed to other than
the registered holder(s). Stock must be properly
assigned and signatures guaranteed. Issue and mail
certificate(s) to (print please):
Name
Address
TIN:
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the check(s) and/or certificate(s)
are to be issued in the name of the registered holder(s)
but sent to other than the address of record.
Name
Address
TIN:
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to Internet Capital Group the [COMPANY] Shares
indicated above. Subject to and effective upon the acceptance for exchange of
the [COMPANY] Shares tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, Internet
Capital Group all right, title and interest in and to the [COMPANY] Shares
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of Internet Capital Group with respect to
the tendered [COMPANY] Shares) with full power of substitution to (i) deliver
certificates for such [COMPANY] Shares to Internet Capital Group and deliver all
accompanying evidence of transfer and authenticity to, or upon the order of,
Internet Capital Group and (ii) present such [COMPANY] Shares for transfer on
the books of [COMPANY] and receive all benefits and otherwise exercise all
rights of beneficial ownership of such [COMPANY] Shares, all in accordance with
the terms and subject to the conditions of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the [COMPANY]
Shares tendered hereby and that Internet Capital Group will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim, when the same are
acquired by Internet Capital Group.
The undersigned hereby represents and warrants that if the undersigned
is not an individual, the undersigned is a corporation, limited liability
company, partnership, limited partnership, or trust duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation and has the requisite corporate or other power and
authority to carry on its business as it is now being conducted. The undersigned
has all requisite corporate or other power and authority to execute and deliver
this Letter of Transmittal and the [COMPANY] Shares tendered hereby and to
consummate the transactions contemplated hereby. The execution and delivery by
the undersigned of this Letter of Transmittal and the [COMPANY] Shares tendered
hereby and the consummation by the undersigned of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate or other
action on the part of the undersigned and no other corporate or other
proceedings on the part of the undersigned are necessary to authorize this
Letter of Transmittal or to consummate the transactions so contemplated by this
Letter of Transmittal. This Letter of Transmittal has been, and each other
document or instrument to be executed by the undersigned in connection herewith
will be, duly executed and delivered by the undersigned, and, when duly executed
and delivered by the other parties hereto or thereto, constitutes, or will
constitute, a legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms.
4
<PAGE>
The undersigned is the sole record owner of (and has the requisite
power and authority to vote and dispose of) the number and type of shares of
capital stock of [COMPANY] set forth in this Letter of Transmittal, in each case
free and clear of any Liens. The undersigned is not a party to, or bound by, any
arrangement, agreement, instrument or order (i) relating to the transfer of any
shares of capital stock of [COMPANY], (ii) relating to the dividend or voting
rights of any shares of capital stock of [COMPANY], (iii) granting, or
obligating [COMPANY] to grant, to any person any preemptive right or (iv)
relating to rights to registration under the Securities Act or any other
securities laws of any shares of capital stock of [COMPANY].
The execution and delivery by the undersigned of this Letter of
Transmittal and the [COMPANY] Shares tendered herewith and the execution and
delivery by the undersigned of any other documents or instruments contemplated
hereby to be executed by the undersigned, the performance by the undersigned of
each of its obligations hereunder, and the consummation of the transactions
contemplated hereby do not and will not:
(a) violate or conflict with or result in a breach of any provision of
the charter, bylaws or other organizational documents, if any, of the
undersigned, as such instruments are currently in effect;
(b) require any consent, approval or notice under, or registration
under or payment on account of, or conflict with, or result in a violation or
breach of; or constitute (with or without the giving of notice or the lapse of
time or both) a default (or give rise to any right of termination, modification
(including, in the case of leases, any change in the amount or nature of the
rent), cancellation or acceleration or result in the creation or imposition of
any Lien upon the property of the undersigned) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license, lease,
agreement or other instrument or obligation to which the undersigned is a party
or by which any portion of its or their properties or assets may be bound;
(c) violate or contravene any law, statute, rule or regulation, or any
order, writ, judgment, injunction, decree, determination or award of any
Authority currently in effect; or
(d) require any action, consent, approval or authorization of; or
review by, or declaration, registration or filing with, or notice to, any
Authority, or any stock exchange or similar self-regulatory organization.
Neither the undersigned, its affiliates, nor any of their respective
officers, directors or employees, (a) has employed (or will employ) any broker
or finder, or (b) has incurred (or will incur) any liability for any brokerage
fees, commissions or finders' fees or expenses or indemnification or similar
obligations in connection with the transactions contemplated by this Letter of
Transmittal.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or Internet Capital Group to be necessary
or desirable to complete the assignment, transfer and purchase of the [COMPANY]
Shares tendered hereby. All authority conferred or agreed to be conferred by
this Letter of Transmittal shall survive the death, incapacity or dissolution of
the undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns, trustees in bankruptcy or other legal
representatives of the undersigned. This tender may be withdrawn only in
accordance with the procedures set forth in "The Exchange Offer -- Withdrawal
Rights" section of the Prospectus.
For purposes of the Exchange Offer, Internet Capital Group shall be
deemed to have accepted validly tendered [COMPANY] Shares when, as and if
Internet Capital Group has given oral or written notice thereof to the Exchange
Agent.
5
<PAGE>
If any tendered [COMPANY] Shares are not accepted for exchange
pursuant to the Exchange Offer for any reason, certificates for any such
unaccepted [COMPANY] Shares will be returned, without expense, to the
undersigned at the address shown below or at such different address as may be
indicated under "Special Delivery Instructions" as promptly as practicable after
the Expiration Date.
The undersigned understands that tenders of [COMPANY] Shares pursuant
to the procedures described under the caption "The Exchange Offer -- Procedures
for Tendering Stock" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and Internet Capital
Group upon the terms and subject to the conditions of the Exchange Offer.
Very truly yours,
(X) Dated:
(X)
(Signature of registered holder(s))
Area Code and Telephone Number:
PLEASE SIGN AND DATE ABOVE
Must be signed by registered holder(s) exactly as name(s) appears on the
certificate(s), or the authorized representative of such registered holder(s),
or by person(s) in whose name the new certificate(s) is to be issued.
6
<PAGE>
INSTRUCTIONS
LETTER OF TRANSMITTAL: This Letter of Transmittal must be signed, dated and
completed in its entirety including the certificate number(s) and number of
shares of [COMPANY], Inc.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE [COMPANY]
SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF [COMPANY] SHARES ARE SENT BY
MAIL, IT IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT THE DELIVERY TO THE EXCHANGE AGENT PRIOR TO 11:59
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
SIGNATURE: This Letter of Transmittal must be signed by or on behalf of the
registered owner(s) of the surrendered certificate(s). In the case of joint
tenants, both must sign. When signing as agent, attorney, administrator,
executor, guardian, trustee or in any other fiduciary or other capacity or as an
officer of a corporation on behalf of the corporation, please give full title as
such and evidence of authority. If any tendered [COMPANY] Shares are registered
in different names on several certificates, it will be necessary to complete,
sign and submit as many separate copies of this Letter of Transmittal as there
are different registrations of certificates. If this Letter of Transmittal is
signed by a person other than the registered Holder(s) of any certificate(s)
specified herein, such certificate(s) must be endorsed or accompanied by
appropriate stock powers or powers of attorney, in each case signed exactly as
the name or names of the registered Holder(s) appear(s) on the certificate(s)
and signatures on such certificate(s) or power(s) must be guaranteed by an
Eligible Institution.
TENDER BY HOLDER: Only a Holder of [COMPANY] Shares may tender such [COMPANY]
Shares in the Exchange Offer. Any beneficial holder of [COMPANY] Shares who is
not the registered Holder and who wishes to tender should arrange with the
registered Holder to execute and deliver this Letter of Transmittal on his or
her behalf or must, prior to completing and executing this Letter of Transmittal
and delivering his or her [COMPANY] Shares, either make appropriate arrangements
to register ownership of the [COMPANY] Shares in such Holder's name or obtain a
properly completed stock power from the registered Holder.
PRORATION; PARTIAL TENDERS: If, due to a partial tender or proration, it is
necessary to issue a new certificate for [COMPANY] Shares which were not
tendered (but included on a certificate with tendered shares) or tendered but
not accepted due to proration, the Exchange Agent will provide [COMPANY] with
the appropriate information so that [COMPANY] can issue the appropriate
certificate(s).
ENDORSEMENT OF CERTIFICATES: Do not endorse the [COMPANY] certificates if the
Internet Capital Group Common Stock certificate is to be issued in the name of
the registered holder(s).
If the Internet Capital Group Common Stock certificate is to be issued in the
name of someone other than the registered holder(s), the registered holder(s)
must duly endorse the [COMPANY] Shares certificates to the person(s) in whose
name the issuance is to be made. The signature(s) of the registered holder(s)
endorsing the [COMPANY] Shares Certificates must be guaranteed by a member of
an Approved Signature Guarantee Medallion Program.
If said endorsement is executed by an attorney, administrator, executor, trustee
or guardian or anyone acting in a fiduciary capacity, or by an officer of a
corporation, the person executing such endorsement must give his full title in
such capacity, and evidence of authority, satisfactory to CHASEMELLON
SHAREHOLDER SERVICES, L.L.C. and must be forwarded with the [COMPANY] Shares
certificates.
WAIVER OF CONDITIONS: Internet Capital Group reserves the absolute right to
amend, waive or modify conditions to the Exchange Offer in the case of any
[COMPANY] Shares tendered (and to refuse to do so).
7
<PAGE>
NO CONDITIONAL TRANSFERS: No alternative, conditional, irregular or contingent
tenders will be accepted. All tendering Holders of [COMPANY] Shares, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of their [COMPANY] Shares for exchange.
Neither Internet Capital Group, the Exchange Agent nor any other
person is obligated to give notice of any defect or irregularity with respect to
any tender of [COMPANY] Shares, nor shall any of them incur any liability for
failure to give any such notice.
MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES: Any tendering Holder whose
[COMPANY] Shares have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at one of the addresses indicated herein for further
instructions.
REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES: Questions and requests for
assistance for additional copies of the Prospectus, this Letter of Transmittal
[or the "Guidelines for Certification of Taxpayer Identification Number" on
Substitute Form W-9] may be directed to the Exchange Agent at one of the
addresses specified in the Prospectus
DELIVERY OF CERTIFICATES:
THIS LETTER OF TRANSMITTAL MAY BE SENT TO CHASEMELLON SHAREHOLDER SERVICES,
L.L.C., THE EXCHANGE AGENT, AT ONE OF THE ADDRESSES INDICATED BELOW:
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand: By Mail: By Overnight Delivery:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C. CHASEMELLON SHAREHOLDER SERVICES, L.L.C. CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
120 Broadway, 13th Floor Post Office Box 3301 85 Challenger Road-Mail Drop-Reorg
New York, NY 10271 South Hackensack, NJ 07606 Ridgefield Park, NJ 07660
Attn: Reorganization Department Attn: Reorganization Department Attn: Reorganization Department
</TABLE>
The method of delivery of the [COMPANY] Shares certificates is at the option and
the risk of the holder. Certified or Registered mail, properly insured, is
suggested.
IMPORTANT TAX INFORMATION: Please complete the Substitute form W-9 below;
failure to do so may require the Exchange Agent to withhold 31% of any cash
payment you are entitled to receive.
<TABLE>
<CAPTION>
<S> <C>
PAYER'S NAME CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
- ----------------------------------------------------------------------------------------------------------------------------------
Part 1: PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND Enter your Social Security
CERTIFY BY SIGNING AND DATING BELOW. or employer ID number here
----------/ --------/ ----------
- ----------------------------------------------------------------------------------------------------------------------------------
Part 2: [ ] Check this box if you are NOT subject to backup withholding under the provisions of section 3406(a)(1)(C) of the
Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup
withholding.
Part 3: [ ] Check here, if awaiting TIN.
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS
FORM IS TRUE, CORRECT AND COMPLETE.
- ---------------------------------------------------------- ----------------------------------------------------------------
SIGNATURE DATE
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Exhibit 99.1
THE EXCHANGE OFFER WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME,
ON [_________], 2000
UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF [COMPANY]
[ ________] STOCK MAY BE WITHDRAWN AT ANY TIME PRIOR TO 11:59 P.M.
ON THE EXPIRATION DATE
INTERNET CAPITAL GROUP, INC.
LETTER OF TRANSMITTAL
TO TENDER SHARES OF
[COMPANY]
PURSUANT TO THE EXCHANGE OFFER AGREEMENT
DATED [ _______], 2000
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 11:59 P.M.,
NEW YORK CITY TIME, ON [__________], 2000, UNLESS THE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
Name and Address of Number of
Registered Holder of [ ________ ]Stock Cert. No. Shares
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Totals:
- -------------------------------------------------------------------------------
* Indicate in this box the order (by certificate number) in which [COMPANY]
[______] Stock are to be purchased in the event of proration. Attach
additional signed list if necessary.
1st: 2nd: 3rd: 4th: 5th:
* If you do not designate an order, in the event less than all [COMPANY]
[______] Stock tendered are purchased due to proration, [COMPANY] [_______]
Stock will be selected for purchase by the Exchange Agent.
- -------------------------------------------------------------------------------
If additional space is required please attach a separate sheet.
THIS LETTER OF TRANSMITTAL MAY BE SENT TO CHASEMELLON SHAREHOLDER SERVICES,
L.L.C., THE EXCHANGE AGENT, AT ONE OF THE ADDRESSES INDICATED BELOW:
By Hand: By Mail:
CHASEMELLON SHAREHOLDER CHASEMELLON SHAREHOLDER
SERVICES, L.L.C. SERVICES, L.L.C.
120 Broadway, 13th Floor Post Office Box 3301
New York, NY 10271 South Hackensack, NJ 07606
Attn: Reorganization Department Attn: Reorganization Department
By Overnight Delivery:
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
85 Challenger Road - Mail Drop - Reorg
Ridgefield Park, NJ 07660
Attn: Reorganization Department
Telephone Assistance: 1-800-777-3674
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CARE-
FULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE INTERNET CAPITAL GROUP, INC.
COMMON STOCK FOR THEIR [COMPANY] [________] STOCK
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW)
THEIR [COMPANY] [__________] STOCK TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION
DATE.
2
<PAGE>
Ladies and Gentlemen:
The undersigned acknowledges receipt of the Prospectus dated [______],
2000 (the "Prospectus") of Internet Capital Group, Inc., a Delaware corporation
("Internet Capital Group") and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitutes Internet Capital Group's Offer to
Exchange (the "Exchange Offer") a number of shares of Internet Capital Group's
Common Stock, par value $.001 per share (the "Common Stock"), equal to the
Exchange Ratio, upon the terms and subject to the conditions set forth in the
Prospectus and herein, for each properly tendered and not withdrawn share of
[________] Stock of [COMPANY], Inc., par value $.001 per share (the "[COMPANY]
Shares"), a [ ] corporation ("[COMPANY]"), up to a maximum of [AMOUNT] [COMPANY]
Shares. The Common Stock has been registered under the Securities Act of 1933,
as amended, pursuant to a Registration Statement of which the Prospectus is a
part.
The undersigned, as the registered owner(s) of the shares described
above, herewith submits for cancellation and exchange the enclosed
certificate(s) representing the undersigned's [COMPANY] Shares identified above
in exchange for the appropriate number of Shares of Common Stock in connection
with the Exchange Offer.
The Exchange Offer expires at 11:59 P.M., New York City time, on
[______], 2000, unless Internet Capital Group extends the expiration date.
Internet Capital Group reserves the right, at any time or from time to time, to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date to which the Exchange Offer is
extended.
Subject to the proper completion of this Letter of Transmittal, the
Exchange Agent is hereby requested to issue to the undersigned (unless otherwise
indicated below) a certificate for the number of shares of Common Stock equal to
the Exchange Ratio for each [COMPANY] Share so exchanged. The "Exchange Ratio"
will be [ ]. The Exchange Agent is further requested to issue a check to the
undersigned in lieu of any fractional shares of Common Stock, as provided in the
Exchange Offer Agreement.
The instructions included with this Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal may be directed to the Exchange Agent at
1-800-777-3674.
I (We) understand that the new certificate will be sent to the
registered owner(s) of such shares at the address for such owner as shown on the
stock records of Internet Capital Group, unless the alternative instructions
below are completed.
[ ] I have lost my [COMPANY], [_______]Stock certificate(s) for
___________ shares and require assistance with respect to obtaining a
replacement certificate. I understand that an indemnity and surety bond will be
required.
3
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
To be completed ONLY if the certificate(s) and/or check(s)
are to be issued in the name of and mailed to other than
the registered holder(s). Stock must be properly
assigned and signatures guaranteed. Issue and mail
certificate(s) to (print please):
Name
Address
TIN:
SPECIAL DELIVERY INSTRUCTIONS
To be completed ONLY if the check(s) and/or certificate(s)
are to be issued in the name of the registered holder(s)
but sent to other than the address of record.
Name
Address
TIN:
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to Internet Capital Group the [COMPANY] Shares
indicated above. Subject to and effective upon the acceptance for exchange of
the [COMPANY] Shares tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, Internet
Capital Group all right, title and interest in and to the [COMPANY] Shares
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of Internet Capital Group with respect to
the tendered [COMPANY] Shares) with full power of substitution to (i) deliver
certificates for such [COMPANY] Shares to Internet Capital Group and deliver all
accompanying evidence of transfer and authenticity to, or upon the order of,
Internet Capital Group and (ii) present such [COMPANY] Shares for transfer on
the books of [COMPANY] and receive all benefits and otherwise exercise all
rights of beneficial ownership of such [COMPANY] Shares, all in accordance with
the terms and subject to the conditions of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed irrevocable and coupled with
an interest.
The undersigned hereby represents and warrants that the undersigned
has full power and authority to tender, sell, assign and transfer the [COMPANY]
Shares tendered hereby and that Internet Capital Group will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim, when the same are
acquired by Internet Capital Group.
The undersigned hereby represents and warrants that if the undersigned
is not an individual, the undersigned is a corporation, limited liability
company, partnership, limited partnership, or trust duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or formation and has the requisite corporate or other power and
authority to carry on its business as it is now being conducted. The undersigned
has all requisite corporate or other power and authority to execute and deliver
this Letter of Transmittal and the [COMPANY] Shares tendered hereby and to
consummate the transactions contemplated hereby. The execution and delivery by
the undersigned of this Letter of Transmittal and the [COMPANY] Shares tendered
hereby and the consummation by the undersigned of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate or other
action on the part of the undersigned and no other corporate or other
proceedings on the part of the undersigned are necessary to authorize this
Letter of Transmittal or to consummate the transactions so contemplated by this
Letter of Transmittal. This Letter of Transmittal has been, and each other
document or instrument to be executed by the undersigned in connection herewith
will be, duly executed and delivered by the undersigned, and, when duly executed
and delivered by the other parties hereto or thereto, constitutes, or will
constitute, a legal, valid and binding obligation of the undersigned,
enforceable against it in accordance with its terms.
4
<PAGE>
The undersigned is the sole record owner of (and has the requisite
power and authority to vote and dispose of) the number and type of shares of
capital stock of [COMPANY] set forth in this Letter of Transmittal, in each case
free and clear of any Liens. The undersigned is not a party to, or bound by, any
arrangement, agreement, instrument or order (i) relating to the transfer of any
shares of capital stock of [COMPANY], (ii) relating to the dividend or voting
rights of any shares of capital stock of [COMPANY], (iii) granting, or
obligating [COMPANY] to grant, to any person any preemptive right or (iv)
relating to rights to registration under the Securities Act or any other
securities laws of any shares of capital stock of [COMPANY].
The execution and delivery by the undersigned of this Letter of
Transmittal and the [COMPANY] Shares tendered herewith and the execution and
delivery by the undersigned of any other documents or instruments contemplated
hereby to be executed by the undersigned, the performance by the undersigned of
each of its obligations hereunder, and the consummation of the transactions
contemplated hereby do not and will not:
(a) violate or conflict with or result in a breach of any provision of
the charter, bylaws or other organizational documents, if any, of the
undersigned, as such instruments are currently in effect;
(b) require any consent, approval or notice under, or registration
under or payment on account of, or conflict with, or result in a violation or
breach of; or constitute (with or without the giving of notice or the lapse of
time or both) a default (or give rise to any right of termination, modification
(including, in the case of leases, any change in the amount or nature of the
rent), cancellation or acceleration or result in the creation or imposition of
any Lien upon the property of the undersigned) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license, lease,
agreement or other instrument or obligation to which the undersigned is a party
or by which any portion of its or their properties or assets may be bound;
(c) violate or contravene any law, statute, rule or regulation, or any
order, writ, judgment, injunction, decree, determination or award of any
Authority currently in effect; or
(d) require any action, consent, approval or authorization of; or
review by, or declaration, registration or filing with, or notice to, any
Authority, or any stock exchange or similar self-regulatory organization.
Neither the undersigned, its affiliates, nor any of their respective
officers, directors or employees, (a) has employed (or will employ) any broker
or finder, or (b) has incurred (or will incur) any liability for any brokerage
fees, commissions or finders' fees or expenses or indemnification or similar
obligations in connection with the transactions contemplated by this Letter of
Transmittal.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or Internet Capital Group to be necessary
or desirable to complete the assignment, transfer and purchase of the [COMPANY]
Shares tendered hereby. All authority conferred or agreed to be conferred by
this Letter of Transmittal shall survive the death, incapacity or dissolution of
the undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns, trustees in bankruptcy or other legal
representatives of the undersigned. This tender may be withdrawn only in
accordance with the procedures set forth in "The Exchange Offer -- Withdrawal
Rights" section of the Prospectus.
For purposes of the Exchange Offer, Internet Capital Group shall be
deemed to have accepted validly tendered [COMPANY] Shares when, as and if
Internet Capital Group has given oral or written notice thereof to the Exchange
Agent.
5
<PAGE>
If any tendered [COMPANY] Shares are not accepted for exchange
pursuant to the Exchange Offer for any reason, certificates for any such
unaccepted [COMPANY] Shares will be returned, without expense, to the
undersigned at the address shown below or at such different address as may be
indicated under "Special Delivery Instructions" as promptly as practicable after
the Expiration Date.
The undersigned understands that tenders of [COMPANY] Shares pursuant
to the procedures described under the caption "The Exchange Offer -- Procedures
for Tendering Stock" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and Internet Capital
Group upon the terms and subject to the conditions of the Exchange Offer.
Very truly yours,
(X) Dated:
(X)
(Signature of registered holder(s))
Area Code and Telephone Number:
PLEASE SIGN AND DATE ABOVE
Must be signed by registered holder(s) exactly as name(s) appears on the
certificate(s), or the authorized representative of such registered holder(s),
or by person(s) in whose name the new certificate(s) is to be issued.
6
<PAGE>
INSTRUCTIONS
LETTER OF TRANSMITTAL: This Letter of Transmittal must be signed, dated and
completed in its entirety including the certificate number(s) and number of
shares of [COMPANY], Inc.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE [COMPANY]
SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF [COMPANY] SHARES ARE SENT BY
MAIL, IT IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT THE DELIVERY TO THE EXCHANGE AGENT PRIOR TO 11:59
P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
SIGNATURE: This Letter of Transmittal must be signed by or on behalf of the
registered owner(s) of the surrendered certificate(s). In the case of joint
tenants, both must sign. When signing as agent, attorney, administrator,
executor, guardian, trustee or in any other fiduciary or other capacity or as an
officer of a corporation on behalf of the corporation, please give full title as
such and evidence of authority. If any tendered [COMPANY] Shares are registered
in different names on several certificates, it will be necessary to complete,
sign and submit as many separate copies of this Letter of Transmittal as there
are different registrations of certificates. If this Letter of Transmittal is
signed by a person other than the registered Holder(s) of any certificate(s)
specified herein, such certificate(s) must be endorsed or accompanied by
appropriate stock powers or powers of attorney, in each case signed exactly as
the name or names of the registered Holder(s) appear(s) on the certificate(s)
and signatures on such certificate(s) or power(s) must be guaranteed by an
Eligible Institution.
TENDER BY HOLDER: Only a Holder of [COMPANY] Shares may tender such [COMPANY]
Shares in the Exchange Offer. Any beneficial holder of [COMPANY] Shares who is
not the registered Holder and who wishes to tender should arrange with the
registered Holder to execute and deliver this Letter of Transmittal on his or
her behalf or must, prior to completing and executing this Letter of Transmittal
and delivering his or her [COMPANY] Shares, either make appropriate arrangements
to register ownership of the [COMPANY] Shares in such Holder's name or obtain a
properly completed stock power from the registered Holder.
PRORATION; PARTIAL TENDERS: If, due to a partial tender or proration, it is
necessary to issue a new certificate for [COMPANY] Shares which were not
tendered (but included on a certificate with tendered shares) or tendered but
not accepted due to proration, the Exchange Agent will provide [COMPANY] with
the appropriate information so that [COMPANY] can issue the appropriate
certificate(s).
ENDORSEMENT OF CERTIFICATES: Do not endorse the [COMPANY] certificates if the
Internet Capital Group Common Stock certificate is to be issued in the name of
the registered holder(s).
If the Internet Capital Group Common Stock certificate is to be issued in the
name of someone other than the registered holder(s), the registered holder(s)
must duly endorse the [COMPANY] Shares certificates to the person(s) in whose
name the issuance is to be made. The signature(s) of the registered holder(s)
endorsing the [COMPANY] Shares Certificates must be guaranteed by a member of
an Approved Signature Guarantee Medallion Program.
If said endorsement is executed by an attorney, administrator, executor, trustee
or guardian or anyone acting in a fiduciary capacity, or by an officer of a
corporation, the person executing such endorsement must give his full title in
such capacity, and evidence of authority, satisfactory to CHASEMELLON
SHAREHOLDER SERVICES, L.L.C. and must be forwarded with the [COMPANY] Shares
certificates.
WAIVER OF CONDITIONS: Internet Capital Group reserves the absolute right to
amend, waive or modify conditions to the Exchange Offer in the case of any
[COMPANY] Shares tendered (and to refuse to do so).
7
<PAGE>
NO CONDITIONAL TRANSFERS: No alternative, conditional, irregular or contingent
tenders will be accepted. All tendering Holders of [COMPANY] Shares, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of their [COMPANY] Shares for exchange.
Neither Internet Capital Group, the Exchange Agent nor any other
person is obligated to give notice of any defect or irregularity with respect to
any tender of [COMPANY] Shares, nor shall any of them incur any liability for
failure to give any such notice.
MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES: Any tendering Holder whose
[COMPANY] Shares have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at one of the addresses indicated herein for further
instructions.
REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES: Questions and requests for
assistance for additional copies of the Prospectus, this Letter of Transmittal
[or the "Guidelines for Certification of Taxpayer Identification Number" on
Substitute Form W-9] may be directed to the Exchange Agent at one of the
addresses specified in the Prospectus
DELIVERY OF CERTIFICATES:
THIS LETTER OF TRANSMITTAL MAY BE SENT TO CHASEMELLON SHAREHOLDER SERVICES,
L.L.C., THE EXCHANGE AGENT, AT ONE OF THE ADDRESSES INDICATED BELOW:
<TABLE>
<CAPTION>
<S> <C> <C>
By Hand: By Mail: By Overnight Delivery:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C. CHASEMELLON SHAREHOLDER SERVICES, L.L.C. CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
120 Broadway, 13th Floor Post Office Box 3301 85 Challenger Road-Mail Drop-Reorg
New York, NY 10271 South Hackensack, NJ 07606 Ridgefield Park, NJ 07660
Attn: Reorganization Department Attn: Reorganization Department Attn: Reorganization Department
</TABLE>
The method of delivery of the [COMPANY] Shares certificates is at the option and
the risk of the holder. Certified or Registered mail, properly insured, is
suggested.
IMPORTANT TAX INFORMATION: Please complete the Substitute form W-9 below;
failure to do so may require the Exchange Agent to withhold 31% of any cash
payment you are entitled to receive.
<TABLE>
<CAPTION>
<S> <C>
PAYER'S NAME CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE FORM W-9 DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN)
- ----------------------------------------------------------------------------------------------------------------------------------
Part 1: PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND Enter your Social Security
CERTIFY BY SIGNING AND DATING BELOW. or employer ID number here
----------/ --------/ ----------
- ----------------------------------------------------------------------------------------------------------------------------------
Part 2: [ ] Check this box if you are NOT subject to backup withholding under the provisions of section 3406(a)(1)(C) of the
Internal Revenue Code because (1) you have not been notified that you are subject to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal Revenue Service has notified you that you are no longer subject to backup
withholding.
Part 3: [ ] Check here, if awaiting TIN.
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON THIS
FORM IS TRUE, CORRECT AND COMPLETE.
- ---------------------------------------------------------- ----------------------------------------------------------------
SIGNATURE DATE
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
