SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant |_|
Filed by a party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary proxy statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
INTERNET COMMERCE CORPORATION
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
Class A Common Stock
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forward the amount on
which the filing fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the form or schedule and the
date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
Internet Commerce Corporation
805 Third Avenue, 9th Floor
New York, New York 10022
(212) 271-7640
October 13, 2000
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
which will be held on Monday, November 6, 2000, at 10:00 a.m., New York time, at
the New York Marriott East Side, 525 Lexington Avenue, New York, New York 10017
(i) to approve the issuance of a number of shares ranging from a minimum of
1,800,000 up to a maximum of 3,315,890 shares of ICC Class A Common Stock in
connection with the merger of ICC Acquisition Corporation, Inc., a North
Carolina corporation and a wholly-owned subsidiary of ICC ("Buyer"), into
Research Triangle Commerce, Inc., a North Carolina corporation ("RTCI"),
pursuant to a Merger Agreement dated June 14, 2000 among ICC, Buyer, RTCI and
certain shareholders of RTCI identified therein and (ii) to approve an amendment
to ICC's Amended and Restated Stock Option Plan to increase the number of shares
of common stock reserved for issuance upon the exercise of options that may be
granted under the Plan from 5,000,000 to 7,000,000.
We hope that you will be able to attend the Special Meeting in person,
but to ensure that your vote is counted, please mark, date, sign and return, at
an early date, the enclosed proxy in the prepaid envelope. If you have any
questions or need assistance in voting your shares, please call Larry Danziger
at (212) 271-7645.
The Board of Directors and Management look forward to seeing you at the
meeting.
Sincerely yours,
/s/ Dr. Geoffrey S. Carroll
---------------------------
Dr. Geoffrey S. Carroll
President and
Chief Executive Officer
<PAGE>
INTERNET COMMERCE CORPORATION
Notice of Special Meeting of Stockholders
to be held November 6, 2000
A Special Meeting of Stockholders (the "Special Meeting") of Internet
Commerce Corporation ("ICC" or the "Company") will be held on Monday, November
6, 2000, at 10:00 a.m., New York time, at the New York Marriott East Side, 525
Lexington Avenue, New York, New York 10017, for the following purposes:
1. To approve the issuance of a number of shares ranging from a
minimum of 1,800,000 up to a maximum of 3,315,890 shares of
ICC Class A Common Stock in connection with the merger of ICC
Acquisition Corporation, Inc., a North Carolina corporation
and a wholly-owned subsidiary of ICC ("Buyer"), into Research
Triangle Commerce, Inc., a North Carolina corporation
("RTCI"), pursuant to a Merger Agreement dated June 14, 2000
between ICC, Buyer, RTCI and certain shareholders of RTCI
identified therein (the "Sellers").
2. To approve an amendment to ICC's Amended and Restated Stock
Option Plan to increase the number of shares of common stock
reserved for issuance upon the exercise of options that may be
granted under the Plan from 5,000,000 to 7,000,000.
3. To transact such other business as may properly come before
the Special Meeting and any postponement or adjournment of the
Special Meeting.
The Board of Directors has fixed the close of business on October 11,
2000 as the record date for determining the stockholders entitled to notice of
and to vote at the Special Meeting and any postponement or adjournment thereof.
A complete list of stockholders entitled to vote will be available at the
Company's office, 805 Third Avenue, 9th Floor, New York, New York 10022, during
the ten days before the meeting.
October 13, 2000 By Order of the Board of Directors,
/s/ Dr. Geoffrey S. Carroll
---------------------------
Dr. Geoffrey S. Carroll
President and
Chief Executive Officer
<PAGE>
Internet Commerce Corporation
805 Third Avenue, 9th Floor
New York, New York 10022
(212) 271-7640
----------------
PROXY STATEMENT
----------------
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Internet Commerce Corporation, a Delaware
corporation ("ICC" or the "Company"), of proxies in the accompanying form to be
used at a Special Meeting of Stockholders to be held on November 6, 2000 at
10:00 a.m., New York time, at the New York Marriott East Side, 525 Lexington
Avenue, New York, New York 10017, and any postponement or adjournment thereof
(the "Special Meeting"). The shares represented by the proxies received in
response to this solicitation and not revoked will be voted at the Special
Meeting. A proxy may be revoked at any time before it is exercised by filing
with the Secretary of the Company a written revocation or a duly executed proxy
bearing a later date or by voting in person at the Special Meeting. As to
matters coming before the Special Meeting for which a choice has been specified
by a stockholder on the proxy, the shares will be voted accordingly. If no
choice is specified, the shares will be voted FOR each proposal described in
this Proxy Statement.
Stockholders of record of the Company's Class A Common Stock (the
"Class A Common Stock"), the Class B Common Stock (the "Class B Common Stock")
and the Series C Convertible Redeemable Preferred Stock (the "Series C Preferred
Stock") at the close of business on October 11, 2000 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. As of the close of
business on the Record Date, the Company had 6,685,956 shares of Class A Common
Stock outstanding and entitled to vote at the Special Meeting. The Class A
Common Stock is entitled to one vote per share. As of the close of business on
the Record Date, the Company had 2,574 shares of Class B Common Stock
outstanding and entitled to vote at the Special Meeting. The Class B Common
Stock is entitled to vote together with the Class A Common Stock and the Series
C Preferred Stock; each share of Class B Common Stock is entitled to six votes
per share. As of the close of business on the Record Date, the Company had
10,000 shares of Series C Preferred Stock outstanding and entitled to vote at
the Special Meeting. The Series C Preferred Stock is entitled to vote together
with the Class A Common Stock and the Class B Common Stock; each share of the
Series C Preferred Stock is entitled to approximately 44.76 votes per share.
The holders of a majority of the aggregate voting power of the issued
and outstanding shares of Class A Common Stock, Class B Common Stock and Series
C Preferred Stock entitled to vote at the Special Meeting, present in person or
represented by proxy, shall constitute a quorum for the transaction of business
at the Special Meeting. Assuming a quorum is present, approval of Proposals One
and Two requires the affirmative vote of a majority of the aggregate voting
power of all outstanding shares of Class A Common Stock, Class B Common Stock
and Series C Preferred Stock present in person or represented by proxy at the
Special Meeting and entitled to vote on the Proposals, voting together as a
single class.
Abstentions and broker non-votes are treated as shares that are present
for purposes of determining the presence or absence of a quorum. Abstentions are
treated as shares present and entitled to vote and thus have the same effect as
negative votes. However, broker non-votes will not be counted for the purposes
of determining the number of votes cast with respect to the particular proposal
on which a broker has not voted. Therefore, broker non-votes will not affect the
determination as to whether the requisite majority of votes cast has been
obtained with respect to a particular proposal.
The entire expense of printing, preparing, assembling and mailing proxy
materials and the cost of soliciting proxies will be borne by the Company. In
addition to the solicitation of proxies by mail, solicitation may be made by
certain directors, officers and other employees of the Company by personal
interview, telephone, telegram or facsimile. No additional compensation will be
paid to such persons for such solicitation.
<PAGE>
The Company will reimburse brokerage firms and others for their
reasonable expenses in forwarding proxy materials to, and obtaining voting
instructions from, the beneficial owners of the Class A Common Stock.
Representatives of Deloitte & Touche LLP, ICC's independent auditors,
and representatives of PricewaterhouseCoopers LLP, RTCI's independent auditors,
are not expected to be present at the Special Meeting to answer questions
regarding the Merger.
This Proxy Statement and the accompanying form of proxy are being
mailed to stockholders commencing on or about October 13, 2000.
IMPORTANT
Please mark, date and sign the enclosed proxy and return it at your
earliest convenience in the enclosed postage-prepaid return envelope so that,
whether you intend to be present at the Special Meeting or not, your shares of
Class A Common Stock, Class B Common Stock or Series C Preferred Stock can be
voted. This will not limit your right to attend or vote at the Special Meeting.
FORWARD-LOOKING STATEMENTS
This Proxy Statement, including information incorporated by reference,
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to various matters. Statements in
this Proxy Statement that are not historical facts are identified as
"forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933.
Words such as "estimate," "project," "plan," "intend," "expect,"
"believe" and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are found at various places throughout
this Proxy Statement and ICC's Annual Report on Form 10-KSB for the year ended
July 31, 2000, which is incorporated herein by reference. You are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date of this Proxy Statement or, in the case of ICC's Annual Report on
Form 10-KSB, as of the date of that document. These forward-looking statements,
including those relating to the future business prospects, revenues and income
of ICC and RTCI, wherever they appear in this Proxy Statement or material
incorporated by reference, are necessarily estimates reflecting the best
judgment of the senior management of the subject company. These forward-looking
statements involve a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the forward-looking
statements. These forward-looking statements should, therefore, be considered in
light of various factors, including those set forth in this Proxy Statement.
Important factors that could cause actual results to differ materially from
estimates or projections contained in the forward-looking statements include,
without limitation, those factors set forth in "Risk Factors Relating to the
Merger" beginning on page 12and those factors discussed in ICC's Annual Report
on Form 10-KSB for the year ended July 31, 2000 which is incorporated by
reference in this Proxy Statement.
You should understand that it is not possible to predict or identify
all factors that could affect ICC's and RTCI's ability to achieve the results
described in any forward-looking statements, and that the factors referred to
above should not be considered a complete statement of all potential risks and
uncertainties. You should also realize that if underlying assumptions prove
inaccurate or unknown risks or uncertainties materialize, actual results could
vary materially from ICC's and RTCI's expectations.
<PAGE>
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS..........................................................1
SUMMARY........................................................................3
Listing of ICC Shares.................................................7
PROPOSAL ONE...................................................................9
INTRODUCTION...................................................................9
STOCKHOLDER APPROVAL REQUIRED..................................................9
RECOMMENDATION OF THE BOARD....................................................9
BACKGROUND OF THE MERGER.......................................................9
REASONS FOR THE MERGER........................................................11
RISK FACTORS RELATING TO THE MERGER...........................................12
ICC may not be able to achieve the benefits it expects to result
from the Merger......................................................12
The number of ICC Shares (ranging from a minimum of 1,800,000
up to a maximum of 3,315,890) issuable in the Merger depends
on the market price of ICC's Common Stock and will change in
the event of any change in the market price of ICC's
Common Stock.........................................................13
The Merger could adversely affect ICC's combined financial
results or the market price of the ICC Common Stock..................13
Uncertainties associated with the Merger may cause ICC or
RTCI to lose customers...............................................13
RISKS RELATED TO ICC..........................................................13
RISKS RELATED TO RTCI.........................................................13
Management of Growth.................................................13
Fluctuations in Revenues and Operating Results.......................14
Fixed-price Contracts................................................14
Professional Staff...................................................14
Retention of Clients.................................................14
Potentially Dissatisfied Clients.....................................15
Intense Competition..................................................15
Internet Usage.......................................................15
<PAGE>
Technological Change.................................................15
Key Personnel........................................................15
Intellectual Property Protection.....................................15
Technical Infrastructure.............................................16
Year 2000 Problem....................................................16
Future International Operations......................................16
DESCRIPTION OF ING BARINGS FAIRNESS OPINION...................................16
Selected Comparable Publicly Traded Companies........................18
Selected Comparable Transaction Analysis.............................19
Pro Forma Contribution Analysis......................................20
ICC "Has-Gets" Analysis..............................................20
THE MERGER AGREEMENT..........................................................20
Merger Consideration.................................................20
Exchange of Shares...................................................21
Representations......................................................21
Obligations..........................................................24
Conditions to the Merger.............................................26
Termination of the Merger Agreement..................................27
Indemnification......................................................27
OTHER MATTERS PERTAINING TO THE MERGER AGREEMENT..............................29
Promissory Note......................................................29
Registration Rights Agreement........................................29
Regulatory Filings and Approvals.....................................29
Appraisal Rights.....................................................29
Material Federal Income Tax Consequences of the Merger...............29
Accounting Treatment of the Merger...................................29
Listing of ICC Shares................................................30
MANAGEMENT AFTER THE MERGER...................................................30
Management of ICC....................................................30
Management of RTCI...................................................30
ii
<PAGE>
UNAUDITED PRO FORMA COMBINED..................................................32
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET.................33
INTERNET COMMERCE CORPORATION........................................34
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.35
Basis of Presentation.......................................35
Pro Forma Adjustments and Assumptions.......................35
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.36
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.37
Shares Issued for RTCI Acquisition..........................37
THE COMPANIES.................................................................38
Description of ICC's Business.................................................38
Business Development.................................................38
Recent Developments..................................................38
Industry Background..................................................39
The ICC.NET Solution.................................................39
Business Strategy....................................................41
International........................................................41
Competition..........................................................42
Patents and Trademarks...............................................42
Marketing and Sales..................................................44
Technical Support....................................................44
Customers............................................................45
Research and Development.............................................45
Employees............................................................45
ICC - SELECTED FINANCIAL DATA.................................................46
Description of RTCI's Business................................................47
eConsulting..........................................................47
EAI/EDI/XML Mapping..................................................47
Internetworking......................................................47
Customers............................................................48
Sales & Marketing....................................................48
iii
<PAGE>
Employees............................................................49
Facilities...........................................................49
RTCI - SELECTED FINANCIAL DATA................................................50
Management's Discussion and Analysis.................................51
OPERATIONS FOLLOWING THE MERGER...............................................52
PROPOSAL TWO..................................................................52
INCORPORATION BY REFERENCE....................................................58
OTHER MATTERS.................................................................60
Exhibit A
Exhibit B
Exhibit C
iv
<PAGE>
QUESTIONS AND ANSWERS
Q. Why am I receiving these materials?
A. We have entered into an agreement with Research Triangle Commerce, Inc.
("RTCI") to acquire RTCI by merging our subsidiary into RTCI in exchange for ICC
Common Stock and cash. Each of ICC's and RTCI's respective Boards of Directors
has approved the Merger and the Merger Agreement. To accomplish the Merger, we
will be issuing in excess of 20% of our outstanding Class A Common Stock (the
"Stock Issuance"). Under the rules of the Nasdaq National Market, current ICC
stockholders must approve the issuance of these additional shares. In addition,
we propose to amend our Amended and Restated Stock Option Plan to increase the
number of shares of ICC Common Stock issuable pursuant to the exercise of
options granted thereunder from 5,000,000 to 7,000,000 (the "Option Plan
Amendment") in order to ensure that we have sufficient options to grant to
personnel of RTCI, other new employees and others after the consummation of the
Merger. We are sending you these materials to help you decide whether to approve
the Stock Issuance and the Option Plan Amendment.
Q. When do you expect the Merger to be completed?
A. We are working to complete the Merger as soon as possible. In addition
to obtaining stockholder approval, we must satisfy certain other conditions set
forth in the Merger Agreement. We expect to complete the Merger in the last
quarter of calendar 2000.
Q. What will holders of RTCI capital stock and options and warrants to
purchase RTCI capital stock receive in the Merger?
A. ICC shall pay aggregate consideration of $42,000,000 to the
holders of RTCI capital stock and holders of options and warrants to purchase
RTCI capital stock, consisting of (i) RTCI's cash on hand at the effective time
of the Merger, up to a maximum of $4,000,000 (the "Cash at Closing"), and (ii)
shares of ICC Class A Common Stock ("ICC Common Stock"; such shares, the "ICC
Shares") equal to the number of shares obtained by dividing (x) $42,000,000
minus the Cash at Closing by (y) the average closing price of the ICC Common
Stock for the ten days ending three days prior to the effective time of the
Merger (the "Market Price"). The Market Price is subject to a maximum of
$21.111111 and a minimum of $12.666667, so that a maximum of 3,315,890 ICC
Shares and a minimum of 1,800,000 ICC Shares are issuable in connection with the
Merger. The shares will represent a minimum of 21.2% and a maximum of 33.2% of
the sum of (i) such shares plus (ii) the total issued and outstanding shares of
ICC Class A Common Stock as of the Record Date. The closing price of the ICC
Common Stock on June 14, 2000, which was the last trading day prior to the
announcement of the Merger Agreement, was $17.625, as reported by the Nasdaq
National Market. The closing price of the ICC Common Stock on October 13, 2000,
the day prior to the printing of this Proxy Statement, was $4.50, as reported by
the Nasdaq National Market.
Each holder of RTCI capital stock will receive a percentage of the ICC
Shares and the Cash at Closing equal to the percentage such holder holds on an
as-converted basis of the Fully Diluted Number of Shares of RTCI. The Merger
Agreement provides, however, that no fractional ICC Shares will be issued. If
the number of ICC Shares that any holder of RTCI Capital Stock will receive
contains a fraction of one share, such number will be rounded up to the next
whole number of ICC Shares. Options and warrants to purchase RTCI stock shall be
converted into the right to receive upon exercise of such options and warrants
the amount of cash and shares of ICC Common Stock which the holders of such
options and warrants would have received if such options and warrants had been
exercised immediately prior to the effective time of the Merger. Each holder of
RTCI Common Stock issued pursuant to the RTCI restricted stock plan described on
page 24 below will receive a percentage of the ICC Shares equal to the
percentage such holder holds of the Fully Diluted Number of Shares of RTCI,
which shares will be subject to the same restrictions that apply to the RTCI
restricted common stock for which they are exercised.
Q. Does the ICC Board of Directors recommend voting in favor of the Stock
Issuance and the Option Plan Amendment?
A. Our Board of Directors has unanimously determined that the Stock
Issuance and the Option Plan Amendment are fair to and in the best interests of
the ICC stockholders, and unanimously recommends that ICC stockholders vote FOR
the approval of the Stock Issuance and the Option Plan Amendment.
<PAGE>
Q. How will the Stock Issuance affect my ownership of ICC?
A. You will have the same number of shares of ICC Class A Common Stock or
shares convertible for ICC Class A Common Stock that you presently have, with
substantially all of the rights you now hold. However, your shares will
represent a significantly smaller percentage of the total shares of ICC that
will be outstanding after all of the shares are issued pursuant to the Stock
Issuance, as compared to your current percentage ownership in ICC. After the
Merger, however, ICC will have more resources than it currently does, including
a more diversified revenue base, additional locations, additional and different
service capacity and additional experienced management.
Q. Who can vote on the Stock Issuance and the Option Plan Amendment?
A. Holders of ICC Class A Common Stock, Class B Common Stock and Series C
Preferred Stock at the close of business on October 11, 2000, the record date
relating to the Special Meeting, may vote on the Stock Issuance and the Option
Plan Amendment.
Q. When and where will the Special Meeting take place?
A. The Special Meeting will be held on Monday November 6, 2000, at 10:00
a.m., New York time, at the New York Marriott East Side, 525 Lexington Avenue,
New York, New York 10017.
Q. What do I need to do now?
A. After carefully reviewing this Proxy Statement, including the exhibits
to the Proxy Statement, indicate on your proxy card how you want to vote, sign
it and mail it in the enclosed return envelope as soon as possible. If you sign
and send in your card and do not indicate how you want to vote, your proxy will
be counted as a vote in favor of the Share Issuance, the Option Plan Amendment
and any other proposals at the Special Meeting.
Q. Can I vote my shares in person?
A. Yes. You may attend the Special Meeting and vote your shares in person.
Q. What do I do if I want to change my vote?
A. You may change your vote by delivering a signed notice of revocation or
a later-dated, signed proxy to ICC's Secretary before the Special Meeting, or by
attending the Special Meeting and voting in person.
Q. If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A. Your broker cannot vote your shares for or against the Share Issuance
and the Option Plan Amendment without instructions from you. You should instruct
your broker how to vote your shares, following the directions provided by your
broker on how to instruct your broker to vote your shares.
Q. Will I have any appraisal rights with respect to the Share Issuance and
the Option Plan Amendment?
A. ICC stockholders will not have any appraisal rights with respect to the
Share Issuance and the Option Plan Amendment.
Q. Will the Merger or the Share Issuance have any tax effect on ICC or on
my ICC shares?
A. Neither the Merger nor the Share Issuance will have any tax effect on
ICC or any current ICC stockholders.
Q. Who can help answer my questions?
A. If you have any questions about the merger or any other questions
relating to this Proxy Statement, please contact Walter M. Psztur, ICC's Chief
Financial Officer, at (212) 271-7625.
2
<PAGE>
SUMMARY
The following is a summary of the information contained elsewhere in
this Proxy Statement and the attached exhibits and incorporated by reference
into this Proxy Statement. This summary does not purport to contain a complete
statement of all material information relating to the Merger Agreement, the
Merger, or the other matters discussed in this summary and is subject to, and is
qualified in its entirety by, the more detailed information contained or
incorporated by reference in or attached to this Proxy Statement. ICC
stockholders should carefully read this Proxy Statement in its entirety, as well
as the exhibits attached to this Proxy Statement and the materials incorporated
by reference into this Proxy Statement.
Date, Time and Place of the Special Meeting
The Special Meeting of stockholders of ICC will be held on Monday,
November 6, 2000, at 10:00 a.m., New York time, at the New York Marriott East
Side, 525 Lexington Avenue, New York, New York 10017.
Purpose of the Special Meeting
At the Special Meeting, ICC stockholders will be asked to approve the
issuance of a number of shares ranging from a minimum of 1,800,000 up to a
maximum of 3,315,890 shares of ICC Common Stock in connection with the merger of
Buyer into RTCI (the "Merger") pursuant to a Merger Agreement dated June 14,
2000 among ICC, Buyer, RTCI and the selling shareholders of RTCI identified
therein (the "Merger Agreement") and to approve the amendment of our Amended and
Restated Stock Option Plan to increase the number of shares of ICC Common Stock
issuable pursuant to the exercise of options granted thereunder from 5,000,000
to 7,000,000 in order to ensure that we have sufficient options to grant to
personnel of RTCI, other new employees and others after the consummation of the
Merger.
Voting Rights
The ICC Board of Directors has set the close of business on October 11,
2000 as the Record Date for determining stockholders entitled to vote at the
Special Meeting. As of the close of business on the Record Date, ICC had
6,685,956 shares of Class A Common Stock outstanding and entitled to vote. Each
holder of Class A Common Stock is entitled to one vote for each share held as of
the Record Date. As of the close of business on the Record Date, ICC had 2,574
shares of Class B Common Stock outstanding and entitled to vote at the Special
Meeting. The Class B Common Stock is entitled to vote together with the Class A
Common Stock and the Series C Preferred Stock; each share of Class B Common
Stock is entitled to six votes per share. As of the close of business on the
Record Date, ICC had 10,000 shares of Series C Preferred Stock outstanding and
entitled to vote at the Special Meeting. The Series C Preferred Stock is
entitled to vote together with the Class A Common Stock and the Class B Common
Stock; each share of the Series C Preferred Stock is entitled to approximately
44.76 votes per share at the Special Meeting.
Any proxy given at any time by a stockholder may be revoked by the
stockholder at any time before it is voted by delivering a written notice to the
Secretary of ICC, by executing and delivering a later-dated proxy or by
attending the Special Meeting and voting in person. Attendance at the Special
Meeting by a stockholder who has executed and delivered a proxy to ICC will not
in and of itself constitute a revocation of the proxy.
3
<PAGE>
Proposal One
Introduction (See page 9)
On June 14, 2000, ICC entered into the Merger Agreement which provides
for the merger of Buyer with and into RTCI, with RTCI continuing as the
surviving corporation and as a wholly-owned subsidiary of ICC. The Merger will
become effective upon the filing of articles of merger with the Secretary of
State of the State of North Carolina (the "Effective Time").
Required Votes
Assuming a quorum is present, approval of Proposal One requires the
affirmative vote of a majority of the aggregate voting power of all outstanding
shares of Class A Common Stock, Class B Common Stock and Series C Preferred
Stock present in person or represented by proxy at the Special Meeting and
entitled to vote on Proposal One, voting together as a single class.
Recommendation of ICC's Board of Directors (See page 9)
On June 14, 2000, ICC's Board of Directors approved the Merger
Agreement and the Merger, and declared the Merger advisable and in the best
interests of ICC and the ICC stockholders. The ICC Board of Directors recommends
that you vote "for" the issuance of shares pursuant to the Merger Agreement.
To review the background and reasons for the Merger in greater detail,
as well as certain risks related to the Merger, see pages 9-13.
Opinion of Financial Advisor (See pages 16-20)
In deciding to approve the Merger, the ICC Board of Directors
considered the opinion of its financial advisor as to the fairness, from a
financial point of view, of the consideration to be received in exchange for the
ICC Shares to be issued pursuant to the Merger Agreement. ICC received an
opinion from its financial advisor, ING Barings, that, as of the date of that
opinion, the consideration to be received by ICC was fair, from a financial
point of view. Copies of the fairness opinion of ING Barings is attached to this
proxy statement as Exhibit B. WE URGE THE STOCKHOLDERS OF ICC TO READ THIS
OPINION CAREFULLY.
Summary of the Merger
Merger Consideration (See page 20)
ICC shall pay aggregate consideration of $42,000,000 to the holders of
RTCI Common Stock and RTCI Series A Preferred Stock and Option holders,
consisting of (i) the Cash at Closing and (ii) ICC Shares equal to the number of
shares obtained by dividing (x) $42,000,000 minus the Cash at Closing by (y) the
Market Price. The Market Price is subject to a maximum of $21.111111 and a
minimum of $12.666667, so that a maximum of 3,315,890 ICC Shares and a minimum
of 1,800,000 ICC Shares are issuable in connection with the Merger. The shares
will represent a minimum of 21.2% and a maximum of 33.2% of the sum of (i) such
shares plus (ii) the total issued and outstanding shares of ICC Class A Common
Stock as of the Record Date.
Each holder of RTCI Capital Stock will receive a percentage of the ICC
Shares and the Cash at Closing equal to the percentage such holder holds on an
as-converted basis of the Fully Diluted Number of Shares of RTCI. The Merger
Agreement provides, however, that no fractional ICC Shares will be issued. If
the number of ICC Shares that any holder of RTCI Capital Stock will receive
contains a fraction of one share, such number will be rounded up to the next
whole number of ICC Shares. Options and warrants to purchase RTCI stock shall be
converted into the right to receive upon exercise of such options and warrants
the amount of cash and shares of ICC Common Stock which the holders of such
options and warrants would have received if such options and warrants had been
exercised immediately prior to the effective time of the Merger. Each holder of
RTCI Common Stock issued pursuant to the RTCI restricted stock plan described on
page 24 below will receive a percentage of the ICC Shares equal to the
percentage such holder holds of the Fully Diluted Number of Shares of RTCI.
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Conditions to Completion of the Merger (See pages 25-27)
The completion of the Merger is subject to various conditions, of which
the primary ones are:
o stockholders of ICC must approve the issuance of shares pursuant to the
Merger Agreement; and
o shareholders of RTCI must approve the Merger and the Merger Agreement.
ICC Board Composition (See pages 29-30)
If the Merger is consummated, the number of directors on the ICC board
will be increased from seven to nine, and Kim Cooke and Jeffrey LeRose will
become members of Class I and Class II, respectively, to serve until ICC's next
annual meeting of stockholders and the annual meeting of stockholders following
the next annual meeting of stockholders, respectively, and until their
successors are elected and qualified.
Termination of the Merger Agreement (See page 27)
ICC and RTCI may jointly agree in writing to terminate the Merger
Agreement without completing the Merger. In addition, the Merger Agreement may
be terminated prior to the Closing as follows:
o by ICC, Buyer or RTCI, if the Effective Time of the Merger has not
occurred by November 30, 2000, unless the party seeking termination has
contributed materially to the failure of the Merger to occur by that
date;
o by ICC or Buyer, upon a material misrepresentation or a material breach
by RTCI or Sellers of any of their warranties or covenants in the
Merger Agreement or a material failure of RTCI or Sellers to comply
with any of their other obligations under the Merger Agreement; and
o by RTCI, upon a material misrepresentation or a material breach by ICC
or Buyer of any of their warranties or covenants in the Merger
Agreement or a material failure of ICC or Buyer to comply with any of
their other obligations under the Merger Agreement.
Indemnification (See pages 27-28)
All parties' rights to indemnification under the Merger Agreement
survive until ICC files with the SEC its Annual Report on Form 10-K (or 10-KSB)
for the year ending July 31, 2001, except with respect to breaches of certain
representations which survive for the applicable statute of limitations and with
respect to certain other representations which survive indefinitely. A claim to
indemnification asserted within such time may continue beyond such time limit.
Sellers shall indemnify ICC, Buyer, RTCI and their respective
representatives (including all officers and directors), stockholders,
controlling persons and affiliates (collectively, the "Indemnified Persons")
against any Damages arising as a result of any breach of any representation or
warranty made by the Sellers or RTCI in the Merger Agreement or in the
disclosure schedule or any certificate delivered by the Sellers or RTCI pursuant
to the Merger Agreement and any breach by the Sellers or RTCI of any covenant or
obligation of the Sellers or RTCI in the Merger Agreement.
ICC and Buyer shall indemnify the Sellers and their respective heirs,
estates and personal representatives (the "Seller Parties") against any Damages
arising as a result of any breach of any representation or warranty made by ICC
or Buyer in the Merger Agreement or in any certificate delivered by ICC or Buyer
pursuant to the Merger Agreement, any breach by ICC or Buyer of any covenant or
obligation of ICC or Buyer in the Merger Agreement and any claim by any person
for brokerage, finder's fees, commissions or similar payments based upon any
agreement or understanding alleged to have been made by such person with ICC or
Buyer in connection with the transactions contemplated by the Merger Agreement.
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ICC's remedy with respect to any indemnity claims under the Merger
Agreement shall be limited as follows:
o no indemnification shall be payable by Sellers until the Indemnified
Persons have suffered Damages in excess of $500,000 in the aggregate,
in which case Sellers shall indemnify the Indemnified Persons for all
such Damages (subject to the next paragraph);
o Sellers will have no obligation to indemnify the Indemnified Persons
for Damages in excess of $21,000,000;
o each Seller shall be liable only for the portion of such
indemnification equal to the Seller's percentage ownership of ICC
Shares in relation to the total number of ICC Shares owned by Sellers;
and
o all indemnification shall be payable by Sellers in ICC Shares only.
Sellers' remedy with respect to any indemnity claims under the Merger
Agreement shall be limited as follows:
o no indemnification shall be payable by ICC and Buyer until the Seller
Parties have suffered Damages in excess of $500,000 in the aggregate,
in which case ICC and Buyer shall indemnify the Seller Persons for all
such Damages (subject to the next paragraph); and
o ICC and Buyer will have no obligation to indemnify the Seller Persons
for Damages in excess of $21,000,000.
In order to be entitled to indemnification under the Merger Agreement
in connection with a claim made by any person against any other person entitled
to indemnification, the indemnified party must follow certain customary
procedures relating to indemnification as provided in the Merger Agreement.
Registration Rights Agreement (See pages 28-29)
At the Closing under the Merger Agreement, ICC and the holders of RTCI
Capital Stock will enter into a Registration Rights Agreement. Under the terms
of the Registration Rights Agreement, ICC shall use its commercially reasonable
best efforts to file no later than forty-five days after the effective time of
the Merger and use its commercially reasonable best efforts to cause to become
effective within one hundred and twenty days after filing, a Registration
Statement on Form S-3 covering the resale of all of the ICC Shares and to remain
effective continuously for the period ending on the earlier of (A) one year
after the effective time of the Merger and (B) the date on which all ICC Shares
covered by such Registration Statement have been sold and the distribution
contemplated by such Registration Statement has been completed. In addition,
holders of at least 20% of the ICC Shares receive two demand registration
rights. All holders of ICC Shares have unlimited piggyback rights. All
registrations of ICC Shares pursuant to the Registration Rights Agreement are
subject to standard cut-backs and hold-backs and may be suspended based on the
occurrence of a material development condition.
Promissory Note (See page 29)
ICC loaned $5,000,000 to RTCI on June 14, 2000. The principal of and
all accrued and unpaid interest on the loan has converted into shares of RTCI
common stock at a pre-money valuation for RTCI of $42,000,000. ICC is not
entitled to receive any consideration under the Merger Agreement with respect to
these shares. If the Merger is not effective by November 30, 2000, RTCI shall
cause one person nominated by ICC to be elected to RTCI's Board of Directors for
so long as ICC holds any shares of RTCI common stock.
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Appraisal Rights (See page 29)
Our stockholders are not entitled to appraisal rights in connection
with the Merger.
Tax Treatment of the Merger (See page 29)
The Merger is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368 of the Internal Revenue Code of
1986, as amended. Because the outstanding shares of ICC Common Stock will remain
unchanged as a result of the Merger, existing stockholders of ICC will not
recognize any gain or loss for federal income tax purposes as a result of the
Merger. In addition, ICC should not recognize any gain or loss for federal
income tax purposes as a result of the Merger.
Accounting Treatment of the Merger (See page 29)
The Merger will be accounted for as the acquisition of RTCI by ICC
under the "purchase" method of accounting, which means that the purchase price
will be allocated to assets acquired and liabilities assumed based on their
estimated fair values at the time of the Merger. Income of ICC will not include
income (or loss) of RTCI prior to the consummation of the Merger, except as
provided for in the pro forma combined financial statements included in this
Proxy Statement.
Ability to Sell ICC Stock (See page 29)
The shares to be issued to RTCI stockholders pursuant to the merger are
restricted shares, and may not be sold or exchanged in the public market except
pursuant to an effective registration statement covering those shares or an
exemption from the applicable registration requirements. See "Registration
Rights Agreement" on pages 28-29 and "Listing of ICC Shares" on page 29.
The Companies Involved in the Merger
Internet Commerce Corporation
805 Third Avenue, 9th Floor
New York, New York 10022
(212) 271-7640
Internet Commerce Corporation provides Internet-based e-commerce
service for the business-to-business marketplace. ICC.NET is a secure, low-cost,
real-time transaction system for exchanging and managing, data, documents,
electronic data interchange (EDI), graphics, audio and video for commercial
trading partners of any size. The ICC.NET system bridges legacy e-commerce
investments to the Internet.
Research Triangle Commerce, Inc.
201 Shannon Oaks Circle
Cary, North Carolina 27511
(919) 657-1500
RTCI is an e-frastructure solutions company serving the B2B e-commerce
market. RTCI helps its clients conduct business electronically through a
continuum of services including eConsulting, data transformation mapping (EDI,
EAI, XML) and internetworking. RTCI has developed a leverageable business model
through remote service delivery, fixed and value-based pricing and reusable
solutions.
ICC Acquisition Corporation, Inc.
805 Third Avenue, 9th Floor
New York, New York 10022
(212) 271-7640
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ICC Acquisition Corporation, Inc. is a North Carolina corporation
organized by ICC for the purpose of effecting the Merger. It has no material
assets and has not engaged in any activities except in connection with the
Merger.
Proposal Two
On September 18, 2000, the Board of Directors authorized the Option
Plan Amendment and declared the Option Plan Amendment advisable and in the best
interests of ICC and the ICC stockholders.
Required Votes
Assuming a quorum is present, approval of Proposal Two requires the
affirmative vote of a majority of the aggregate voting power of all outstanding
shares of Class A Common Stock, Class B Common Stock and Series C Preferred
Stock present in person or represented by proxy at the Special Meeting and
entitled to vote on Proposal Two, voting together as a single class.
Recommendation of ICC's Board of Directors (See page 70)
The ICC Board of Directors recommends that you vote "for" the Option
Plan Amendment.
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PROPOSAL ONE
ISSUANCE OF A NUMBER OF SHARES RANGING FROM A
MINIMUM OF 1,800,000 UP TO A MAXIMUM OF 3,315,890 SHARES
OF ICC CLASS A COMMON STOCK IN CONNECTION WITH
THE ACQUISITION OF RESEARCH TRIANGLE COMMERCE, INC.
INTRODUCTION
Merger Agreement
On June 14, 2000, ICC entered into a Merger Agreement among ICC, ICC
Acquisition Corporation, Inc., a North Carolina corporation and wholly-owned
subsidiary of ICC ("Buyer"), Research Triangle Commerce, Inc., a North Carolina
corporation ("RTCI"), and certain shareholders of RTCI identified therein (the
"Sellers"). The Merger Agreement provides for the merger of Buyer with and into
RTCI, with RTCI continuing as the surviving corporation and as a wholly-owned
subsidiary of ICC (the "Merger"). The Merger will become effective upon the
filing of articles of merger with the Secretary of State of the State of North
Carolina (the "Effective Time").
If the Merger is effected, all of the holders of RTCI Common Stock and
RTCI Series A Preferred Stock ("RTCI Capital Stock") will exchange all of their
issued and outstanding shares of RTCI Capital Stock for cash and shares of ICC
Class A Common Stock. Outstanding options and warrants to purchase RTCI Capital
Stock will be converted into options and warrants to receive upon exercise cash
and shares of ICC Class A Common Stock. The aggregate value of the cash and
shares of ICC Class A Common Stock to be issued in the Merger is $42,000,000.
Pursuant to the terms of the Merger Agreement, ICC Class A Common Stock that
will be issued will be valued at the average of the closing bid prices for the
ten days ending three days prior to the effective time of the Merger, subject to
a maximum value of $21.111111 and a minimum value of $12.666667 per share, so
that a maximum of 3,315,890 ICC Shares and a minimum of 1,800,000 ICC Shares are
issuable in connection with the Merger. The shares will represent a minimum of
21.2% and a maximum of 33.2% of the sum of (i) such shares plus (ii) the total
issued and outstanding shares of ICC Class A Common Stock as of the Record Date.
The closing price of the ICC Common Stock on October 13, 2000, the day prior to
the printing of this Proxy Statement, was $4.50, as reported by the Nasdaq
National Market.
STOCKHOLDER APPROVAL REQUIRED
Under National Association of Securities Dealers, Inc. Rule
4310(c)(25)(G)(i)(c)(2)(B), companies that are listed on the Nasdaq National
Market must obtain stockholder approval prior to issuing a number of shares in
connection with an acquisition of a business in excess of 20% of the
then-outstanding shares. Issuance of shares of ICC Class A Common Stock in the
Merger represents such an issuance, and so must be approved by the affirmative
vote of a majority of the aggregate voting power of all outstanding shares of
Class A Common Stock, Class B Common Stock and Series C Preferred Stock present
in person or represented by proxy at the Special Meeting and entitled to vote on
Proposal One, voting together as a single class, a quorum being present.
RECOMMENDATION OF THE BOARD
The Board of Directors unanimously recommends that you vote "FOR" the
proposal to issue the ICC Shares in connection with the Merger.
BACKGROUND OF THE MERGER
On February 23 and 24, 2000, Jeffrey LeRose, President and Chairman of
RTCI, and Philip Alfano, Chief Financial Officer of RTCI, met with Dr. Geoffrey
S. Carroll, President and Chief Executive Officer of ICC, and Anthony D'Angelo,
ICC's Senior Vice President - Electronic Commerce Network Services, at the J.C.
Bradford Internet Investment Conference in Atlanta, Georgia. Dr. Carroll, Mr.
LeRose and Mr. Alfano discussed potential future strategic interaction between
ICC and RTCI. Mr. LeRose also met with Mr. D'Angelo to discuss ICC potentially
using RTCI's mapping capability.
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During March 2000, Mr. LeRose and Mr. D'Angelo had further discussions
regarding RTCI performing mapping services for ICC.
On April 26, 2000, at the Data Interchange Standards Association
("DISA") conference, Mr. D'Angelo had several conversations with Mr. LeRose with
respect to ICC using RTCI's Mapping Factory(R)services and a possible investment
by ICC in RTCI. On April 27, 2000, Mr. D'Angelo introduced G. Michael Cassidy,
ICC's Executive Vice President - Sales, to Mr. LeRose at the DISA conference.
Mr. D'Angelo, Mr. Cassidy and Mr. LeRose discussed topics ranging from an
investment by ICC in RTCI to a merger involving ICC and RTCI.
On May 1, 2000, the Board of Directors of RTCI authorized Mr. LeRose to
pursue further discussions with ICC. On May 3, 2000, Mr. LeRose and Mr. Alfano
met with Dr. Carroll, Mr. Cassidy and Mr. D'Angelo to discuss a possible merger
of ICC and RTCI.
On May 8, 2000, Mr. Cassidy and Mr. D'Angelo went to RTCI to further
discuss the possibility of a transaction between ICC and RTCI and to conduct a
due diligence review of RTCI. At that time, RTCI was considering a financing
offer from outside investors to make a $15 million equity investment in RTCI
based upon a pre-money valuation of $40 million. This offer had an acceptance
deadline of May 15, 2000. ICC made a proposal to acquire RTCI, which was
rejected by RTCI on May 9, 2000 because the $25 million purchase price offered
by ICC was substantially lower than the pre-money valuation of RTCI based on
RTCI's financing and because ICC's offer did not include any equity investment
in the event the proposed transaction was not completed.
On May 10, 2000, Richard Berman, Chairman of the Board of Directors of
ICC, Dr. Carroll, James A. Ortenzio, a member of the ICC Board of Directors, and
Mr. Cassidy, in a teleconference with the RTCI Board of Directors, indicated
that ICC intended to make a new proposal to acquire RTCI and requested that RTCI
refrain from closing its pending financing. On May 10, 2000, Walter M. Psztur,
ICC's Chief Financial Officer, went to RTCI on a due diligence trip along with
Joel Barth of Richard A. Eisner, ICC's auditors, and Bucky Brown of ING Barings,
ICC's financial advisor for this transaction. Mr. Psztur spoke with Mr. LeRose
and Mr. Alfano regarding preliminary deal structure. On May 11, 2000, Mr. Psztur
had several further telephone discussions with Mr. Alfano about the possible
structure of a transaction.
Between May 12 and May 15, 2000, Dr. Carroll, Mr. Berman, Richard
Blume, ICC's Executive Vice President and Chief Operating Officer, Mr. Ortenzio
and Mr. Psztur, in consultation with Kramer Levin Naftalis & Frankel LLP,
counsel to ICC ("Kramer Levin"), participated in various conference calls with
Mr. LeRose and Mr. Alfano, in consultation with Kilpatrick Stockton LLP, counsel
to RTCI ("Kilpatrick"), to negotiate a letter of intent relating to the Merger.
ICC and RTCI executed a letter of intent as of May 15, 2000 and RTCI declined
the offer from outside investors.
Under the terms of the letter of intent, ICC agreed to acquire RTCI for
an aggregate of $42,000,000, consisting of up to $4,000,000 in RTCI's cash on
hand at the effective time of the Merger and the remainder in shares of ICC
Class A Common Stock. In addition, ICC loaned $5,000,000 to RTCI on June 15,
2000 against receipt of a promissory note to provide RTCI with short-term
working capital. The letter of intent also provided that if the Merger was not
effective by August 15, 2000, all principal and accrued and unpaid interest of
the promissory note would automatically convert into RTCI common stock at a
pre-money valuation for RTCI of $42,000,000 and, if the Merger is not effective
November 30, 2000, RTCI shall cause one person nominated by ICC to be elected to
RTCI's Board of Directors for so long as ICC holds any of such shares. The
material terms of the letter of intent were later incorporated into the Merger
Agreement. Further information on the promissory note is set forth on page 28 of
this Proxy Statement.
On May 19, 2000, Kramer Levin sent a draft Merger Agreement to
Kilpatrick for comment.
On May 24, 2000, Dr. Carroll and Mr. Ortenzio met with Mr. LeRose and
RTCI's senior management and Mark Costanzo, a representative of Blue Water
Venture Capital Fund II, L.L.C., investors in RTCI ("Blue Water"), to explain
the deal and the business of ICC.
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On May 26, 2000, Kilpatrick sent comments on the Merger Agreement to
Kramer Levin. On June 2, 2000 Kramer Levin sent a revised Merger Agreement and a
draft Registration Rights Agreement to Kilpatrick.
Between the execution of the letter of intent and June 14, 2000, the
date of the Merger Agreement, representatives of ICC's management and Kramer
Levin performed further on-site and off-site due diligence reviews of RTCI and
Kilpatrick performed on-site and off-site due diligence reviews of ICC.
On May 8, 2000, ICC contacted ING Barings to discuss the possibility of
hiring ING Barings to analyze the fairness of the proposed Merger and to provide
other related advice, and on June 9, 2000, ICC entered into a written agreement
with ING Barings to perform those services.
From June 10, 2000 through June 14, 2000, Dr. Carroll, Mr. Berman, Mr.
Ortenzio and Mr. Psztur, in consultation with Kramer Levin, took part in various
conference calls with Mr. LeRose and Mr. Alfano, in consultation with
Kilpatrick, to finalize the Merger Agreement, the Registration Rights Agreement
and related documents.
On June 13, 2000, the ICC Board of Directors held a special meeting
attended by members of ICC's senior management and representatives of ING
Barings and Kramer Levin. Prior to the meeting, ICC's management provided each
member of the Board of Directors with a final draft of the Merger Agreement and
related documents. The Board of Directors considered the proposed Merger and the
Merger Agreement and related documents. ICC's legal counsel participated in
discussions with the Board of Directors, and a representative from ING Barings
described the financial analysis performed by ING Barings with regard to the
proposed merger and informed the Board that in its view the merger consideration
to be paid to the shareholders of RTCI in the Merger was fair, from a financial
point of view, to ICC. Following discussions, the ICC Board of Directors
concluded that the Merger and the Merger Agreement were fair to and in the best
interests of ICC and its stockholders and unanimously approved the Merger, the
Merger Agreement and the related documents.
On June 12, 2000, the RTCI Board of Directors held a special meeting
and unanimously approved the Merger, the Merger Agreement and the related
documents.
On June 14, 2000, ICC and RTCI entered into the Merger Agreement and on
June 15, 2000 ICC issued a press release announcing the acquisition of RTCI,
subject to the approval of ICC's stockholders of the Share Issuance.
REASONS FOR THE MERGER
In authorizing ICC to enter into the Merger Agreement the members of
the board considered various factors, including, but not limited to, the
following, all of which they believe support their decision:
o RTCI's business, its current financial condition and results of
operations, and its prospects;
o RTCI's EAI/EDI/XML mapping and EDI service capabilities that ICC would
otherwise need to develop to further the expansion of ICC's business;
o RTCI's strong management team and broad customer base;
o ICC's plan to further develop its ICC.NET service;
o the compatibility of ICC's and RTCI's operations and management
cultures;
o the fairness opinion issued by ING Barings, a description of which is
included in this Proxy Statement and a copy of which is attached to
this Proxy Statement;
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o the terms of the Merger Agreement, which the board considered to be
fair and customary for transactions of this nature, and its legal and
tax implications;
o the maximum and minimum number of shares issuable pursuant to the
Merger Agreement, which provides protection to ICC in case of
volatility in the market price of the ICC Shares; and
o that the consideration being issued by ICC consists primarily of ICC
Class A Common Stock and, the board believes, represents fair
consideration for the business to be acquired.
In view of the number of factors considered, the board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered or determine that any factor was of
particular importance in reaching its determination that the potential benefits
of the Merger and the share issuance is fair to, and in the best interests of,
ICC stockholders. Individual directors may have given differing weights to the
different factors.
RISK FACTORS RELATING TO THE MERGER
In addition to the other information included or incorporated by
reference in this Proxy Statement, stockholders should consider carefully the
matters described below in determining whether to approve the issuance of shares
pursuant to the Merger Agreement.
ICC may not be able to achieve the benefits it expects to result from the
Merger.
Achieving the benefits of the Merger will depend in part on the ability
of management and key personnel of both companies to integrate the two
businesses in a timely and efficient manner. Such integration may be hampered by
various factors including but not limited to:
o expenses related to funding the operation, development and/or integration
of complementary businesses;
o expenses associated with the Merger;
o additional expenses associated with amortization of acquired intangible
assets;
o the ability to meld the companies' respective corporate cultures;
o the difficulty of establishing and maintaining uniform standards, controls,
procedures and policies;
o the difficulty in integrating and the strains placed on the companies'
respective websites and technology;
o the impairment of relationships with employees and customers as a result of
any integration of new management personnel; and
o the geographic distance between ICC's and RTCI's headquarters.
The contemplated assimilation of the RTCI personnel and the execution of the
surviving company's business plan will require substantial time and effort on
the part of our management, and may divert their attention from other issues
which are currently being addressed by ICC. Our failure to address these issues
adequately could harm our business and adversely affect our revenues, level of
expenses, operating results and stock price. There can be no assurance that the
anticipated benefits of the Merger will be realized.
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The number of ICC Shares (ranging from a minimum of 1,800,000 up to a maximum of
3,315,890) issuable in the Merger depends on the market price of ICC's Common
Stock and will change in the event of any change in the market price of ICC's
Common Stock.
Under the terms of the Merger Agreement, ICC will issue a number of
shares of ICC Common Stock worth between $38,000,000 and $42,000,000, based on
the average closing price for our stock for the ten consecutive trading days
ending three business days prior to the close of the Merger. The price is
subject to a maximum of $21.111111 and a minimum of $12.666667, so that a
maximum of 3,315,890 ICC Shares and a minimum of 1,800,000 ICC Shares are
issuable in connection with the Merger. The shares will represent a minimum of
21.2% and a maximum of 33.2% of the sum of (i) such shares plus (ii) the total
issued and outstanding shares of ICC Class A Common Stock as of the Record Date.
Such trading price could vary from our trading price on the date of this Proxy
Statement. The price of ICC's Common Stock may vary because of any of the
following factors, among others:
o changes in our business or operations or the timing of the Merger;
o the prospects of post-merger operations; and
o general market and economic conditions and other factors.
The stock market has recently experienced significant price and volume
fluctuations. These market fluctuations could have a material adverse effect on
the market price of the ICC Common Stock in the ten-day period during which the
number of ICC Shares to be issued in the Merger will be determined.
The Merger could adversely affect ICC's combined financial results or the market
price of the ICC Common Stock.
If the benefits of the Merger do not exceed the costs associated with
the Merger, including any dilution to ICC's stockholders resulting from the
issuance of the ICC Shares in connection with the Merger, ICC's financial
results could be adversely affected. ICC expects that the Merger will result in
Merger-related costs of approximately $1,010,000 after taxes. In addition, if
ICC does not achieve the perceived benefits of the Merger as rapidly as, or to
the extent, anticipated by financial or industry analysts, the market price of
ICC Common Stock may decline and our business, results of operations and
financial condition may be harmed.
Uncertainties associated with the Merger may cause ICC or RTCI to lose
customers.
Customers of ICC or RTCI may, in response to the Merger, delay or defer
decisions concerning their use of products and services from either company. Any
such delay or deferral could have an adverse effect on the combined business of
ICC and RTCI.
RISKS RELATED TO ICC
For risks related to the business of ICC, please see the Section
entitled "Risk Factors" in ICC's Annual Report on Form 10-KSB filed by ICC for
the year ended July 31, 2000 which is incorporated into this Proxy Statement by
reference.
RISKS RELATED TO RTCI
Management of Growth
RTCI's growth has placed significant demands on its management and
other resources. RTCI's revenues increased approximately 45% in 1999, from $4.7
million in 1998 to $6.8 million in 1999. From late 1998 to the end of 1999,
RTCI's staff increased from 45 to 104 employees. To manage its growth
effectively, RTCI must hire, train and retain its employees and develop and
improve its operational, financial and other internal systems, including its
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new client acquisition capabilities. In addition, RTCI's success will depend on
its ability to set fixed-price fees accurately, maintain high employee
utilization rates, and maintain project quality.
Fluctuations in Revenues and Operating Results
RTCI's financial results may fluctuate from quarter to quarter as a
result of several factors, including:
o the number, size, timing, and scope of projects;
o unpredictable sales cycles;
o contract terms of projects;
o the degree of completion of projects;
o project delays or cancellations;
o competition for and utilization of employees;
o the accuracy of estimates of resources required to complete projects;
o pricing changes in the industry; and
o general economic conditions.
A high percentage of RTCI's operating expenses, such as personnel and
rent, are relatively fixed in advance of any quarter. As a result, any of the
factors listed above, including changes in RTCI's projects or employee
utilization rates, could cause significant variations in quarterly operating
results and losses in any particular quarter. You should not rely on RTCI's
historical quarterly operating results to predict RTCI's future performance.
Fixed-price Contracts
An important element of RTCI's strategy is to enter into fixed-price
contracts, rather than contracts based on time and materials. RTCI sometimes
fixes the price before finalizing the design specifications. RTCI could lose
money on a project if it fails to accurately estimate the resources required for
a project or fails to execute the contract in a manner consistent with the
project plan upon which the estimate was based.
Professional Staff
RTCI's success depends on its ability to attract, train, motivate,
retain and manage highly skilled employees. There is intense competition for
employees with the skills required to perform the services RTCI offers. RTCI may
not be able to attract enough highly skilled employees or train, motivate,
retain or manage the employees it does hire. This could hinder RTCI's ability to
complete existing projects and secure new projects. In addition, because of the
intense competition for qualified employees, it is time-consuming and expensive
to attract, train, motivate, retain and manage employees with the requisite
skills.
Retention of Clients
RTCI performs varying amounts of work for specific clients from year to
year. A major client in one year may not use RTCI's services in another year.
Additionally, RTCI may derive revenue from a major client that constitutes a
significant portion of a particular quarter's total revenue, although the
largest client in 1999 accounted for less than fourteen percent of RTCI's
revenues in that year. RTCI's business, financial condition and operating
results could be adversely affected if RTCI loses a major client, if a major
client cancels or significantly reduces a large project's scope, or if RTCI
fails to collect a large account receivable.
Many of RTCI's contracts with clients are terminable by the client
without significant penalty and with little notice. RTCI's business, financial
condition and operating results could be adversely affected if a major client or
a number of smaller clients terminate their contracts or significantly reduce or
modify their business relationships with RTCI. In addition, RTCI's future
revenue cannot be estimated based on the existing number of clients or the
number or size of existing projects.
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Potentially Dissatisfied Clients
Many of RTCI's projects are complex and critical to its clients. As a
result, RTCI's failure to meet a client's expectations could adversely affect
its ability to attract new business from that client or other clients.
Intense Competition
RTCI competes in markets that are highly competitive and rapidly
changing. RTCI may not compete successfully with its competitors. RTCI believes
that it currently competes for client projects and experienced personnel with
consulting and systems integration firms, professional service providers and the
internal information system groups of its prospective and existing clients. Many
of these companies have significantly greater financial, technical, marketing
and managerial resources than RTCI and have greater name recognition than RTCI.
In addition, RTCI's markets have relatively low barriers to entry, and
RTCI continues to face competition from new market entrants. RTCI believes that
the principal competitive factors in its markets include technical and business
expertise and the quality, price and speed of delivery of services. Other
competitive factors are outside of RTCI's control, including the ability of its
competitors to hire, retain and motivate qualified employees, to develop
competing products and services and to respond to client needs.
Internet Usage
RTCI derives much of its revenue from projects involving the Internet.
The Internet is relatively new and developing rapidly, and RTCI's business could
be adversely affected if Internet usage does not continue to develop. A number
of factors could inhibit Internet usage, including inadequate network
infrastructure, inconsistent service quality, security and privacy concerns,
lack of cost-effective and high-speed service, intellectual property ownership
questions and taxation and liability issues. If the use of the Internet does
expand, the infrastructure may not support the demands placed on it, and the
Internet's performance and reliability may decline. Furthermore, outages and
delays have occurred and may affect the growth of Internet usage. Government
regulation and legal uncertainties relating to the Internet could adversely
affect RTCI's business. Increased regulation of the Internet could slow the
growth in use of the Internet, which could decrease demand for RTCI's services,
increase its cost of doing business or otherwise adversely affect its business,
financial condition and operating results.
Technological Change
RTCI's success will depend, in part, on its ability to keep pace with
rapidly changing technologies as well as frequent new service and product
introductions, evolving industry standards and practices, and changing client
requirements and preferences. RTCI's business could suffer if it fails to
respond quickly and cost-effectively to these developments. Additionally, RTCI
reuses elements of its solutions for which there is repeat customer demand. RTCI
could incur substantial costs if it is forced to modify its reusable solutions
to adapt to technological changes.
Key Personnel
The loss of the services of key personnel, including RTCI's founder,
Chairman, President and Chief Executive Officer, Jeffrey W. LeRose, could
adversely affect RTCI's business, financial condition and operating results.
Intellectual Property Protection
RTCI's success depends, in part, on its intellectual property rights.
RTCI does not have any patents or patent applications pending. RTCI relies on a
combination of trade secret, copyright and trademark laws and nondisclosure and
other contractual arrangements to protect its proprietary rights. Others may
attempt to use RTCI's solutions or technologies. Additionally, others may
independently develop and obtain patents or copyrights for technologies that are
similar to or superior to RTCI's technologies.
Generally, RTCI develops software solutions for client engagements.
RTCI frequently assigns software ownership to the client and retains derivative
rights for subsequent use of the software. Issues related to software
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<PAGE>
ownership can be complicated, and RTCI may become involved in disputes that
affect its ability to resell or reuse these solutions. RTCI may have to pay
damages resulting from these disputes, which would have an adverse effect on
RTCI's business, financial condition and operating results.
Technical Infrastructure
RTCI's EDI Mapping Factory(R) could be vulnerable to security and
technical risks, such as unauthorized access, computer viruses, accidental or
intentional acts and other disruptions, and could experience delays or service
interruptions, which could result in liability to RTCI and in the loss of
existing clients or could deter potential clients from retaining RTCI. The costs
required to alleviate security problems could be prohibitively expensive, and
efforts to address such problems could result in delays or interruption of
service to its clients. These could, in turn, have a material adverse effect on
RTCI's business, financial condition and operating results.
Year 2000 Problem
Many of RTCI's clients and potential clients maintain their operations
on systems that still could be impacted by Year 2000 problems. RTCI may
experience operational difficulties because of undetected errors or defects in
the technology used in its internal systems. Year 2000 problems could have a
material adverse effect on RTCI's ability to conduct business efficiently and
could adversely affect RTCI's business, financial condition and operating
results.
Future International Operations
RTCI may expand its business into international markets and, as a
result, may incur significant costs in connection with its international
expansion. There are risks inherent in doing business in foreign countries,
including changes in legal and regulatory requirements; export and import
restrictions, tariffs and other trade barriers; currency fluctuations;
difficulties in staffing and managing foreign offices because of distance,
language and cultural differences; longer payment cycles and problems in
collecting accounts receivables; political and economic instability; seasonal
reductions in business activity; and potentially adverse tax consequences. Any
of these factors could have a material adverse effect on RTCI's international
and domestic business, financial condition or operating results.
DESCRIPTION OF ING BARINGS FAIRNESS OPINION
ICC retained ING Barings to act as its financial advisor in connection
with the Merger. ING Barings delivered its written opinion, dated June 13, 2000,
to the Board of Directors of ICC to the effect that, as of such date, and based
upon and subject to the assumptions, limitations and qualifications set forth
therein, collectively, the merger consideration to be offered by ICC in the
Merger was fair, from a financial point of view, to ICC (the "ING Barings
Opinion").
The ICC Board of Directors selected ING Barings to render the ING
Barings Opinion based upon ING Barings' expertise, experience and reputation.
ING Barings is an internationally recognized investment banking firm with
substantial experience in transactions similar to the Merger. ING Barings is
continuously engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. ING Barings or its affiliates, in the normal course of their business,
may at any time hold long or short positions, trade, make a market or otherwise
effect transactions for their own account or for the accounts of customers in
the securities of ICC.
THE FULL TEXT OF THE ING BARINGS FAIRNESS OPINION, WHICH SETS FORTH A
DESCRIPTION OF THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, MATTERS
CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS SET OUT IN EXHIBIT B TO
THIS PROXY STATEMENT. ICC's stockholders are urged to carefully read the ING
Barings Opinion in its entirety, especially with regard to the assumptions made
and matters considered by ING Barings, as well as the limitations on the
information considered and analysis presented.
16
<PAGE>
The ING Barings Opinion, which was addressed to ICC's Board of
Directors, did not constitute a recommendation to the ICC Board in connection
with the Merger and does not constitute a recommendation to any holder of ICC
Common Stock as to how to vote its shares in connection with the Merger. ING
Barings is not expressing any opinion as to the price or range of prices at
which ICC Stock may trade subsequent to the announcement of the Merger or the
consummation of the Merger. The ING Opinion is necessarily based upon economic,
monetary, market and other conditions, and the information made available to it,
as of the date of such opinion.
The merger consideration was determined by arm's-length negotiations
between ICC and RTCI and was not based on any recommendation by ING Barings.
In arriving at the ING Barings Opinion, ING Barings:
o reviewed the draft of the Merger Agreement dated June 12, 2000 and a
draft of the Promissory Note dated June 12, 2000;
o reviewed, among other public information, ICC's Annual Reports on Form
10-KSB for each of the fiscal years in the two year period ended July
31, 1999, and ICC's Quarterly Reports on Form 10-QSB for the quarters
ended October 31, 1998 and 1999 and January 31, 1999 and 2000, and
ICC's Form 8-Ks dated November 23, 1999, November 24, 1999, February
14, 2000, February 15, 2000, March 16, 2000, March 28, 2000, and May
15, 2000;
o reviewed, certain internal financial information, including financial
forecasts for the fiscal years ending 2000 and 2001, relating to the
business, earnings, cash flow, assets and prospects of ICC and RTCI,
furnished to ING Barings by or on behalf of ICC and RTCI;
o conducted discussions with members of senior management of ICC and RTCI
about the businesses and prospects of ICC and RTCI;
o conducted discussions with ICC management concerning strategic,
financial and operational benefits which they anticipated to result
from the merger;
o attended certain discussions between members of the management of ICC
and RTCI regarding certain financial, business and market information;
o reviewed histories of the price and trading volume of the common stock
of ICC, and compared such trading histories with other companies which
ING Barings considered relevant;
o reviewed certain publicly available financial data, stock market data
and valuation parameters of companies which ING Barings considered
generally comparable to ICC or RTCI or otherwise considered relevant;
o reviewed the financial terms, to the extent publicly available, of
certain precedent merger and acquisition transactions which ING Barings
considered relevant; and
o conducted such other studies, analyses and investigation as ING Barings
believed appropriate, none of which was individually material.
In arriving at its opinion, ING Barings relied upon the accuracy and
completeness of the financial and other information used by it without
independently verifying such information, and ING Barings further relied upon
the assurances of the management of ICC that they were not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections, estimates, forecasts, contemplated tax and
accounting impacts, and calculations of revenue enhancements, cost savings or
synergies relied upon or provided to ING Barings, it assumed that such
information had been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of ICC as to the
future financial performance of ICC and RTCI, and that they will perform
substantially in accordance with such projections. ING Barings also
17
assumed that the Merger will be consummated in accordance with the terms set
forth in the draft Merger Agreement, that the Merger will be treated as a
tax-free transaction pursuant to Section 368 of the Internal Revenue Code of
1986, as amended, and that the Merger will be treated as a "purchase"
transaction in accordance with generally accepted accounting principals. In
arriving at its opinion, ING Barings did not conduct a physical inspection of
the properties and facilities of ICC or RTCI and did not make or obtain any
evaluations or appraisals of the assets or liabilities of ICC or RTCI.
In connection with rendering its opinion, ING Barings performed certain
financial, comparative and other analyses as described below. The preparation of
a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial and comparative analysis and the application
of those methods to the particular circumstances. In arriving at its fairness
opinion, ING Barings did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. ING Barings believes
that its analyses must be considered as a whole and that considering any portion
of such analyses and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying the opinion. The ING Barings Opinion was based upon economic,
monetary and market conditions existing on the date such opinion was given. In
its analyses, ING Barings made a number of assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of ICC or RTCI. Any estimates contained in the
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than as set
forth therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Pursuant to an engagement letter between ICC and ING Barings dated June
9, 2000, ICC agreed to pay ING Barings a cash fee of $350,000, payable upon
delivery of the ING Barings Opinion, plus a fee of $300,000, payable upon the
completion of the Merger. ICC has also agreed to reimburse ING Barings for its
reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of legal counsel, and to indemnify ING Barings against certain
liabilities in connection with the engagement of ING Barings, including certain
liabilities under federal securities law.
The following is a summary of the material valuation, financial and
comparative analyses performed by ING Barings in arriving at the ING Opinion
dated June 13, 2000.
Selected Comparable Publicly Traded Companies. Using publicly available
information, ING Barings compared selected historical financial, operating and
stock market performance data of ICC and RTCI that ING Barings deemed relevant
for ICC and RTCI. The ICC comparable companies consisted of:
Active Software, Inc. Ariba Clarus Corp.
Commerce One Concur Technology eB2B Commerce, Inc.
Harbinger Corp. i2 Technologies OnDisplay, Inc.
Optio Software, Inc. Peregrine Systems webMethods, Inc.
Due to the diverse businesses in which RTCI operates (see "Business of
RTCI"), ING Barings compared RTCI's individual revenue streams from each major
business line to different comparable companies. The RTCI comparable companies
consisted of:
eConsulting Companies:
AppNet, Inc. iXL Enterprises Luminant Worldwide Corp.
MarchFirst, Inc.
Web Hosting Companies:
Digex, Inc. Exodus Communications, Inc. Globix Corp.
EAI Software Companies:
BEA Systems, Inc. Broadvision, Inc. Mercator Software, Inc.
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With respect to both the ICC and the RTCI comparable companies, ING
Barings analyzed a number of different data items, including the enterprise
value (defined as the market value of equity plus minority interest plus the
market value of debt and preferred stock, net of cash) and its multiples based
on latest twelve months revenue, latest-quarter-annualized revenue and projected
revenues.
Based on such analysis, ING Barings arrived at the following valuation
for RTCI:
<TABLE>
<S> <C>
- Range of Implied Enterprise Values for RTCI Based
upon Latest-Quarter-Annualized Revenues: $39.3 million - $136.5 million
- Range of Implied Enterprise Values for RTCI Based
upon Projected 2000 Revenues: $55.8 million - $182.1 million
</TABLE>
Selected Comparable Transaction Analysis. ING Barings reviewed publicly
available financial information for selected mergers and acquisitions of
eCommerce companies by/with other eCommerce companies. The selected eCommerce
mergers and acquisitions ING Barings analyzed included (acquiror/target):
<TABLE>
<S> <C>
Vignette Corp./OnDisplay, Inc. webMethods, Inc./Active Software, Inc.
Peregrine Systems, Inc./Harbinger Corp. i2 Technologies, Inc./Aspect Development, Inc.
SBC Communications, Inc./Sterling Commerce, Inc. Vignette Corp./DataSage, Inc.
Commerce One, Inc./Mergent Systems, Inc. Ariba, Inc./Trading Dynamics, Inc.
DynamicWeb Enterprises, Inc./eB2B Commerce, Inc. Commerce One, Inc./CommerceBid.com
Vignette Corp./Diffusion, Inc. Commerce One, Inc./Veo Systems, Inc.
</TABLE>
With respect to the recent eCommerce transactions ING Barings analyzed,
ING Barings reviewed a number of different data items including the transaction
value (which is the purchase price paid for the equity plus minority interest
plus the market value of debt and preferred stock, net of cash) and its
multiples based on latest twelve months revenues, latest twelve months earnings
before interest, taxes, depreciation and amortization ("EBITDA") and latest
twelve months earnings before interest and taxes ("EBIT"). ING Barings also
reviewed the purchase prices paid for the total outstanding equity and its
premium to the market value of the total outstanding equity one day prior to the
announcement of the transaction.
The results of these analyses are summarized below:
<TABLE>
<CAPTION>
Comparable Transactions RTCI
Low Median High
<S> <C> <C> <C> <C>
Equity Value as a premium over market value 30.0% 40.0% 97.0% 2.4%(a)
Transaction Value as a Multiple of
Latest Twelve Months Revenues 4.7x 20.6x 789.5x 6.2x
</TABLE>
(a)Premium based on the implied value of most recent private equity investment
in RTCI in January 1999.
The multiples of Transaction Value to EBITDA and EBIT were determined
to be not meaningful due to the limited number of data points provided by the
comparable companies.
Pro Forma Contribution Analysis. ING Barings performed an analysis of
the potential pro forma operating results for the latest twelve months ended
April 30, 2000 and the calendar years (ICC and RTCI have different fiscal year
ends and it was therefore necessary for ING Barings to calendarize ICC's
financial data in order to perform the pro forma analysis) ended December 31,
2000 and December 31, 2001. ING Barings combined the projected operating results
of RTCI as provided by RTCI management with the projected operating results of
ICC as provided by the management of ICC to arrive at the combined Company
projected operating results and analyzed what percentage of the combined
revenues, gross profit and EBIT were attributable to RTCI. For contribution
comparison purposes ING Barings did not include the effect of any synergies
which may result from the transaction. This analysis indicated that for the
twelve months ended April 30, 2000, ICC contributed 7.0% and RTCI contributed
93.0% of net revenues to the pro forma combined operations.
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<PAGE>
ICC "Has-Gets" Analysis. Based on the projections provided by
management of ICC and RTCI, ING Barings conducted a "Has-Gets" analysis of the
impact of the proposed transactions on the shareholders of ICC. A "Has-Gets"
analysis is a comparison of what shareholders of ICC have prior to the
consummation of the proposed Merger in terms of one or more financial ratios
(and thus would not have absent consummation of such Merger) to what such
shareholders will have upon consummation of the Merger. ING Barings analyzed
ICC's implied equity value per fully-diluted share (as calculated by applying a
multiple of estimated calendar 2000 revenues to the projected calendar 2000
revenues provided by ICC management) prior to the Merger to ICC's implied equity
value per fully-diluted share upon consummation of the Merger (as calculated by
applying the same multiple to the pro forma combined revenues of the two
companies). ING Barings did not include the effect of any synergies as a result
of the Merger in performing this analysis. This analysis indicated that the
implied equity value per share was estimated to increase significantly.
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement. The Merger Agreement is attached as Exhibit A, and you should read it
carefully for a complete understanding of its terms. All capitalized terms not
defined in this summary have the meanings set forth in the Merger Agreement.
Merger Consideration
ICC shall pay aggregate consideration of $42,000,000 to the holders of
RTCI Common Stock and RTCI Series A Preferred Stock and Option holders,
consisting of (i) RTCI's cash on hand at the effective time of the Merger, up to
a maximum of $4,000,000 (the "Cash at Closing"), and (ii) shares of ICC Class A
Common Stock ("ICC Common Stock"; such shares, the "ICC Shares") equal to the
number of shares obtained by dividing (x) $42,000,000 minus the Cash at Closing
by (y) the average closing price of the ICC Common Stock for the ten days ending
three days prior to the effective time of the Merger (the "Market Price"). The
Market Price is subject to a maximum of $21.111111 and a minimum of $12.666667,
so that a maximum of 3,315,890 ICC Shares and a minimum of 1,800,000 ICC Shares
are issuable in connection with the Merger. The closing price of the ICC Common
Stock on June 14, 2000, which was the last trading day prior to the announcement
of the Merger Agreement, was $17.625, as reported by the Nasdaq National Market.
The closing price of the ICC Common Stock on October 13, 2000, the day prior to
the printing of this Proxy Statement, was $4.50, as reported by the Nasdaq
National Market.
Each holder of RTCI Capital Stock will receive a percentage of the ICC
Shares and the Cash at Closing equal to the percentage such holder holds on an
as-converted basis of the Fully Diluted Number of Shares of RTCI. The Merger
Agreement provides, however, that no fractional ICC Shares will be issued. If
the number of ICC Shares that any holder of RTCI Capital Stock will receive
contains a fraction of one share, such number will be rounded up to the next
whole number of ICC Shares. Options and warrants to purchase RTCI stock shall be
converted into the right to receive upon exercise of such options and warrants
the amount of cash and shares of ICC Common Stock which the holders of such
options and warrants would have received if such options and warrants had been
exercised immediately prior to the effective time of the Merger. Each holder of
RTCI Common Stock issued pursuant to the RTCI restricted stock plan described on
page 24 below will receive a percentage of the ICC Shares equal to the
percentage such holder holds of the Fully Diluted Number of Shares of RTCI,
which shares will be subject to the same restrictions that apply to the RTCI
restricted common stock for which they are exercised.
Exchange of Shares
At or as soon as practicable after the Effective Time of the Merger,
upon surrender for cancellation by a holder of RTCI Capital Stock of
certificates representing RTCI Capital Stock, ICC shall issue and deliver to
such holder the number of ICC Shares into which such certificates of RTCI
Capital Stock have been converted by virtue of the Merger.
From and after the Effective Time, each certificate representing shares
of RTCI Capital Stock, until so exchanged, will be deemed, for all purposes, to
evidence the right to receive the number of ICC Shares into which those shares
of RTCI Capital Stock are to be converted.
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Representations
The Merger Agreement contains various customary representations made by
ICC, Buyer, RTCI and Sellers.
Each Seller made customary representations relating to the following
with respect to itself:
o that the Merger Agreement has been duly authorized and approved by the
Seller and constitutes the valid and binding obligation of the Seller;
o the Seller has full legal capacity and authority to execute and deliver
the Merger Agreement and to perform Seller's obligations under the
Merger Agreement;
o that the execution and delivery of the Merger Agreement and the
performance of the transactions contemplated by the Merger Agreement by
the Seller will not result in a default or breach of any legal
requirement or contract to which the Seller is subject;
o the Seller owns its shares of the RTCI Capital Stock, free and clear of
any liens;
o that there are no agreements, except as disclosed in the Disclosure
Schedule, governing the transfer, voting or registration of the RTCI
Capital Stock;
o that there are no legal proceedings pending or, to the knowledge of the
Seller, threatened, against the Seller that will interfere with any of
the transactions contemplated by the Merger Agreement;
o the Seller is an accredited investor and has, alone or with Seller's
purchaser representative, sufficient knowledge and experience to
evaluate the merits and risks of an investment in the ICC Shares;
o the Seller is acquiring the ICC Shares for its own account with no
intention or agreement to transfer the ICC Shares and the Seller will
not sell the ICC Shares in violation of securities laws;
o the Seller has read the Merger Agreement and all other related
documents provided by ICC and fully understands the terms under which
the ICC Shares are to be issued and that ICC has made itself available
to answer any questions and has provided any information requested to
verify the accuracy of the information contained in the Merger
Agreement; and
o the Seller agrees that, as long as required by law, any certificate
representing the Seller's ICC Shares shall bear a customary legend
restricting transfer without a valid registration statement or an
exemption from registration.
Each of RTCI and each Seller made customary representations relating to
RTCI concerning the following:
o the organization and good standing;
o the authority to execute the Merger Agreement and the absence of
conflicts as a result of such execution;
o the number of votes of RTCI Capital Stock required to approve the
Merger and the existence of any class votes;
o the capitalization of RTCI;
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<PAGE>
o the accuracy and completeness of the RTCI books and records;
o the accuracy, lack of material adverse change, and content of RTCI
financial statements;
o the absence of undisclosed liabilities of RTCI, except as incurred in
the ordinary course of business, which in the aggregate will not have a
Material Adverse Effect on RTCI;
o the absence of any material adverse change in RTCI's business since
December 31, 1999;
o various tax matters pertaining to RTCI;
o correctness and collectibility of RTCI accounts receivable;
o valid title to all owned or leased property free of encumbrances,
except for certain minor encumbrances disclosed in the Disclosure
Schedule;
o the assets owned or used by RTCI are in good condition and sufficient
to conduct business after the Effective Time of the Merger as business
was conducted prior to such time;
o compliance with laws and validity of governmental permits held by RTCI;
o the absence of legal proceedings against RTCI or interfering with the
transactions contemplated by the Merger Agreement;
o the conduct of RTCI's business in the ordinary course consistent with
past practice, and the absence of certain events or changes outside of
the ordinary course of business;
o the delivery by RTCI to ICC of certain contracts;
o the adequacy and effectiveness of insurance policies and no material
failure by RTCI to pay insurance premiums;
o the compliance with environmental laws, the absence of environmental
claims, no knowledge of potential future claims or events that could
lead to such claims, the absence of hazardous materials on RTCI
facilities and other environmental matters;
o certain employee, employee benefit and other employment matters;
o the ownership of intellectual property, the absence of pending or
threatened legal claims relating to the intellectual property of RTCI,
year 2000 compliance and other intellectual property matters;
o the absence of any payments to obtain favorable treatment from any
person or in violation of any legal requirements;
o the absence of dealings between RTCI and persons related to Sellers and
RTCI's legal right to its company name;
o the obligation of RTCI to pay brokers' or finders' fees in connection
with the Merger Agreement;
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<PAGE>
o certain information regarding RTCI's deposit accounts;
o the absence of circumstances, including the consummation of the Merger
Agreement and the transactions contemplated by the Merger Agreement,
which are reasonably likely to lead to the loss of a material client of
RTCI;
o the absence of any inaccurate or misleading representations or
disclosure in the Merger Agreement or the omission to state a fact that
is necessary to make the representations or disclosure not misleading;
and
o the disclosure supplied by RTCI and Sellers for this Proxy Statement is
not inaccurate or misleading and does not omit any fact that is
necessary to make the disclosure not misleading.
ICC and Buyer made customary representations relating to the following:
o the organization and good standing of Buyer and ICC;
o the corporate power and authority of Buyer and ICC to conduct their
business as currently conducted and to own or use their properties and
assets;
o the qualification of Buyer and ICC to do business under the laws of
each state or other jurisdiction which requires such qualification;
o the legal capacity and authority of Buyer and ICC to execute and
deliver the Merger Agreement and to perform their obligations under the
Merger Agreement;
o the authority to execute the Merger Agreement and the absence of
conflicts as a result of such execution;
o the capitalization of ICC and Buyer;
o certain ICC filings with the SEC;
o the absence of material adverse change in the ICC business since July
31, 1999;
o the absence of legal proceedings against ICC or Buyer interfering with
the transactions contemplated by the Merger Agreement;
o the obligation of ICC to pay brokers' or finders' fees in connection
with the Merger Agreement;
o the disclosure supplied by ICC and Buyer for this Proxy Statement is
not inaccurate or misleading and does not omit any fact that is
necessary to make the disclosure not misleading;
o ICC is not aware of any officer or key employee of ICC who intends to
terminate his or her employment with ICC; and
o ICC's intention to continue to operate RTCI as a going concern
substantially in accordance with RTCI's plan of operations and to offer
RTCI employees employment on terms substantially comparable with ICC
employees, subject to geographic, cost of living and other adjustments
and to the discretion of the Board of Directors of ICC.
23
<PAGE>
Obligations
The Merger Agreement provides for certain obligations of the parties.
RTCI and Sellers have the following obligations:
o RTCI shall, and Sellers shall cause RTCI to, conduct its business in
the ordinary course until the Closing;
o RTCI shall not, and Sellers shall not cause RTCI to, make changes to
its organizational documents, pay any material liability, make any loan
or capital expenditure exceeding specified amounts, or enter into any
commitment to do any of the foregoing;
o RTCI may adopt a restricted stock plan reasonably satisfactory to ICC
and award up to 825,000 shares of Company Restricted Stock to its
employees pursuant to such plan but such awards may not exceed in the
aggregate the number of shares of RTCI Common Stock contributed to the
capital of RTCI by Jeffrey LeRose;
o RTCI and Sellers shall cooperate with and assist ICC in connection with
any ICC filings with the SEC, and shall not withdraw the recommendation
of the Board of Directors of RTCI contained in this Proxy Statement in
favor of the Merger and the Merger Agreement;
o RTCI and Sellers shall use their reasonable commercial efforts to
promptly obtain all consents, authorizations, approvals and waivers
required in connection with the transactions contemplated by the Merger
Agreement;
o RTCI and Sellers shall use their commercially reasonable best efforts
to cooperate with ICC to satisfy the closing conditions within their
control and to cause various persons to sign the standard RTCI form of
non-compete, non-disclosure, proprietary information and invention
assignment agreement;
o all indebtedness between RTCI and its affiliates shall be paid in full
prior to the Closing;
o RTCI and Sellers shall promptly notify ICC of (a) any facts that would
either cause any representation or warrant of RTCI or Sellers to become
untrue or lead to a failure to comply with any provision of the Merger
Agreement and (b) any such failure;
o RTCI and Sellers shall not take any action that would jeopardize the
tax-free treatment of the Merger;
o Jeffrey LeRose shall not compete with ICC for two years after the
Closing Date of the Merger and shall not solicit ICC employees for one
year after the Closing Date of the Merger;
o RTCI shall hold a special meeting of holders of RTCI Capital Stock to
vote on the Merger and the Merger Agreement, and shall take all
reasonable actions necessary to secure a favorable vote and avoid
taking actions that would impede a favorable vote;
o Sellers shall vote in favor of the Merger and the Merger Agreement and
against any action that would cause a breach of the Merger Agreement or
impede the Merger;
o upon the mailing of this Proxy Statement, Sellers have granted
irrevocable proxies in favor of Dr. Geoffrey S. Carroll and Walter M.
Psztur to vote Sellers' shares of RTCI Capital Stock in favor of the
Merger and the Merger Agreement;
24
<PAGE>
o RTCI and Sellers shall provide ICC with all necessary financial
information, which shall be accurate and not misleading, in connection
with any ICC filings with the SEC, and ICC shall pay out-of-pocket
costs incurred by RTCI in the preparation of such financial
information;
o if the Merger is not effective by November 30, 2000, RTCI and Sellers
shall cause one nominee of ICC to be elected to the board of directors
of RTCI so long as ICC owns any shares issued on conversion of the
Promissory Note; and
o immediately prior to the Effective Time of the Merger, Blue Water (a
Seller) will exercise all of its warrants to purchase RTCI Capital
Stock.
ICC and Buyer have the following obligations:
o ICC and Buyer shall conduct their businesses in the ordinary course
from the date of the Merger Agreement until the Closing;
o ICC and Buyer shall make all regulatory filings for either ICC or Buyer
and ICC shall use its best efforts to file a Registration Statement on
Form S-8 as soon reasonably practicable after the Effective Time of the
Merger to register the Options to be granted and, to the extent
permissible, the ICC Shares to be issued;
o ICC and Buyer shall use their commercially reasonable best efforts to
satisfy the closing conditions within their control;
o ICC and Buyer shall promptly notify RTCI and Sellers of (a) any facts
that would either cause any representation or warranty of ICC or Buyer
to become untrue or lead to a failure to comply with any provision of
the Merger Agreement and (b) any such failure;
o ICC and Buyer shall not take any action that would jeopardize the
tax-free treatment of the Merger;
o ICC shall hold this special meeting and shall take all reasonable
actions necessary to secure a favorable vote on the issuance of the ICC
Shares and avoid taking actions that would impede a favorable vote; and
o at the Effective Time or as soon thereafter as reasonably practicable,
ICC shall deliver or caused to be delivered the ICC Shares;
Conditions to the Merger
The obligations of ICC and Buyer to consummate the Merger are subject
to the satisfaction, or waiver by RTCI and Sellers, of the following conditions
at or prior to the Closing:
o the representations of RTCI and Sellers contained in the Merger
Agreement or any certificate delivered pursuant to the Merger Agreement
were accurate as of the date of the Merger Agreement and are accurate
in all material respects as of the Closing Date, without giving effect
to any materiality qualifications;
o RTCI and Sellers have performed and complied in all material respects
with each covenant, agreement and condition required by the Merger
Agreement to be performed or complied with by them prior to or on the
Closing Date;
o since the date of the Merger Agreement, there have not occurred any
events which, individually or in the aggregate, have had or are
reasonably likely to result in a Material Adverse Effect on RTCI,
including the loss of any significant customer of RTCI;
25
<PAGE>
o ICC and Buyer shall have received favorable certificates, dated the
Closing Date, signed by RTCI and Sellers as to the matters set forth in
the preceding three paragraphs;
o there shall be no orders or proceedings pending or threatened against
ICC, Buyer, RTCI or any Seller that interfere with any of the
transactions contemplated by the Merger Agreement;
o all consents, waivers, approvals, authorizations, orders and filings
required by RTCI in connection with the Merger, the Merger Agreement
and any rights or documents under the Merger Agreement shall have been
obtained or made unless failure to do so could not reasonably be
expected to have a Material Adverse Effect on RTCI;
o RTCI and Sellers shall have delivered to ICC and Buyer a legal opinion
of Kilpatrick Stockton LLP reasonably satisfactory in form and
substance to ICC;
o the holders of RTCI Capital Stock shall have approved the Merger and
the Merger Agreement and the holders of ICC voting capital stock shall
have approved the issuance of the ICC Shares;
o Sellers shall have executed and delivered a Registration Rights
Agreement;
o certain agreements between RTCI and third parties shall be terminated
and shall have no further force and effect; and
o the letter from Blue Water waiving certain rights held by Blue Water
shall remain in full force and effect.
The obligations of RTCI and Sellers to consummate the Merger are
subject to the satisfaction, or waiver by ICC, of the following conditions at or
prior to the Effective Time:
o the representations of ICC and Buyer contained in the Merger Agreement
or any certificate delivered pursuant to the Merger Agreement were
accurate as of the date of the Merger Agreement and are accurate in all
material respects as of the Closing Date, without giving effect to any
materiality qualifications;
o since the date of the Merger Agreement, there have not occurred any
events which, individually or in the aggregate, have had or are
reasonably likely to result in a Material Adverse Effect on ICC,
including the loss of any significant customer of ICC;
o ICC and Buyer have performed and complied in all material respects with
each covenant, agreement and condition required by the Merger Agreement
to be performed or complied with by them prior to or on the Closing
Date;
o RTCI and Sellers shall have received favorable certificates, dated the
Closing Date, signed by ICC and Buyer as to the matters set forth in
the preceding three paragraphs;
o there shall be no orders or proceedings pending or threatened against
ICC, Buyer, RTCI or any Seller that interfere with any of the
transactions contemplated by the Merger Agreement;
o ICC and Buyer shall have delivered to RTCI and Sellers a legal opinion
of Kramer Levin Naftalis & Frankel LLP reasonably satisfactory in form
and substance to Sellers;
26
<PAGE>
o the two directors nominated by Sellers shall have been elected to ICC's
Board of Directors (as described below); and
o ICC shall have delivered an executed Registration Rights Agreement.
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the
Effective Time:
o by written agreement of ICC, Buyer and RTCI;
o by any of ICC, Buyer or RTCI, if the Effective Time of the Merger has
not occurred by November 30, 2000, unless the party seeking termination
has contributed materially to the failure of the Merger to occur by
that date;
o by ICC or Buyer, upon a material misrepresentation or a material breach
by RTCI or Sellers of any of their warranties or covenants in the
Merger Agreement or a material failure of RTCI or Sellers to comply
with any of their other obligations under the Merger Agreement; and
o by RTCI, upon a material misrepresentation or a material breach by ICC
or Buyer of any of their warranties or covenants in the Merger
Agreement or a material failure of ICC or Buyer to comply with any of
their other obligations under the Merger Agreement.
If the Merger Agreement is terminated, it will cease to have any effect
and all obligations of the parties other than those relating to indemnification
and certain other matters will terminate, except that if the Merger Agreement is
terminated by a party because of a breach by another party or because one or
more of the conditions to the terminating party's obligations under the Merger
Agreement are not satisfied as a result of another party's failure to comply
with its obligations under the Merger Agreement or the inaccuracy of any
representation made in the Merger Agreement by another party, the terminating
party's right to pursue all legal remedies survives the termination unimpaired.
Indemnification
All parties' rights to indemnification under the Merger Agreement
survive until ICC files with the SEC its Annual Report on Form 10-K (or 10-KSB)
for the year ending July 31, 2001, except with respect to breaches of certain
representations which survive for the applicable statute of limitations and with
respect to certain other representations which survive indefinitely. A claim to
indemnification asserted within such time may continue beyond such time limit.
Sellers shall indemnify the Indemnified Persons against any Damages
arising as a result of:
o any breach of any representation or warranty made by the Sellers or
RTCI in the Merger Agreement, the Disclosure Schedule or in any
certificate delivered by the Sellers or RTCI pursuant to the Merger
Agreement; and
o any breach by the Sellers or RTCI of any covenant or obligation of the
Sellers or RTCI in the Merger Agreement.
ICC and Buyer shall indemnify the Seller Parties against any Damages
arising as a result of:
o any breach of any representation or warranty made by ICC or Buyer in
the Merger Agreement or in any certificate delivered by ICC or Buyer
pursuant to the Merger Agreement;
o any breach by ICC or Buyer of any covenant or obligation of ICC or
Buyer in the Merger Agreement; and
27
<PAGE>
o any claim by any person for brokerage, finder's fees, commissions or
similar payments based upon any agreement or understanding alleged to
have been made by such person with ICC or Buyer in connection with the
transactions contemplated by the Merger Agreement.
ICC's remedy with respect to any indemnity claims under the Merger
Agreement shall be limited as follows:
o no indemnification shall be payable by Sellers until the Indemnified
Persons have suffered Damages in excess of $500,000 in the aggregate,
in which case Sellers shall indemnify the Indemnified Persons for all
such Damages (subject to the next paragraph);
o Sellers will have no obligation to indemnify the Indemnified Persons
for Damages in excess of $21,000,000;
o each Seller shall be liable only for the portion of such
indemnification equal to the Seller's percentage ownership of ICC
Shares in relation to the total number of ICC Shares owned by Sellers;
and
o all indemnification shall be payable by Sellers in ICC Shares only.
Sellers' remedy with respect to any indemnity claims under the Merger
Agreement shall be limited as follows:
o no indemnification shall be payable by ICC and Buyer until the Seller
Persons have suffered Damages in excess of $500,000 in the aggregate,
in which case ICC and Buyer shall indemnify the Seller Persons for all
such Damages (subject to the next paragraph); and
o ICC and Buyer will have no obligation to indemnify the Seller Persons
for Damages in excess of $21,000,000.
In order to be entitled to indemnification under the Merger Agreement
in connection with a claim made by any person against any other person entitled
to indemnification, the indemnified party must follow certain customary
procedures relating to indemnification as provided in the Merger Agreement.
OTHER MATTERS PERTAINING TO THE MERGER AGREEMENT
Promissory Note
ICC loaned $5,000,000 to RTCI on June 14, 2000. The principal of and
all accrued and unpaid interest on the loan has converted into shares of RTCI
common stock at a pre-money valuation for RTCI of $42,000,000. ICC is not
entitled to receive any consideration under the Merger Agreement with respect to
these shares. If the Merger is not effective by November 30, 2000, RTCI shall
cause one person nominated by ICC to be elected to RTCI's Board of Directors for
so long as ICC holds any shares of RTCI common stock.
Registration Rights Agreement
At the Closing, under the Merger Agreement, ICC and the holders of RTCI
Capital Stock will enter into a Registration Rights Agreement. Under the terms
of the Registration Rights Agreement, ICC shall use its commercially reasonable
best efforts to file no later than the later of forty-five days after the
effective time of the Merger and use its commercially reasonable best efforts to
cause to become effective within one hundred and twenty days after filing, a
Registration Statement on Form S-3 covering the resale of all of the ICC Shares
and to remain effective continuously for the period ending on the earlier of (A)
one year after the effective time of the Merger and (B) the date on which all
ICC Shares covered by such Registration Statement have been sold and the
distribution
28
<PAGE>
contemplated by such Registration Statement has been completed. In addition,
holders of at least 20% of the ICC Shares receive two demand registration
rights. All holders of ICC Shares have unlimited piggyback rights. All
registrations of ICC Shares pursuant to the Registration Rights Agreement are
subject to standard cut-backs, and hold-backs and may be suspended based on the
occurrence of a material development condition.
Regulatory Filings and Approvals
Neither ICC nor RTCI is aware of any material governmental or
regulatory approval required for completion of the Merger, other than compliance
with the corporation law of the State of North Carolina.
Appraisal Rights
Delaware law does not require that holders of ICC common stock who vote
against or abstain from voting in favor of the share issuance be afforded any
appraisal rights or the right to receive cash for their shares of ICC common
stock.
Material Federal Income Tax Consequences of the Merger
The Merger is intended to qualify as a tax-free reorganization for
federal income tax purposes under Section 368 of the Internal Revenue Code of
1986, as amended. Because the outstanding shares of ICC Common Stock will remain
unchanged as a result of the Merger, existing stockholders of ICC will not
recognize any gain or loss for federal income tax purposes as a result of the
Merger. In addition, ICC should not recognize any gain or loss for federal
income tax purposes as a result of the Merger.
Accounting Treatment of the Merger
The Merger will be accounted for as the acquisition of RTCI by ICC
under the "purchase" method of accounting, in accordance with generally accepted
accounting principles. Under this method of accounting, the purchase price will
be allocated to assets acquired and liabilities assumed based on their estimated
fair values at the time of the Merger. Income of ICC will not include income (or
loss) of RTCI prior to the consummation of the Merger, except as provided for in
the pro forma combined financial statements included in this Proxy Statement.
The excess of the purchase price, including estimated fees and expenses related
to the Merger, over the net assets acquired is classified as goodwill on such
financial statements. The estimated fair values and useful lives of assets
acquired and liabilities assumed are based on a preliminary valuation and are
subject to final valuation adjustments which may cause certain of the
intangibles to be amortized over a shorter life than the goodwill amortization
period of 10 years.
Listing of ICC Shares
ICC will list the ICC Shares on the Nasdaq National Market and/or on
any other market on which ICC's Class A Common Stock shall be trading at the
time of listing.
MANAGEMENT AFTER THE MERGER
Management of ICC
In connection with the Merger, Sellers shall have the right to appoint
two members to the ICC Board of Directors, one of whom shall be Kim Cooke and
the other of whom shall be Jeffrey LeRose, who will become members of Class I
and Class II, respectively, to serve until ICC's next annual meeting of
stockholders and the annual meeting of stockholders following the next annual
meeting of stockholders, respectively, and until their successors are elected
and qualified.
Set forth below is certain information regarding Mr. LeRose and Mr. Cooke:
29
<PAGE>
Jeffrey W. LeRose has been the Chairman and Chief Executive Officer of
RTCI since 1991 and has thirty years of experience using Information Technology
to increase competitive advantages and profitability for major U.S. and
international corporations. Before founding RTCI in 1991, he served as
Vice-President of Systems Development and as an officer of Encompass (a former
AMR/CSX joint venture). Mr. LeRose has served in leadership positions for many
EC/EDI organizations. He is also a past Chair of the Piedmont EDI Business
Forum. He was instrumental in the development of the original EDI standards for
transport related activities. He has also published articles and is quoted in
many trade publications, including EC World, Information Week, Datamation, and
Client/Server Magazine. In 1998, Mr. LeRose received the Entrepreneur of the
Year Award for the Carolinas for Technology. He currently serves on the Board of
Advisors for the Love School of Business at Elon College and on the Board of
Directors for the Research Triangle Chapter of the National Association of
Corporate Directors. Mr. LeRose held senior management positions for CSX
Corporation, Sea-Land Corporation, and Grand Union Corp as well as technical
positions with Mercedes-Benz and Prudential Insurance Company. He has a BA from
New Jersey City University, and a Certified Data Processor certification from
the Institute for the Certification of Computer Professionals, and numerous
other management and technical certifications.
Kim Cooke is a founding partner and has been a managing director of
Blue Water since 1995. Mr. Cooke brings his knowledge of global financial
services, credit and insurance to the team of managing partners. Mr. Cooke
serves on the boards of directors of Tech Enterprises Inc. (Techbook), Network 1
Financial, and RTCI, all of which are Blue Water portfolio companies, as well as
Skyway Communications, Inc. (t/a ePhones). He is a transactional lawyer and
private equity investor with extensive business and legal experience. Mr. Cooke
also serves as director of several not for profit organizations. He received a
master of law degree, with highest honors, from American University.
Management of RTCI
Following the Merger, the following person will be the sole director of
RTCI:
Name Position
Dr. Geoffrey S. Carroll Director
Following the Merger, the following persons will be all of the
executive officers of RTCI:
Name Age Position
Jeffrey W. LeRose 56 President, Chief Executive Officer
Philip R. Alfano 50 Senior Vice President, Chief Financial
Officer, Assistant Secretary
Philip R. Alfano was appointed Senior Vice-President and CFO of RTCI in
May of 1998. Mr. Alfano was previously Senior Vice-President and CFO of Winston
Hotels, Inc. (NYSE: WXH), a real estate investment trust ("Winston"), and Senior
Financial Advisor for Winston Hospitality, Inc., a privately held hotel
operating company that leased and operated all of Winston Hotel's properties,
from 1994 to 1997. While at Winston, Mr. Alfano directed several public stock
offerings and a major debt refinancing. From 1983 to 1993, he was Executive
Vice-President and CFO for the Ashforth Company, a privately held real estate
development and services company. Previously, Mr. Alfano held senior financial
management positions with public and private companies, and was employed for six
years by KPMG Peat Marwick in New York City. Mr. Alfano is a Certified Public
Accountant (CPA), and a graduate of St. Bonaventure University where he received
a BBA degree in Accounting.
30
<PAGE>
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
information assumes that the acquisition of Intercoastal Data Corporation
("IDC") and the acquisition of RTCI by ICC were both consummated as of July 31,
2000. The combined condensed pro forma balance sheet combines ICC and RTCI and
IDC as of July 31, 2000, as if each acquisition had occurred on July 31, 2000.
The pro forma statements of operations combine ICC's and RTCI's and IDC's
historical results of operations for the fiscal year ended July 31, 2000, as if
each acquisition had occurred on August 1, 1999.
The pro forma information is presented for illustrative purposes only
and is not necessarily indicative of the operating results or financial position
that would have occurred if the acquisitions had occurred as of the date or
during the periods presented nor is it necessarily indicative of future
operating results or financial positions. These pro forma financial statements
are based on, and should be read in conjunction with, the historical financial
statements, and the related notes thereto incorporated by reference for ICC and
IDC and the historical financial statements for RTCI included in this proxy
statement beginning on page F-1.
The acquisitions of RTCI and IDC will be accounted for using the
purchase method of accounting. The total purchase cost will be allocated to the
assets acquired and liabilities assumed based on their respective fair values.
The allocation of the total purchase cost reflected in the unaudited pro forma
combined financial information is preliminary. The actual purchase accounting
adjustment to reflect the fair values of the assets acquired and liabilities
assumed will be based upon appraisals that are currently in process. A
preliminary allocation of the purchase cost has been made to major categories of
assets and liabilities in the accompanying unaudited pro forma combined
condensed financial information based on our estimates. Accordingly, the
adjustments that have been included in the unaudited pro forma combined
condensed financial information may change based upon the final allocation of
the total purchase cost of the acquisitions of RTCI and IDC. The actual
allocation of the purchase cost and the resulting effect on income may differ
from the unaudited pro forma amounts included in this proxy statement. However,
based on current information, management does not expect the final allocation of
the purchase price to differ materially from that used in the accompanying
statement of operations.
31
<PAGE>
INTERNET COMMERCE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
July 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Historical Historical Historical Pro Forma Pro Forma
ICC IDC RTCI Adjustments Combined
---------- ---------- ----------- -------------- -----------
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 14,003 $ 361 $ 3,266 $(3,266) (E), (L) $ 14,364
Marketable securities 988 988
Accounts receivable, net 629 122 873 1,624
Note receivable 5,000 (5,000) (K)
Other current assets 209 395 (48) 556
---------- ---------- ----------- -------------- -----------
Total current assets 19,841 1,471 4,534 (8,314) 17,532
Property and equipment, net 926 375 1,197 (298) (F) 2,200
Intangible assets, net 658 62 50,146 (A), (B), (C) 50,866
Other assets 907 36 943
---------- ---------- -------------- -----------
-----------
$ 22,332 $1,846 $ 5,829 $41,534 $ 71,541
========== ========== =========== ============== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 639 $ 223 $ 862
Dividends payable 276 276
Current portion of long-term 308 $ 5 82 395
debt
Note payable 5,000 (K)
$(5,000)
Convertible debenture 2,106 (2,106) (E)
Deferred revenue 250 45 45 340
Deferred Taxes 272 272
Other current liabilities 538 68 511 1,087 (A), (B) 2,204
---------- ---------- ----------- -------------- -----------
2,011 390 7,967 (6,019) 4,349
Long term debt, net of current 231 15 295 541
portion
Deferred taxes 21 4,498 (G) 4,519
---------- ---------- ----------- -------------- -----------
Total liabilities 2,242 426 8,262 (1,521) 9,409
Redeemable preferred stock 3,093 (3,093) (H)
Stockholders' Equity:
Preferred stock
Common stock 64 22 (A), (B), (D) 86
Additional paid-in capital 59,181 4 42,016 (A),(B),(D),(E), 101,201
(L)
Accumulated other comprehensive
income 721 (721) (D)
Accumulated earnings (deficit) (39,155) 673 (5,526) 4,853 (D) (39,155)
---------- -------------- -----------
---------- -----------
Total stockholders' equity 20,090 1,420 (5,526) 46,148 62,132
----------
---------- ----------- -------------- -----------
$ 22,332 $1,846 $5,829 $41,534 $ 71,541
========== ========== =========== ============== ===========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements
32
<PAGE>
INTERNET COMMERCE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended July 31, 2000
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Historical Historical Pro Forma Pro Forma
ICC IDC RTCI Adjustments Combined
---------- ---------- ----------- ------------- -----------
Revenues:
<S> <C> <C> <C> <C> <C>
Services $ 1,303 $ 1,324 $ 6,525 $ (86) (I) $ 9,066
Software sales 168 768 936
---------- ---------- ----------- ------------- -----------
Total revenues 1,303 1,492 7,293 (86) 10,002
Expenses:
Cost of services 2,514 429 5,689 (86) (I) 8,546
Cost of software 9 617 626
Research and development 702 702
Selling and marketing 3,273 210 3,409 6,892
General and administrative 4,814 756 1,730 5,893 (C) 13,193
Non cash charges in connection
with
options, compensation and 5,161 10 5,171
services
---------- ---------- ----------- ------------- -----------
Total costs and expenses 16,464 1,414 11,445 5,807 35,130
---------- ---------- ----------- ------------- -----------
Income (loss) from continuing (15,161) 78 (4,152) (5,893) (25,128)
operations
Interest income (expense), net 675 33 (398) 310
---------- ---------- ----------- ------------- -----------
Income (loss) from continuing
operations
before income taxes (14,486) 111 (4,550) (5,893) (24,818)
Income taxes (benefit) 87 (37) (845) (J) (795)
---------- ---------- ----------- ------------- -----------
Net income (loss) $ (14,486) $ 24 $ (4,513) $(5,048) $ (24,023)
========== ========== =========== ============= ===========
Dividends attributable to preferred (5,007) (255) 255 (H) (5,007)
stock ---------- ---------- ----------- ------------- -----------
Loss attributable to common $ (19,493) $ 24 $ (4,768) $(4,793) $ (29,030)
shareholders ========== ========== =========== ============= ===========
Basic and diluted loss per common $ (4.49) $ (4.49)
share ========== ===========
Weighted average number of common
shares outstanding - basic and 4,337 2,130 6,467
diluted ========== ============= ===========
</TABLE>
See notes to unaudited pro forma combined condensed financial statements
33
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
1. Basis of Presentation
The unaudited pro forma combined condensed balance sheet of ICC at July
31, 2000 has been prepared on the assumptions that the acquisition of RTCI will
take place as of July 31, 2000 and that the acquisition of IDC, which was
completed on August 3, 2000, had been consummated at July 31, 2000. The
unaudited pro forma combined condensed statements of operations for the year
ended July 31, 2000 has been prepared as if the acquisitions of RTCI and IDC had
been consummated on August 1, 1999.
In management's opinion, all material adjustments necessary to reflect
the effects of the acquisitions have been made and are factually supportable.
The unaudited pro forma financial statements are not necessarily indicative of
the financial position of the consolidated company at July 31, 2000, or what the
actual results of operation of the consolidated company would have been assuming
the acquisition had been completed as of August 1, 1999, nor are they indicative
of the financial position or results of operations for future periods. The pro
forma financial statements should be read in conjunction with the historical
financial statements and notes thereto of ICC and IDC incorporated by reference
and the historical financial statements for RTCI included in this proxy
statement beginning on page F-1.
2. Pro Forma Adjustments and Assumptions
(A) The purchase price for ICC's pending acquisition of IDC was determined by
multiplying 190,861 shares of ICC's Class A Common Stock issued to IDC
shareholders by the fair market value of $17.34 per share. The number of shares
was determined by dividing $2,000,000 plus the IDC portfolio market value of
$1,308,754, as calculated based on the formula set forth in the definitive
merger agreement, divided by $17.34, the value of the ICC Class A Common Stock
on the Effective Date (as defined in the definitive merger agreement) (such
value as determined by taking the average of the average high and low trading
prices for ICC common stock for the 10 trading days ending four days prior to
July 31, 2000, the "closing date"). The estimated direct transaction costs to be
incurred by the combined company include fees paid for attorneys, accountants,
due diligence and other related charges. The purchase price for the completion
of the acquisition is summarized below (in thousands):
<TABLE>
<S> <C>
Purchase Price:
Acquisition cost $ 3,309
Estimated transaction costs 125
--------------
Total purchase price $ 3,434
==============
Fair value of net assets acquired:
Fixed assets $ 77
Other assets 1,471
Liabilities assumed (426)
--------------
Fair value of net assets acquired 1,122
--------------
Cost in excess of net assets acquired $ 2,312
==============
Payment of Purchase Price:
Common stock and additional paid-in capital $ 3,309
Other current liabilities - transaction costs 125
--------------
$ 3,434
==============
</TABLE>
34
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(B) The purchase price for ICC's pending acquisition of RTCI was determined by
the following formula:
ICC shall pay to holders of RTCI common stock, RTCI Series A Preferred
Stock and options an aggregate amount consisting of (i) the cash at closing (up
to a maximum of $4,000,000) and (ii) ICC shares equal to the number of shares
obtained by dividing $42,000,000 minus the cash at closing ($3,266,000 as of
July 31, 2000) by the market price ($17.37) as determined based on the formula
in the definitive merger agreement (the average of the closing prices per share
of ICC Class A Common Stock for the ten trading days ending three trading days
prior to July 31, 2000). A total of 2,229,830 shares will be reduced by 257,740
shares reserved for assumption of the RTCI stock option plan and 32,763 shares
reserved for assumption of RTCI warrants, resulting in 1,939,327 shares issued
at consummation of the acquisition. The estimated direct transaction costs to be
incurred by the combined company include fees for investment bankers, attorneys,
accountants, financial printing, due diligence and other related charges. The
purchase price for the completion of the acquisition is summarized below (in
thousands):
<TABLE>
<S> <C>
Purchase Price:
Acquisition cost $ 38,733
Conversion of note 5,000
Estimated transaction costs 1,010
------------
Total purchase price $ 44,743
============
Fair value of net assets acquired:
Fixed assets $ 1,197
Other assets 1,366
Identifiable intangible 9,996
Liabilities assumed (1,156)
------------
Fair value of net assets acquired 11,403
Excess of purchase price over fair value
of net assets acquired
33,340
Deferred tax effect of purchase accounting 4,498
------------
Cost in excess of net assets acquired $ 37,838
============
Payment of Purchase Price:
Common stock and fair value of options assumed $ 38,733
Conversion of note 5,000
Other current liabilities - transaction costs 1,010
------------
$ 44,743
============
</TABLE>
(C) The pro forma financial statements assume that the goodwill and the
intangible assets related to the RTCI and IDC acquisitions will be amortized on
a straight-line basis over the number of years indicated in the table below:
IDC RTCI
------------ ------------
Goodwill 10 10
Workforce 5
Mapping technology 5
Customer list 10
Amortization of intangibles will be included in the general and administrative
expenses in the combined company's statement of operations. These estimated
useful lives are based on valuations currently in process.
(D) Elimination of IDC and RTCI shareholders' equity amounts.
(E) Immediately prior to the RTCI acquisition, the convertible debenture and
certain warrants will be converted into shares of RTCI common stock.
35
<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(F) Immediately prior to the IDC acquisition, the IDC building will be
distributed at net book value to another company whose shareholders were
the shareholders of IDC prior to the acquisition of IDC by ICC.
(G) Deferred tax liability from acquisition of intangible assets from RTCI.
(H) Elimination of accretion and conversion of mandatorily redeemable preferred
stock.
(I) Elimination of revenue transactions between ICC and RTCI and between ICC and
IDC.
(J) Tax benefit relating to identifiable intangible assets.
(K) Elimination of intercompany balances.
(L) Cash distributed to RTCI stockholders immediately prior to acquisition of
RTCI by ICC.
3. Shares Issued for RTCI Acquisition
The transaction between ICC and RTCI is structured so that a minimum of
1,800,000 shares of ICC's Class A Common Stock and a maximum of 3,315,890 shares
of ICC's Class A Common Stock are issuable in connection with the RTCI merger
based upon the market price of ICC's Class A Common Stock and the cash on hand
of RTCI at closing.
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<PAGE>
THE COMPANIES
Internet Commerce Corporation
805 Third Avenue, 9th Floor
New York, New York 10022
(212) 271-7640
Description of ICC's Business
Business Development
We were founded in November 1991 under the name Infosafe Systems, Inc.
and from 1991 to 1997 we conducted limited operations and developed certain
products that we were unable to exploit commercially and consequently
discontinued. In 1997, we shifted our business emphasis to focus exclusively on
the development and marketing of our ICC.NET service, formerly known as our
CommerceSense(R) service, and changed our name to Internet Commerce Corporation
in September 1998 to reflect this shift. In the fourth quarter of fiscal year
1999, we became an operating company and were no longer considered a development
stage company. We launched the current version of our ICC.NET service
commercially in April 1999. As a result, we have only a limited operating
history and there is little historical information on which to evaluate our
business and prospects. In addition, we are subject to various risk factors
which are described in our annual report on form 10-KSB for the fiscal year
ended July 31, 2000, which is incorporated into this proxy statement by
reference.
We developed our ICC.NET service as an alternative to the electronic
data interchange, or EDI, services that are currently provided by traditional
value added networks, also known as VANs, that offer their services primarily
using dedicated telecommunications links. Our ICC.NET service translates and
transmits electronic documents, such as purchase orders, requests for proposals
and receipts, as well as images and other data over the Internet.
We are currently focusing on our ICC.NET service and as a result, our
revenue for the foreseeable future is almost entirely dependent on the success
of this service, including, but not limited to, the number of customers who
subscribe to the service and the volume (in kilocharacters) of the data,
documents or other information they send or retrieve utilizing our service and
revenue derived from our acquisition of Intercoastal Data Corporation, or IDC,
described below. We expect our expenses to increase, especially in the areas of
sales and marketing. We will need to generate significant revenue to achieve and
maintain profitability. If we do not increase our revenue significantly, we will
continue to be unprofitable.
ICC was incorporated under the laws of the State of Delaware on
November 18, 1991. Our executive offices are located at 805 Third Avenue 9th
floor, New York, New York 10022 and our telephone number is (212) 271-7640. (See
"Description of Properties.")
Recent Developments
Intercoastal Data Corporation. On August 2, 2000, ICC entered into an Agreement
and Plan of Merger with IDC and the IDC shareholders, referred to as the
Sellers, pursuant to which IDC merged with and into ICC, referred to as the IDC
Merger, on August 3, 2000 and is being operated as a division of ICC.
In connection with the IDC Merger, the Sellers received a total of
190,861 shares of ICC Class A Common Stock. On September 15, 2000, ICC filed
with the Securities and Exchange Commission a registration statement on Form S-3
registering the resale of these shares. If the average market value of the
shares for the ten days ending four days prior to the effective date of the
registration statement is less than the average value of the shares for the ten
days ending four days prior to the effective time of the IDC Merger ($17.34 per
share), ICC will issue up to an additional 47,715 shares to the Sellers to
restore this decline in value. IDC is engaged in the development, sale,
marketing or other exploitation of business-to-business electronic data
interchange standards-based applications for standard-based EDI exchange over
value-added networks, private networks intranets, extranets or the Internet. For
the twelve months ended January 31, 2000, IDC had total revenues of
approximately $1,528,000 and net income of approximately $71,000. IDC also owns
a portfolio of cash and marketable securities that had a value of
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approximately $1.3 million at the effective time of the IDC Merger. IDC was
founded in 1972 and is headquartered in Carrollton, Georgia.
Industry Background
We believe that although the Internet has become an important new sales
channel, its real value will be in achieving business efficiencies and cost
savings by expanding global business-to-business interconnectedness.
We believe that in an increasingly global economy, improvements in
speed and efficiency in the supply chain between businesses are important and
improvements in the capacity of a business to buy and sell goods and services or
raw materials within its business community becomes an important factor in its
ability to compete. Thus, for example, in a just-in-time economy, timeliness,
and not price, may be the most important component in creating competitive
advantage.
The speed and efficiency of the supply chain are hindered by
incompatibilities in technologies and methodologies used to communicate business
information among trading communities, which slow down the flow of information
and create bottlenecks. These incompatibilities stem from the diversity of
trading partners, which may range from members of the Fortune 1000 to sole
proprietors providing niche products. Trading partners may therefore have
different communications capabilities and requirements. Some trading partners
may rely on paper or fax to communicate, others exchange data in proprietary
file formats through direct dial-up connections or over the Internet, while the
largest trading partners use electronic methods such as EDI over VANs.
The ICC.NET Solution
ICC.NET is currently in use by our customers for the secure exchange of
business-to-business electronic forms and data files. We believe that our
ICC.NET service provides a solution to the communication difficulties caused by
the differences in data formats, networks and communications methods used by the
members of trading communities, and thus bridges the incompatibility gap and
enables seamless electronic business communication. Our ICC.NET service can
translate incompatible files into a format any user is capable of receiving and
uses the Internet to transmit the data file by EDI, fax or other format. We
believe that users of our ICC.NET service can thus improve their productivity
and reduce their costs by enabling electronic business-to-business transactions
between parties with different systems.
We believe that our ICC.NET service improves the basic infrastructure
of business-to-business electronic communications by providing intelligent
messaging and routing using the Internet, which, we believe, improves the
security, reliability, ease of use and acceptability of using the Internet for
business-to-business electronic commerce. ICC.NET performs these functions
without requiring that the user purchase any software and at prices that are, we
believe, significantly below the prices currently charged by traditional VANs.
We designed our ICC.NET service to avoid what we believe are
inefficiencies in traditional VAN services, software products and phone and
manual fax processes, which we believe are more expensive, slower and more
difficult to use than our ICC.NET service. ICC.NET incorporates proprietary
technology and is immediately accessible using a standard Internet connection
and a web browser.
Our ICC.NET service uses the Internet to deliver a higher level of
service and more features than traditional VANs:
o Documents are delivered up to 100 times faster, depending upon
the speed of the customer's Internet connections;
o Our customers may more effectively track, monitor and process
business documents and other data files using our real-time
document management browser screen displays;
o Our ICC.NET service allows us to consistently provide confirmed
delivery of documents and other data files;
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o Documents can be delivered either in real-time or retrieved
when convenient for the customer. Real-time delivery reduces
the potential for document corruption, bottlenecks and other
problems associated with batch delivery modes, which are
traditionally store-and-forward and in some cases can take
several hours to be delivered;
o Our ICC.NET service can handle transmissions of data other
than standard business documents, such as images, engineering
drawings, architectural blueprints, audio and some types of
video; and
o Our customers enjoy flexibility in creating different document
types and formats for various business applications. For
example, our customers can add their business logo to their
documents and can use their own format for each document type.
In addition, we believe our ICC.NET service offers advantages over
e-mail and other Internet-based electronic commerce systems, such as a full
range of VAN services, translation of a wide variety of data into
customer-specified formats, management of business documents or data files of
virtually any size and of a wide variety, including purchase orders, invoices,
statements, inventory tracking and shipping documents, images, engineering
drawings, architectural blueprints, audio and some types of video. ICC.NET also
provides a complete audit trail of content delivery and customer selection from
a variety of security methods.
We believe that ICC.NET is one of the only Internet-based data
transmission services that is approved to interconnect with twenty traditional
VANs, that currently provide EDI services for 90% of companies capable of using
EDI. As a result, we can handle EDI traffic between our customers and any of
their trading partners that choose to continue to use a traditional VAN and
between a customer that uses a traditional VAN and its trading partners that do
not. This provides our customers with the possibility of maximum penetration
into their trading partner community.
We developed and added new features to our ICC.NET service in 2000
including enhancements to reports and facsimile services, advanced on-network
document sorting and searching capabilities and an improved Help subsystem. We
also added powerful new Extended Markup Language, referred to as XML, based
capabilities to our Internet electronic commerce solutions. This unique new
feature utilizes XML to automatically pre-populate response documents.
EDI for web-based retailers. We provide an electronic document and data file
delivery link between web-based retailers and their vendors. We believe that
many larger vendors require that product orders and other documents be
transmitted using EDI. Web retailers can use our ICC.NET service to comply with
this requirement and thus can reduce their costs and improve their ability to
locate, order, track and deliver products. Our ICC.NET service can process
purchase orders, invoices, order status reports and other files transmitted
between web-based shopping portals of electronic retailers and their vendors,
distributors and manufacturers and can also manage critical logistics delivery
files. Due to the special requirements and rapid growth of these new web-based
retail companies, we have a dedicated web retailer sales and support team that
offers the retail companies the option to outsource to us all of their
electronic document and data file delivery requirements.
Large-scale electronic document management and delivery. Our ICC.NET service can
transmit large-scale non-EDI electronic documents and other large files, which
may include catalogs, engineering drawings, graphics and some types of video.
ICC.NET allows customers to manage and distribute these large files in real-time
and provides archiving, security, authentication and audit services. ICC.NET
will support both a publish/subscribe configuration, in which a customer can
publish any number of files for subscribers authorized by the customer to view
and/or download, and a point-to-point-delivery configuration that operates like
our ICC.NET VAN service.
EDI to fax service. Traditional EDI users convert electronic documents into a
faxable format and fax the documents manually to their trading partners that
cannot receive documents transmitted electronically in EDI. Our ICC.NET fax
service allows our customers to send a document electronically, which we will
then electronically convert and fax to any of our customer's trading partners
that cannot receive electronically transmitted documents and specify that they
want to receive the document by fax.
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Business Strategy
We believe that our ICC.NET service provides a platform with many
applications that will allow our customers to fulfill a substantial portion of
their electronic document and data delivery requirements with significantly less
administrative effort and cost. We believe that ICC.NET will allow our customers
to send us the majority of their important documents and data files which we
will then be able to transmit to each of the intended recipients in any form
requested by the recipient. Our customers will thus be able to integrate a
substantial portion of their document and data file delivery methods into a
single, seamless process.
A large company that uses EDI to communicate with its vendors is
referred to as a hub; its trading partners, vendors or customers, are referred
to as spokes. We intend to continue to market ICC.NET as a one-stop electronic
document and data delivery service to the 2,500 largest hub companies in the
United States. Due to the cost to the spoke companies of implementing EDI and
using VANs and other electronic document delivery methods, large hub companies
are currently connected electronically to only a small percentage of their
potential spoke companies.
Our current customers conduct their business internationally, and we
are servicing these customers and pursuing new international customers in Europe
and other places outside the United States. See "International" on page 50 of
this proxy statement.
We believe that a significant number of these hub companies intend to
expand the use of electronic commerce to more of their spoke companies. Small
spoke companies using our ICC.NET service require only an Internet connection
and a web browser to receive and transmit documents electronically and, we
believe, will also be able to receive electronic documents using our ICC.NET fax
service. As a result, large hub companies may now be able to request or
encourage electronic commerce with their small spoke companies. In turn, many of
these spoke companies may become the hub companies for their suppliers, which
should further broaden the reach of our ICC.NET service.
We intend to encourage the use of our ICC.NET service through
exceptional customer service. We currently offer technical support to our
customers twenty-four hours a day, seven days a week. Due to the multiple
redundancies of all of our systems and the stability of the Securities Industry
Automation Corporation, or SIAC, which is the location of our data center, our
ICC.NET service has been fully operational more than 99% of the time. SIAC runs
all computing operations for the New York Stock Exchange and the American Stock
Exchange.
We intend to seek acquisitions of services, products or companies,
joint ventures or other arrangements which complement or expand our business.
However, we cannot assure you that we will be able to identify appropriate
acquisition candidates in the future or that we will be able to successfully
negotiate and finance the acquisition if an acquisition candidate is identified.
If we make other types of acquisitions, it will be necessary to assimilate the
acquired services, technologies or customers into our operations. If we
consummate one or more significant acquisitions through the issuance of shares
of class A common stock, our stockholders could suffer significant dilution of
their ownership interests in ICC. Finally, expanding our business through
acquisitions may expose us to new and different competitors, which will likely
have greater financial and other resources than we do.
We expect to experience seasonality in our business that reflects the
seasonality of the businesses of our customers. We believe that period-to-period
comparisons of our operating results may not be meaningful and that our
operating results for any particular period will not necessarily be a good
indicator of our future performance.
International
ICC has announced a five-year agreement with ThyssenKrupp Information
Services Group, or ThyssenKrupp, which provides ThyssenKrupp with Principal
Partner status in the form of European hosting rights for ICC services. The
agreement includes an $8,000,000 minimum revenue guarantee to ICC over the first
24 months of the agreement.
ThyssenKrupp will package and integrate ICC services into
ThyssenKrupp's product and service offerings and will establish its own
co-branding of the services. In addition, ICC and ThyssenKrupp intend to
establish an
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ICC.NET data platform for operation by ThyssenKrupp in Europe which
will be connected with ICC's network. ThyssenKrupp will initially focus its
sales and marketing efforts on the major continental European markets and will
provide international language support, initially German with French and other
primary European languages to follow.
In addition, ICC is expanding internationally through its strategic
global alliance with Cable & Wireless. See "Marketing and Sales -- Direct
Marketing through Sales Force" in this proxy statement.
Competition
Our principal competitors include: Peregrine Systems, Inc., GE Global
eXchange Services, a subsidiary of GE Information Services, Inc., International
Business Machines Corporation Global Services, Sterling Commerce, Inc., a
subsidiary of SBC Communications Inc., AT&T Corp. and WorldCom, Inc. Each of
these competitors has an established VAN that has provided EDI for at least
several years and has long-established relationships with the users of EDI,
including many of our prospective customers.
The business-to-business electronic commerce industry is evolving
rapidly and is intensely competitive. If we are not able to compete effectively
against our current and future competitors, we may lose customers, may need to
lower our prices, may experience reductions in gross margins, increases in
marketing costs or losses in market share, or may experience a combination of
these problems and, as a result, our business will suffer.
Our market is characterized by rapidly-changing technology, customer
demands and intense competition. If we cannot keep pace with these changes, our
ICC.NET service could become uncompetitive and our business will suffer. The
Internet's recent growth and the intense competition in our industry require us
to continue to develop strategic business and Internet solutions that enhance
and improve the customer service features, functions and responsiveness of our
ICC.NET VAN and other proposed services and that keep pace with continuing
changes in information technology and customer requirements. If we are not
successful in developing and marketing enhancements to our ICC.NET VAN service
or other proposed services that respond to technological change or customer
demands, our business will suffer.
Many of our current and potential competitors have significant existing
customer relationships and vastly larger financial, marketing, customer support,
technical and other resources than we do. As a result, they may be able to
respond more quickly to changing technology and changes in customer requirements
or be able to undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and make more attractive offers to potential
customers and employees, or be able to devote greater resources to the
development, promotion and sale of their services than we can. As a result, we
may not be successful in competing against competitors.
If we are successful in utilizing our ICC.NET platform to provide new
services, we may enter into different markets and may face the same or
additional competitors, most of which will have substantially greater financial
and other resources than we do.
Patents and Trademarks
Patents. On August 26, 1997, ICC was granted patent No. 5,661,799 entitled,
Apparatus and Storage Medium for Decrypting Information. The essential
components of this patent include 1) the decryption of encrypted information
without requiring that decryption keys be transmitted from one place to another,
2) the decryption of encrypted information which employs different keys for
different segments of information and 3) the disabling of a system for the
decryption of encrypted information if a user is no longer authorized to
retrieve information.
On January 7, 1997, ICC was granted patent No. 5,592,549 entitled,
Method and Apparatus for Retrieving Selected Information from a Secure
Information Source. There are three essential components to this "Branding
Patent:" 1) decryption of an electronic item or product, such as a document or
software, 2) the attachment of an identifying serial number and 3) the logging
of the item number and serial number. By attaching a "brand" at the time the
document is decrypted from a secure data source, an "audit trail" of the
decrypted information can be maintained.
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In December 1995, ICC was granted patent No. 5,473,687 entitled, Method
for Retrieving Secure Information from a Database, covering its technology for
providing a secure method for the commercial distribution and use of digital
information on a rental basis using a technique to discourage long-term use
without endangering the computer or the operating system.
In February 1995, ICC was granted patent No. 5,394,469 entitled, Method
and Apparatus for Retrieving Secure Information From Mass Storage Media, for its
system to retrieve and monitor the use of protected information from various
digital media.
We rely upon this encryption and authentication technology to provide
secure transmission of confidential information. If our security measures do not
prevent security breaches, we could suffer operating losses, damage to our
reputation, litigation and possible liability. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
that render current encryption technology outdated may result in a breach of our
encryption and authentication technology and could enable an outside party to
steal proprietary information or interrupt our operations.
Uncertain Patent Protection. Although ICC has obtained patent rights described
above, we believe that the protection of our rights in our ICC.NET service will
depend primarily on our proprietary software and messaging techniques which
constitute "trade secrets." ICC has made no determination as to the
patentability of these trade secrets. ICC will continue to evaluate, on a
case-by-case basis, whether applying for additional patents in the future is in
our best interests. There can be no assurance that our technology will remain a
secret or that others will not develop similar technology and use such
technology to compete with us.
In addition, there can be no assurance that any issued patents owned by
ICC or our trade secrets will afford us adequate protection or not be
challenged, invalidated, infringed or circumvented, or that patent applications
relating to our products or technologies that we may file or license in the
future, including any patent as to which a notice of allowance was issued, will
result in patents being issued, or that any rights granted thereunder will
provide competitive advantages to ICC. Although we believe that our technology
does not infringe upon the proprietary hardware or software of others, it is
possible that others may have or be granted patents claiming products or
processes that are necessary for or useful to the development of our ICC.NET
service and that legal actions could be brought against us claiming
infringement. In the event that we are unsuccessful against such a claim, we may
be required to obtain licenses to such patents or to other patents or
proprietary technology in order to develop, manufacture or market our products
and services. There can be no assurance that we will be able to obtain such
licenses on commercially reasonable terms, if at all. If we are required to and
do not obtain such licenses, we will encounter delays in the development and
manufacturing of our products and technologies while we attempt to design around
such patents or other rights and there can be no assurance that such attempts
would be successful. Failure to obtain such licenses or to design around such
patents or other rights would have a material adverse effect on our business.
Trademarks. ICC's trademarks ICC.NET, INFOSAFE, PROTECTED BY INFOSAFE,
COMMERCESENSE, COPYSAFE and DESIGN PALETTE have been registered with the United
States Patent and Trademark Office. The applications to register AUDINET,
B2B4B2C and B to B for B to C have now been allowed as trademarks and await
registration. We intend to apply for additional name and logo marks in the
United States and in foreign jurisdictions. No assurance can be given that
registrations will be issued on the non-allowed applications or that interested
third parties will not petition the United States Patent and Trademark Office to
cancel our registration.
The validity, enforceability and scope of protection of some types of
proprietary rights in Internet-related businesses are uncertain and still
evolving. If unauthorized third parties try to copy our service or our business
model or use our confidential information to develop competing services, we may
lose customers and our business could suffer. We may not be able to effectively
police unauthorized use of our technology because policing is difficult and
expensive. In particular, the global nature of the Internet makes it difficult
to control the ultimate destination or security of software or other data
transmitted. The laws of other countries may not adequately protect our
intellectual property.
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Marketing and Sales
We employ a variety of marketing initiatives, including significantly
increased print advertising and trade show representation to enhance awareness
of our ICC.NET and other services in the electronic commerce community and to
increase our sales domestically and internationally.
Direct Marketing through Sales Force. Direct sales to large corporate users of
existing VAN services have been successful for ICC to date and continue to form
the core of our sales strategy. ICC has begun a program to leverage and augment
the sales force of ICC by developing reseller and agent programs with major
organizations. The most significant of these are our Cable & Wireless and
ThyssenKrupp relationships. Cable & Wireless began selling our services in May
2000 throughout the United States and will extend the programs to Europe and the
United Kingdom. Cable & Wireless employs more than 1,000 sales representatives
in the United States and a like number overseas. See "International" on page 52
of this proxy statement for information about ICC's relationship with
ThyssenKrupp. ICC's telesales and sales force currently consists of twelve
people and is growing. Our sales force organization consists of field sales
representatives who provide direct assistance with sales calls at customer sites
and must meet target quotas and telesales representatives who use industry and
internal databases to create leads for our ICC.NET service and qualify leads
generated from tradeshows and advertising. These representatives are supported
by technical personnel based in the field. All field sales personnel report to
the Executive Vice President of Sales and all telesales representatives report
to the Vice President of Marketing.
Indirect Marketing through Hub Companies. We believe that smaller spoke
companies comprise a significant potential market that may be reached without
any direct marketing on our part, because the low cost of our ICC.NET service
should allow these smaller spoke companies to consider using our service if
requested to do so by their hub companies.
Seminars and Tradeshows. We conduct seminar marketing, consisting of a traveling
road show providing targeted group demonstration and selling activities to
pre-qualified audiences invited to events in their own localities by direct mail
and advertising supported by telemarketing confirmation. From June to August of
2000, ICC sponsored a national seminar program with RTCI in 14 cities throughout
the United States to gain broader exposure to potential customers. ICC has
significantly expanded its participation in industry tradeshows and has hired
personnel to focus solely on this area. We plan to staff national shows with
sales, support and executive personnel from our headquarters.
Web-based and Print Advertising. We intend to use both web-based and traditional
print advertising. Our new redesigned web site embodies a variety of promotional
features. In addition, ICC has selectively begun a print advertising campaign to
generate sales leads and increase brand recognition.
Strategic Relationships. We are currently discussing relationships with general
consulting firms and others in which the firms will recommend our products and
services as part of their project or product recommendations. In addition, we
are currently offering to create custom-designed interfaces to the purchasing
software packages, which commonly have an EDI component, of the twenty largest
companies that produce purchasing software. We believe that an interface with
our Internet-based electronic commerce system will appeal to the software
companies' desire to highlight the cutting-edge character of their software. The
software companies will not incur any costs by adding our interface, since we
are developing the interfaces to increase the number of users of our ICC.NET
service rather than to produce revenues by selling the interfaces.
Technical Support
We provide technical support twenty-four hours a day, seven days a week
for all users. For new users of our ICC.NET service, we provide education about
the application and correctly configure the users' computer systems. We also
provide ongoing assistance for previously-installed users. Due to the multiple
redundancies of all of our systems and the stability of SIAC, our ICC.NET
service has been fully operational nearly 100% of the time.
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Customers
We currently provide our ICC.NET service to more than 350 customers in
various industries including pharmaceutical, publishing, office supplies,
e-tailing, manufacturing and retail. Customers in these industries include
American Power Conversion Corporation, TravelCenters of America, Inc.,
OfficeMax, Inc., The CIT Group, Inc., Hastings Entertainment, Inc., Barnes &
Noble, Inc., edu.com, Inc., Revlon, Inc., Xerox Corporation, The McGraw-Hill
Companies, Inc., Random House Inc., Linens n' Things, Inc. and Sector
Communications, Inc., a SIAC company. We believe that no single customer
accounted for a material portion of our revenues during the year ended July 31,
2000.
Research and Development
Research and development costs related to the maintenance and
improvement of our ICC.NET service increased to $702,000 in 2000 from $517,000
in 1999 primarily due to increased salaries and related costs and consulting
fees.
Employees
At July 31, 2000, ICC had 76 full-time employees, of whom 40 performed
administrative, management and executive functions, 24 performed sales and
marketing functions and 12 were responsible for our technology and its
development.
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icc - SELECTED FINanCIAL DATA
ICC's selected statement of operations data for each of the years in the five
year period ended July 31, 2000 are presented below. ICC's selected balance
sheet data are presented below as of July 31, 2000, 1999, 1998, 1997 and 1996.
The financial statements for the years ended July 31, 1999, 1998, 1997 and 1996
have been audited by Richard A. Eisner & Company, LLP. The financial statements
for the year ended July 31, 2000 have been audited by Deloitte & Touche LLP. The
financial statements as of July 31, 2000 and for each of the years in the two
year period ended July 31, 2000 and the report of independent public accountants
thereon are incorporated by reference. The selected financial data set forth
below is qualified in its entirety by, and should be read in conjunction with,
ICC's financial statements and the notes thereto.
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- --------- -----------
(in thousands, except per-share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenues:
---------- ---------- ---------- --------- -----------
Services and other $ 1,303 $ 105 $ 19 $ 17 $ 51
---------- ---------- ---------- --------- -----------
Costs and expenses:
Cost of services and other 2,514 452 11 54 69
General & administration 4,814 3,548 2,307 1,901 2,224
Sales and marketing1 3,273 420
Product development & enhancement 702 517 576 713 934
Non-cash charge in connection with
stock-based compensation,
services and legal settlements 5,161 3,267
Write-down of assets 33 178 507 470
---------- ---------- ---------- --------- -----------
Total costs and expenses (16,464) (8,237) (3,072) (3,175) (3,697)
Operating income (loss) (15,161) (8,132) (3,053) (3,158) (3,646)
Interest (income) expense 675 (1,489) 56 89 149
---------- ---------- ---------- --------- -----------
(Loss) from continuing operations $ (14,486) $ (9,621) $ (2,997) $(3,069) $(3,497)
Dividends attributable to preferred stock (458) (191)
Dividends attributable to preferred stock
resulting from discount for beneficial
conversion feature (4,549) (1,222)
---------- ---------- ---------- --------- -----------
Loss attributable to common shares $ (19,493) $(11,034) $ (2,997) $(3,069) $(3,497)
========== ========== ========== ========= ===========
Net (loss) per share-basic and diluted $ (4.49) $ (7.62) $ (2.79) $ (.72) $ (1.05)
========== ========== ========== ========= ===========
Weighted average shares used in per
share calculation - basic and diluted 4,337 1,447 1,076 4,250 3,325
========== ========== ========== ========= ===========
July 31,
-------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- --------- -----------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 14,003 $ 114 $ 178 $ 393 $ 50
Working capital (deficit) 17,831 3,119 (915) 2,535 599
Total assets 22,332 6,540 1,535 3,492 2,025
Total debt 231 358 203 10
Stockholders' equity 20,090 5,055 132 2,960 1,523
</TABLE>
--------------------------------
1 ICC did not have significant selling and marketing expenses from 1995
to 1998 and such expenses are included with general and administrative expenses.
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Description of RTCI's Business
Research Triangle Commerce, Inc. ("RTCI") provides services and third
party software that enables organizations to integrate their business
applications both internally and with external business partners for the purpose
of electronic commerce ("e-commerce" or "EC"). RTCI believes that its business
model differentiates RTCI from traditional information technology ("IT")
professional service companies because RTCI can provide remote service delivery,
reusable solutions, and fixed and value-based pricing for its clients while
maintaining lower employee turnover for RTCI. RTCI has developed service
offerings that allow it to cross-sell to all aspects of a client's business,
from internal integration to business to business ("B2B") e-commerce
initiatives. The full range of RTCI's e-commerce services include:
eConsulting. RTCI provides a broad range of electronic commerce consulting
("eConsulting") services, including education, strategic services, project
management, implementation and staff augmentation. RTCI offers EC/electronic
data interchange ("EDI"), Extensible Markup Language ("XML") and
industry-specific EC education and training at seminars hosted by leading
universities around the United States through its education division. These
seminars are led by RTCI's resident and other industry experts in the subject
matter, and address the basic components of EC/EDI/XML, software, networks,
standards, trading partner issues, business management issues and specific
industry-related activity. RTCI believes that education services build its
reputation for expertise and serve as an effective marketing tool. RTCI's
strategic services, which also provide a means of early entry with accounts,
include EC strategy, requirements definition, competitive analysis, technical
assessments, gap analysis, and product selection analysis. RTCI's strategic
services can be stand alone engagements or part of integrated solutions that
include other eConsulting services such as project management and implementation
services. RTCI has developed a project management and requirements definition
process, which allows it to determine the appropriate systems architecture for
clients. Through eConsulting, RTCI provides substantial expertise in many
enterprise application integration ("EAI") and data transformation middleware
products and is able to do requirement definitions for other RTCI services.
RTCI's eConsultants can also provide custom applications for requirements that
can not be solved with standard electronic commerce products.
EAI/EDI/XML Mapping. RTCI provides EDI, XML, EAI and B2B e-commerce mapping
services. Mapping, which is the process of translation between unique data
layouts, is a critical component of software integration and B2B e-commerce.
Traditionally, this integration work has been performed onsite largely by a
company's internal IT staff and to a lesser extent by systems integration firms.
RTCI believes that there will be significant growth in the need for integration
driven by the growth of B2B e-commerce, because companies are increasingly
looking to outsource mapping work to experts such as RTCI.
As a result of RTCI's core competence in mapping and its extensive
library of reusable frameworks for maps, RTCI is able to offer a compelling
value proposition to customers. RTCI has developed and retains ownership of over
500 frameworks for maps, or application interfaces, that can be used repeatedly
in the delivery of integration services. These reusable frameworks significantly
reduce the time required to complete a project. RTCI also owns commercial grade
software utility tools to increase the productivity of its services. Through
RTCI's network operations center ("NOC"), RTCI can duplicate a client's
hardware/software environment and provide mapping services remotely through
RTCI's EDI Mapping Factory(R), which has combined operations located in Cary,
N.C. and Wilmington, N.C. The EDI Mapping Factory(R) uses commercial
off-the-shelf ("COTS") and RTCI-developed tools, utilities and reusable
frameworks to develop data transformation maps for these COTS that can connect
any data sets or systems to each other. These maps are developed in-house and
delivered remotely over the Internet by a process developed by RTCI. This
enables RTCI to avoid the inefficiencies and expense of travel, improve the
quality and speed of data transmission and reduce turnover by improving the
quality of life for its employees. RTCI believes that the combination of remote
services, fixed prices and low turnover greatly enhances efficiency, and results
in premium margins for our company and value for RTCI's customers. RTCI has
mapping experience in many industries and industry initiatives, including:
automotive, distribution, healthcare, high-tech, logistics, supply chain
management, telecommunications, transportation and utilities.
Internetworking. RTCI's NOC is both a stand-alone business unit and a necessary
technological component of RTCI's remote delivery model. As a stand-alone
business unit, RTCI's Internetworking business provides outsourced B2B trading
community management services, Internet Service Provider and Application Service
Provider services. In addition to hosting web sites, RTCI provides
implementation, integration and
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management/maintenance services. As an example, for a B2B trading exchange, RTCI
would purchase the B2B software, set up and manage the trading environment in
its NOC and integrate new trading partners. The NOC also allows RTCI to deliver
mapping or application development services remotely because RTCI is able to
duplicate network environments, host projects under development and deliver
information efficiently and securely.
Customers
Since 1997, RTCI has provided services to more than 100 companies. RTCI
is primarily focused on two types of clients - Global 1000 companies that seek
RTCI's expertise in data translation and e-commerce integration and B2B Internet
companies that seek RTCI's services for a broad continuum of e-frastructure
solutions, including strategy, integration and internetworking. RTCI's B2B
Internet clients include both pure Internet companies and "clicks and mortar"
companies that are moving part of their business operations to the Internet,
including more than 25 of the Fortune 500 companies, three of the largest US
banks and several of the largest transportation and logistics companies in the
United States.
In the year ended December 31, 1999, RTCI's ten largest clients
generated approximately 50.9% of revenues, with the largest customer accounting
for 13.8% of revenues. In 1999, more than 55% of RTCI's services were delivered
remotely, with more than 70% provided on a fixed-price or retainer basis.
Sales & Marketing
Marketing Strategy
RTCI promotes itself as a full service B2B e-commerce solutions company
with skills ranging from EC education to internetworking with a core expertise
in data transformation mapping. RTCI's marketing strategy focuses on developing
a strong brand name that reflects its core competencies and ability to deliver
services on a remote basis through its EDI Mapping Factory(R). The marketing
strategy emphasizes the use of the EDI Mapping Factory(R) as a cost efficient
means to deliver services. RTCI's marketing plan assumes that business success
in one of its service areas will translate into additional revenue from the
cross selling of products.
To build its presence within the B2B market space, RTCI intends to
increase the amount and scope of its advertising. In that regard, RTCI intends
to nationally market its brand, the technological expertise of its
industry-leading experts, through advertising in highly viewed national forums,
publications and in other forms of media.
Sales Strategy
In conjunction with its marketing and branding strategy, RTCI has
developed a plan to increase the amount of revenue realized through its sales
effort. RTCI plans to capitalize on its successes with clients by increasing its
average engagement size. RTCI believes that upon successful performance of
existing client contracts, clients will seek to sign contracts for more
extensive projects across the continuum of RTCI's service areas.
RTCI plans to expand its fixed price and retainer arrangements by
offering "productized services" that can be delivered more efficiently,
profitably and attractively from a client's perspective. Productized services,
such as maps, are software that can be remotely delivered over the Internet,
instead of being developed by consultants located at remote client sites using
traditional methods. These productized services may be customized to meet a
client's particular needs.
RTCI is focused on its extensive client base and intends to offer
RTCI's full range of services to these clients. Furthermore, RTCI contemplates
using its prior performance as a way of extending the engagement into other
areas. RTCI also intends to generate more channel sales from current and future
strategic partner relationships.
RTCI will continue to move toward direct account control instead of
indirect client account control through subcontractor relationships with other
service providers. While RTCI will continue to partner with other service
providers, it will actively seek to be the owner of the account and develop
independent relationships with clients. In order to accomplish these objectives,
RTCI will continue to expand its marketing efforts in order to create and
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enhance customer awareness and expand its direct sales force to solidify its
relationships with these clients. The establishment of direct account control
should create more opportunities for RTCI to provide its full range of services
to the market.
RTCI plans to open sales offices in cities with a high density of
customers and prospects in order to be closer to its customers to allow the
forging of stronger customer relationships.
Employees
As of July 31, 2000, RTCI had 91 full-time employees, including 47
billable professionals and 44 non-billable staff.
Facilities
RTCI's main offices are located at 201 Shannon Oaks Circle, Cary, NC
under a lease that expires on October 31, 2004. RTCI leases and occupies 27,300
square feet, at an annual rent of approximately $502,000, subject to customary
increases, and has an option through October 31, 2000 for an additional 9,300
square feet of space in this building at an annual rent of approximately
$172,000, subject to customary increases. If the option for the lease for the
9,300 square feet is exercised, the lease for all 36,600 square feet shall be
extended to October 31, 2006. This lease provides for two five-year options to
extend the lease term, and a right of first refusal on all other space in this
56,000 square foot building.
RTCI has leased an additional 1,400 square feet, as a satellite mapping
factory and custom development office, at Landfall Park North in Wilmington, NC
under a lease that expires on November 30, 2002 for an annual rent of
approximately $29,000, subject to customary increases. This lease provides for
two five-year options to extend the lease term.
RTCI's EDI Partners education unit is located at 8951 West 36th Street,
Minneapolis, MN under a lease that expires on December 31, 2000 at an annual
rent of approximately $15,000. RTCI expects to renew this agreement at the end
of its term.
RTCI believes that these facilities should be adequate for its present
and reasonably foreseeable requirements.
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RTCI - SELECTED FINANCIAL DATA
rtci's selected statement of operations data for each of the years in the
four-year period ended December 31, 1999 and six months ended June 30, 2000 and
1999, respectively, are presented below. RTCI's selected balance sheet data are
presented below as of December 31, 1999, 1998, 1997 and 1996 and as of June 30,
2000 and 1999, respectively. Financial statements are not presented for the year
ended December 31, 1995 since they were prepared on a cash basis and are not in
accordance with generally accepted accounting principles. The December 31, 1999,
1998, 1997 and 1996 financial statements have been audited by independent
accountants. The financial statements as of December 31, 1999 and for each of
the years in the two year period ended December 31, 1999 and the report of
independent public accountants thereon are included beginning on page F-1 of
this proxy statement. The selected financial data set forth below is qualified
in its entirety by, and should be read in conjunction with, RTCI's financial
statements and the notes thereto and "RTCI's Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this proxy statement.
<TABLE>
<CAPTION>
6 months ended Year Ended December 31,
------------------------ ------------------------------------------------------
06/30/00 06/30/99 1999 1998 1997 1996
---------- ---------- ------------ --------- --------- ---------
(in thousands)
Statement of Operations Data:
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Services $ 3,536 $ 2,865 $ 6,032 $ 4,434 $ 3,078 $ 1,916
Software sales 204 84 634 180 286 99
---------- ---------- ------------ --------- --------- ---------
Total revenues 3,740 2,949 6,666 4,614 3,364 2,015
Costs and expenses:
Services 2,823 2,315 5,093 2,506 1,531 1,098
Software 196 49 402 123 193 89
Selling, general &
administrative 2,410 1,626 4,115 1,827 1,481 764
---------- ---------- ------------ --------- --------- ---------
Total costs and expenses 5,429 3,990 9,610 4,456 3,205 1,951
Operating income (loss) (1,689) (1,041) (2,944) 158 159 64
Interest income (expense) and
other (306) 15 (56) (78) (56) (31)
---------- ---------- ------------ --------- --------- ---------
Income (loss) before income taxes (1,995) (1,026) (3,000) 80 103 33
Income tax expense (benefit) (37) 19 30 24
---------- ---------- ------------ --------- --------- ---------
Net income (loss) (1,995) (1,026) (2,963) 61 73 9
Accretion of mandatorily
redeemable preferred stock 47 (242) (553)
---------- ---------- ------------ --------- --------- ---------
Net income (loss) attributable to
common shareholders $ (1,948) $ (1,268) $ (3,516) $ 61 $ 73 $ 9
========== ========== ============ ========= ========= =========
June 30, December 31,
------------------------ ------------------------------------------------------
2000 1999 1999 1998 1997 1996
---------- ---------- ------------- --------- --------- ---------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 3,709 $ 655 $ 292 $ 8 $ 66 $ 31
Working capital (deficit) (2,858) 849 (944) (231) (119) (63)
Total assets 6,233 2,644 3,131 1,210 817 474
Total debt 302 34 2,268 637 431 213
Mandatorily redeemable preferred
stock 3,093 2,830 3,140
Stockholders' equity (deficit) (5,045) (1,046) (3,097) 135 74 1
</TABLE>
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Management's Discussion and Analysis
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
In 1999, RTCI's revenue grew approximately 46% to $6.7 million from
$4.6 million in 1998. This growth was primarily related to the expansion of
business with existing customers and the addition of new customers.
Approximately $1.5 million of the increased revenue related to professional
services, $0.3 million to mapping services, $0.5 million to software sales and
$0.1 million to education services from an acquisition that was completed in
June 1999. Offsetting these increases was a decline in revenue of $0.7 million
related primarily to the loss of one Internetworking customer at the end of
1998, that decided to withdraw from its EC services business, which was
partially offset in 1999 by $0.4 million in revenues from a new customer.
During 1999, RTCI expanded its capacity by doubling its staff to 104
individuals and moving into 27,000 square feet of new offices. Increased payroll
and office costs resulted in a loss from operations of $2.9 million in 1999,
compared to income from operations of $0.2 million in 1998.
This expansion resulted in a cash shortfall from operations of $3.0
million in 1999. In addition, RTCI invested $0.4 million in new equipment and
software and an additional $0.3 million in two acquisitions. These cash
requirements were financed by the net proceeds of $2.7 million from the sale of
preferred stock and $2.0 million from the issuance of a convertible debenture,
which were offset in part by the repayment of $0.6 million of bank financing.
At December 31, 1999 RTCI had $0.3 million of cash on hand,
approximately $0.9 million in working capital (excluding convertible debentures
that will convert to equity in 2000), and a $2 million line of credit with First
Union National Bank, under which no amounts were outstanding.
Six-Months Ended June 30, 2000 Compared to Six-Months Ended June 30, 1999
In the six months ended June 30, 2000, RTCI's revenue grew
approximately 28% to $3.7 million from $2.9 million in the six months ended June
30, 1999. This growth was primarily related to the expansion of business with
existing customers, the addition of new customers and an acquisition.
Approximately $400,000 of the increased revenue related to Education Services
from an acquisition that was completed in June 1999, $300,000 to Mapping
Services and $100,000 to Software Sales.
RTCI has expanded its capacity by increasing its average staff level to
104 individuals for the six month period ended June 30, 2000 from 70 individuals
for the six month period ended June 30, 1999 and moving into 27,000 square feet
of new offices in October 1999. This expansion increased payroll, training and
facility costs, which, in addition to expanded sales and marketing programs,
contributed to a loss of $2.0 million in the six months ended June 30, 2000
compared to a loss from operations of $1.0 million in the six months ended June
30, 1999. Further, in the six months ended June 30, 2000 interest expense (net)
increased by $300,000 from the prior year six month period, primarily due to
interest and amortization of debt discount related to the issuance of $2.0
million of Convertible Debentures in December 1999, capital leases to finance
the office expansion and costs of borrowing under a line of credit.
RTCI had a cash shortfall from operations of $1.4 million during the
six months ended June 30, 2000 compared to a cash shortfall from operations of
$0.9 million during the six months ended June 30, 1999. During the six months
ended June 30, 2000, the Company invested $100,000 in new equipment and
software, while generating approximately $5.0 million from borrowings from ICC
in June 2000.
At June 30, 2000 the Company had $3.7 million cash on hand and
approximately $4.2 million in working capital, excluding the $2.0 million of
Convertible Debentures and the $5.0 million borrowing from ICC, both of which
converted to equity in August 2000.
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OPERATIONS FOLLOWING THE MERGER
Following the Merger, RTCI will be a wholly owned subsidiary of ICC.
ICC intends to operate RTCI as a going concern substantially in accordance with
RTCI's present plan of operation (without regard to acquisitions). At the
Effective Time of the Merger ICC will offer employment to all the present
employees of RTCI on terms substantially comparable to the terms of employment
of comparable ICC employees, subject to reasonable adjustments related to
location, cost of living and other relevant factors and subject in all cases to
the discretion of the Board of Directors of ICC.
ICC intends to cross sell its services to the customers of RTCI and to
use the added capabilities of RTCI to better serve ICC's current customers and
to expand its customer base. ICC and RTCI intend to integrate their financial
reporting and other systems. Jeffrey LeRose will continue to serve as Chief
Executive Officer of RTCI. Upon consummation of the Merger, Dr. Geoffrey S.
Carroll, the President and Chief Executive Officer of ICC, will be the sole
director of RTCI and Jeffrey LeRose and Kim Cooke will be elected to ICC's Board
of Directors.
PROPOSAL TWO
APPROVAL OF THE AMENDMENT TO STOCK OPTION PLAN
At the Company's Annual Meeting of Stockholders held on June 19, 2000
(the "Annual Meeting"), the stockholders approved the Company's Amended and
Restated Stock Option Plan (the "Amended Plan"), which is an amendment and
restatement of the Infosafe Systems, Inc. 1994 Stock Option Plan (the "1994
Plan"). The full text of the Amended Plan is set forth in Exhibit C to this
Proxy Statement. Directors, officers and other employees of the Company, as well
as consultants to the Company, are eligible to participate under the Amended
Plan. The Board of Directors believes that, in light of the Company's recent
acquisition of IDC and the proposed acquisition of RTCI described in this proxy
statement, the current number of shares of Common Stock available for issuance
upon the exercise of options granted under the current Amended Plan is
insufficient to provide sufficient incentives for the successful recruitment and
retention of key personnel, including the RTCI personnel after the consummation
of the Merger. The Board of Directors therefore has adopted, and is submitting
to the stockholders for approval, Proposal Two, which amends the Amended Plan to
increase the number of shares issuable upon the exercise of options granted
pursuant to the Amended Plan from 5,000,000 to 7,000,000.
The main features of the Amended Plan are outlined below, but the
outline is qualified by reference to the complete text of the Amended Plan.
General
The purpose of the Amended Plan is to secure for the Company and its
stockholders the benefits arising from capital stock ownership by employees,
officers and directors of, and consultants or advisers to, the Company and its
subsidiary corporations who are expected to contribute to the Company's future
growth and success. Except where the context otherwise requires, the term
"Company" shall include all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code").
The Amended Plan provides for the granting of stock options with
respect to up to an aggregate of 7,000,000 shares of Common Stock, subject to
adjustment in the event of certain capital changes as described below. Of this
number, 1,960,000 shares were available under the 1994 Plan, 3,040,000 shares
were added under the Amended Plan as approved by stockholders at the Annual
Meeting and the additional 2,000,000 shares are submitted for stockholder
approval pursuant to this Proposal Two. During any calendar year, no participant
in the Amended Plan shall receive Options with respect to more than 300,000
shares of Common Stock. Shares issued under the Amended Plan may be authorized
but unissued or reacquired Common Stock, at the discretion of the Committee. As
of October 13, 2000, the closing price of a share of Common Stock on the Nasdaq
National Market was $4.50.
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Administration
The Amended Plan shall be administered by a committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board of
Directors"), which Committee may be the Board of Directors in the absence of
another appointment. If and to the extent the Board of Directors determines it
is appropriate for the compensation payable as a result of a grant of any Option
to qualify as "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code, such Option shall be authorized and granted by the
Committee (or a subcommittee thereof), which shall consist of two or more
individuals appointed by the Board of Directors, all of whom are "non-employee
directors" (as defined in Section 162(m) of the Code). If and to the extent it
is intended that any grant of an Option to a director or an officer who is a
Reporting Person (as the terms "director" and "officer" are defined for purposes
of Rule 16b-3) shall comply with Rule 16b-3, the decision to make the Option
grant, the timing of the Option grant, the exercise price of the Option, the
number of shares subject to the Option and the other terms of the Option shall
be determined either by (i) the Board of Directors or (ii) the Committee which
shall consist of two or more directors having full authority to act in the
matter, each of whom shall be a "non-employee director" within the meaning of
Rule 16b-3(b)(3). The Committee has full authority (i) to administer the Amended
Plan, including authority to interpret and construe any provision of the Amended
Plan and the terms of any Option issued under the Amended Plan and (ii) to adopt
such rules and regulations for administering the Amended Plan as it may deem
necessary or appropriate. Decisions of the Committee shall be final and binding
on all parties. The Committee's determinations under the Amended Plan may, but
need not, be uniform and may be made on a participant-by-participant basis
(whether or not two or more participants are similarly situated).
Eligibility
Options may be granted to persons selected by the Committee in its
discretion who are, at the time of grant, employees, officers or directors of,
or consultants or advisers to, the Company. The granting of Options is
discretionary, and the Company cannot now determine the number or type of
Options that will be granted in the future to any particular person or group.
Awards
The Amended Plan provides for the grant of stock options not intended
to qualify as incentive stock options within the meaning of Section 422 of the
Code ("NQOs") and stock options that are intended to qualify as incentive stock
options within the meaning of Section 422 of the Code ("ISOs") (collectively,
"Options") in such amounts and subject to such terms and conditions, as the
Committee shall in its discretion determine. Each Option shall be evidenced by
an "Option Agreement" containing such terms as the Committee shall determine.
Non-Qualified Stock Options. The exercise price-per-share of each NQO
shall be determined by the Committee on the date of grant, but shall not be less
than that required by law. Each NQO first shall become exercisable on such date
or dates as the Committee shall determine and set forth in the Option Agreement.
Each NQO shall be exercisable in whole or in part for a term, not to exceed ten
years, established by the Committee on the date of grant. The Committee may
accelerate the date on which an Option may become exercisable or extend the
period during which the Option is exercisable. The exercise price shall be paid
in cash or a check to the order of the Company in an amount equal to the
exercise price of such Options, or by any other means which are permitted by the
Committee and which the Committee determines are consistent with the purpose of
the Amended Plan and with applicable laws and regulations (including, without
limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the
Federal Reserve Board).
In the event of a participant's termination of employment for any
reason other than cause, disability (as each such term is defined in the Amended
Plan) or death, NQOs generally remain exercisable until the expiration of three
months after such termination (or, if earlier, the expiration of their term). In
the event of a participant's termination of employment by reason of disability,
NQOs shall remain exercisable until the expiration of one year after such
termination (or, if earlier, the expiration of their term). In the event of a
participant's death while employed or during a three month period following his
or her termination of employment, NQOs shall remain exercisable until the
expiration of one year after such death. In the event of a participant's
termination of employment for cause or a breach by the participant of an
employment or confidentiality or non-disclosure agreement, the Option shall
expire immediately upon such termination.
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Incentive Stock Options. Generally, ISOs are options that may provide
to a participant certain federal income tax benefits that are not available with
NQOs, provided that a participant holds the shares acquired upon exercise of an
ISO for at least two years after the date the ISO is granted and at least one
year after the exercise date. The rules for ISOs under the Amended Plan are the
same as with respect to NQOs, except as follows:
1. The exercise price-per-share of each ISO granted under the
Amended Plan must not be less than the fair market value of a
share of Common Stock on the date on which such ISO is
granted.
2. An ISO granted to any individual who owns stock possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company is subject to the
following additional limitations: (i) the exercise
price-per-share of the ISO must be at least 110% of the fair
market value of a share of Common Stock at the time any such
ISO is granted and (ii) the ISO cannot be exercisable after
the expiration of five years from the grant date.
3. The aggregate fair market value of shares of Common Stock with
respect to which ISOs are exercisable for the first time by a
participant during any calendar year (determined on the grant
date) under the Amended Plan or any other plan of the Company
or its subsidiaries may not exceed $100,000.
4. In the event of a participant's termination of employment,
ISOs granted to the participant are exercisable to the same
extent as described above with respect to NQOs, with the
following two exceptions: (A) in no event shall an ISO be
exercisable after the expiration of the term set forth in the
Option Agreement, and (B) in the event of a termination of
employment for any reason other than cause, disability or
death, an Option Agreement may permit the exercise of an ISO
more than three months after the termination, in which case
the Option shall be treated as an NQO (rather than an ISO) to
the extent it is exercised more than three months after the
termination of employment.
Change of Control Events
If the Company is the surviving corporation in any reorganization,
merger or consolidation of the Company with one or more other corporations, any
then outstanding Option granted pursuant to the Plan shall pertain to and apply
to the securities or other property (including cash) to which a holder of the
number of shares of Common Stock subject to such Option would have been entitled
immediately following such reorganization, merger, or consolidation, with a
corresponding proportionate adjustment of the purchase price as to which such
Option may be exercised shall be the same as the aggregate purchase price as to
which such Option may be exercised for the shares remaining subject to the
Options immediately prior to such reorganization, merger, or consolidation.
In the event of any sale, merger, transfer or acquisition of the
Company in which the Company is not the surviving corporation or the sale of
substantially all of the assets of the Company, and provided that after the
Company has requested that the acquiring or succeeding corporation or an
affiliate of the acquiror substitute equivalent options and such acquiring or
succeeding corporation or its affiliate has refused or failed to assume all
Options outstanding under the Amended Plan or to issue substantially equivalent
options, then any or all outstanding Options under the Amended Plan shall
accelerate and become exercisable in full immediately prior to such event and
shall remain exercisable until the expiration of a period to be determined by
the Committee, which period shall not be less than fifteen days from the date of
the notice by the Committee to the holders of such Options, after which such
Options shall terminate. The Committee will notify holders of Options under the
Amended Plan of such accelerated exercisability. In addition, notwithstanding
the foregoing, in the event of a merger, transfer or acquisition of the Company
described in this paragraph, the Committee, in its sole discretion, may elect to
cancel, effective immediately prior to the occurrence of such event, each Option
outstanding immediately prior to such event (whether or not then exercisable),
and, in full consideration of such cancellation, pay to the participant to whom
such Option was granted an amount in cash for each share of Common Stock subject
to such Option equal to the excess of (x) the value, as determined by the
Committee in its absolute discretion, of the securities or other property or
assets (including cash) to be received by the holder of a share of Common Stock
as a result of such event over (y) the exercise price of such Option.
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Substitute Options
The Company may grant Options in substitution for options held by
employees of another corporation who become employees of the Company or a
subsidiary of the Company, as a result of a merger or consolidation of the
employing corporation with the Company or a subsidiary of the Company, as a
result of the acquisition by the Company, or one of its subsidiaries, of
property or stock of the employing corporation. The Company may direct that
substitute Options be granted on such terms and conditions as the Committee
considers appropriate in the circumstances.
Transferability of Options
Options granted under the Amended Plan are exercisable during a
participant's lifetime only by the participant and are not transferable by the
participant, other than by will or the laws of descent and distribution.
Certain Corporate Changes
The Amended Plan provides for an adjustment in the number of shares of
Common Stock available to be issued under the Amended Plan, the maximum number
of shares with respect to which Options may be granted to a Participant in a
year, and the number and exercise price-per-share of shares of Common Stock
subject to Options upon a change in capitalization of the Company, a stock
dividend or split, a merger or combination of shares and certain other similar
events.
Amendment and Termination
The Board of Directors may suspend, discontinue, revise or amend the
Amended Plan at any time and in any respect, subject to stockholder approval to
the extent necessary to comply with applicable law and any stock exchange
listing requirements. No amendment to the Amended Plan may reduce any Option
previously granted to a participant without the participant's prior written
consent Unless sooner terminated by the Board of Directors, the Amended Plan
shall terminate upon the earlier of (i) the close of business on June 29, 2009,
or (ii) the date on which all shares available for issuance under the Amended
Plan shall have been issued. If the date of termination is determined under (i)
above, then Options outstanding on such date shall continue to have force and
effect in accordance with the provisions of the Option Agreements.
Summary of Federal Tax Consequences
The following is a description of the principal federal income tax
consequences of Options under the Amended Plan based on present federal tax
laws. Federal tax laws may change from time to time and any legislation that may
be enacted in the future by the United States Congress may significantly affect
the federal income tax consequences described below. No representation is or can
be made regarding whether any such legislation shall or may be enacted and/or
the impact of any such legislation. The description below does not purport to be
a complete description of the tax consequences associated with Options under the
Amended Plan applicable to any particular award recipient. Differences in each
individual's financial situation may cause federal, state and local tax
consequences of awards to vary.
Non-Qualified Stock Options. In general, a participant shall not be
deemed to receive any income at the time an NQO is granted, nor shall the
Company be entitled to a federal tax deduction at that time.
When a participant exercises an NQO, the participant shall recognize
ordinary compensation income equal to the excess of (a) the fair market value of
the Common Stock received as a result of the exercise of the option on the
exercise date over (b) the option exercise price, and the Company shall be
entitled to a tax deduction in that amount. The shares acquired by the
participant upon exercise of the NQO shall have a tax basis equal to the fair
market value of the shares on the exercise date. Upon any subsequent sale of the
Common Stock received on exercise of the NQO, the participant shall recognize a
capital gain (or loss) in an amount equal to the difference between the amount
realized on the sale and such tax basis. Any such gain (or loss) shall be
characterized as long-term capital gain (or loss) if the shares have been held
for more than one year; otherwise, the gain (or loss) shall be
54
<PAGE>
characterized as a short-term capital gain (or loss). A participant's holding
period for federal income tax purposes for such shares shall commence on the
date following the date of exercise. Short-term capital gain is subject to tax
at the same rate as is ordinary income. Under current law, the rate at which net
long-term capital gain is taxed varies depending on the participant's holding
period and the date the participant disposes of the shares. The Code currently
provides that, in general, the net long-term capital gain resulting from the
sale of shares held for more than 12 months is subject to tax at a maximum rate
of 20% (10% for individuals in the 15% tax bracket). The Code currently provides
that net long-term capital gain resulting from dispositions after December 31,
2000 of shares held for more than 5 years may be subject to a reduced rate.
If all or any part of the exercise price of an NQO is paid by the
participant with shares of Common Stock (including, based upon proposed
regulations under the Code, shares previously acquired upon exercise of an ISO),
no gain or loss shall be recognized by the participant on the shares surrendered
in payment. The number of shares received on such exercise of the NQO equal to
the number of shares surrendered shall have the same tax basis and holding
period, for purposes of determining whether subsequent dispositions result in
long-term or short-term capital gain or loss and the applicable tax rates, as
the basis and holding period of the shares surrendered. The balance of the
shares received on such exercise shall be treated for federal income tax
purposes as described in the preceding paragraphs as though issued upon the
exercise of the NQO for an exercise price equal to the consideration, if any,
paid by the participant in cash. The participant's compensation taxable as
ordinary income upon such exercise, and the Company's deduction, shall not be
affected by whether the exercise price is paid in cash or in shares of Common
Stock.
Incentive Stock Options. In general, a participant shall not be deemed
to receive any income at the time an ISO is granted or exercised if the
participant does not dispose of the shares acquired on exercise of the ISO
within two years after the grant of the ISO and one year after the exercise of
the ISO (discussed more fully in the next paragraph). In such a case, the gain
(if any) on a subsequent sale (the excess of the amount received over the
exercise price) or loss (if any) on a subsequent sale (the excess of the
exercise price over the amount received) shall be a long-term capital gain or
loss and shall be subject to tax based on the holding period of the shares, as
described in the discussion of NQOs above. However, for purposes of computing
the "alternative minimum tax" applicable to a participant, the participant shall
include in the participant's alternative minimum taxable income the amount the
participant would have included in income if the ISO were an NQO. Such amount
may be subject to an alternative minimum tax of 26% or 28%. Similarly, for
purposes of making alternative minimum tax calculations, the participant's basis
in the stock received on the exercise of an ISO shall be determined as if the
ISO were an NQO.
If a participant sells the shares acquired on exercise of an ISO within
two years after the date of grant of the ISO or within one year after the
exercise of the ISO, the disposition is a "disqualifying disposition," and the
participant shall recognize income in the year of the disqualifying disposition
equal to the excess of the amount received for the shares over the exercise
price. Of that income, the portion equal to the excess of the fair market value
of the shares at the time the ISO was exercised over the exercise price shall be
treated as compensation to the participant, taxable as ordinary income, and the
balance (if any) shall be long- or short- term capital gain depending on whether
the shares were sold more than one year after the ISO was exercised. The federal
tax rate applicable to any long-term capital gain depends upon the holding
period of the shares, as described above. If the participant sells the shares in
a disqualifying disposition at a price that is below the exercise price, the
loss shall be a short-term capital loss if the participant has held the shares
for one year or less and otherwise shall be a long-term capital loss.
If a participant uses shares acquired upon the exercise of an ISO to
exercise an ISO, and the sale of the shares so surrendered for cash on the date
of surrender would be a disqualifying disposition of such shares, the use of
such shares to exercise an ISO also would constitute a disqualifying
disposition. In such case, proposed regulations under the Code appear to provide
that the tax consequences described above with respect to disqualifying
dispositions would apply, except that no capital gain would be recognized with
respect to such disqualifying disposition. In addition, the basis of the
surrendered shares would be allocated to the shares acquired upon exercise of
the ISO, and the holding period of the shares so acquired would be determined,
in a manner prescribed in proposed regulations under the Code.
The Company is not entitled to a deduction as a result of the grant or
exercise of an ISO. If the participant has compensation taxable as ordinary
income as a result of a disqualifying disposition, the Company shall be
55
<PAGE>
entitled to a deduction in an amount equal to the compensation income resulting
from the disqualifying disposition in the taxable year of the Company in which
the disqualifying disposition occurs.
Deduction Limit under Section 162(m) of the Code. In general, the
"Million-Dollar Limit" under Section 162(m) of the Code provides that, subject
to certain exceptions, remuneration in excess of $1 million that is paid to
certain "covered employees" of a publicly held corporation (generally, the
corporation's Chief Executive Officer and its four most highly compensated
employees other than the Chief Executive Officer) shall not be deductible by the
corporation. Grants of Options generally shall be eligible for an exception to
the Million-Dollar Limit applicable to certain qualified "performance-based
compensation." In addition, if and to the extent that the Committee determines
the Company's federal tax deduction in respect of an Option may be limited as a
result of Section 162(m) of the Code, the Committee may delay payments to a
participant with respect to the Option, and, in exchange, credit to an account
on the books and records of the Company a cash amount equal to the fair market
value of the shares of Common Stock subject to such Option (a "Book Account").
The amounts credited to such Book Account (which represents only an unfunded,
unsecured promise of the Company to pay such amounts to the participant) shall
be paid to the participant within thirty days after the date the Committee
determines that the Company's federal tax deduction will not be affected by such
payment. As a result, it would appear that the Company's deduction for such
amounts would be preserved.
Withholding of Taxes. Whenever a participant is required to recognize
compensation income taxable as ordinary income in connection with an Option, the
Company may be obligated to withhold amounts for the payment of federal, state
and local taxes. The Company may withhold (i) an amount in cash sufficient to
satisfy its withholding obligations (when the income is recognized through the
receipt of cash) or (ii) a number of shares, the fair market value of which is
sufficient to satisfy such withholding requirements. Additionally, when the
income is recognized through the receipt of stock, the Company may require that
the participant remit to the Company an amount in cash sufficient to satisfy the
Company's withholding obligations. At the election of the participant and
subject to the approval of the Committee, the participant may satisfy any such
withholding obligations by remitting to the Company shares of Common Stock with
a fair market value sufficient to satisfy the withholding obligations.
Other Tax Matters. Tax consequences different from or in addition to
those described above may result in the event of an exercise of an option after
the termination of a participant's employment by reason of death. In addition,
various state laws may provide for tax consequences that vary significantly from
those described above.
New Plan Benefits
The Company has granted options to purchase shares of Class A Common
Stock (the "Initial Options") to certain individuals pursuant to the Amended
Plan. The following table indicates the amount of such Initial Options that are
currently held by the executive officers, directors and associates of such
officers and directors of the Company:
Number of
Name and Position Shares (1)
Richard J. Berman......................................... 550,000
Chairman and former Chief
Executive Officer
Dr. Geoffrey S. Carroll................................... 500,000
President and Chief
Executive Officer
David Hubbard............................................. 230,000
Chief Technology Officer
G. Michael Cassidy........................................ 391,021
Executive Vice President and
General Manager
Walter M. Psztur.......................................... 163,000
Chief Financial Officer and
Secretary
56
<PAGE>
Charles C. Johnston....................................... 50,000
Director
Arthur R. Medici.......................................... 174,404
Director
James A. Ortenzio......................................... 50,000
Director
Matthew Wolk.............................................. 50,000
Director
Executive Group (3)....................................... 1,284,021
Non-Executive Director Group (4).......................... 874,404
Associates of Directors and Executive Officers............ __
Other 5% Recipients....................................... __
Non-Executive Officer Employee Group...................... 1,730,156
(1) Number of shares acquirable upon the exercise of each option grant.
(2) The dollar value of the awards is based on the difference between the
fair market value and the exercise price of the Class A Common Stock on
the date of grant. All of the Initial Options have exercise prices
either equal to or exceeding the fair market value (as defined in the
Amended Plan) of the Class A Common Stock on the date of grant.
(3) Consists of the executive officers of the Company.
(4) Consists of directors of the Company who are not officers or employees
of the Company.
The Board of Directors unanimously recommends a vote FOR approval of
the amendment to the Amended Plan.
Approval of Proposal Two requires the affirmative vote of a majority of
the aggregate voting power of the outstanding shares of Class A Common Stock,
Class B Common Stock and Series C Preferred Stock present in person or
represented by proxy at the Special Meeting and entitled to vote thereon, voting
together as a single class.
INCORPORATION BY REFERENCE
The following documents are incorporated in this Proxy Statement by
reference and made a part of this Proxy Statement:
o ICC's annual report on Form 10-KSB for the year ended July 31, 2000;
o ICC's proxy statement for the 2000 Annual Meeting of Stockholders;
o ICC's current report on Form 8-K filed with the Securities and Exchange
Commission (the "SEC") on November 14, 2000; and
o The description of ICC's Common Stock contained in ICC's Rule 424
prospectus filed with the SEC on June 18, 1997, including any
amendments or reports filed for the purpose of updating the
description.
All documents filed by ICC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the special meeting will be deemed incorporated by
reference in this Proxy Statement from the date those documents are filed. All
information appearing in this Proxy Statement is qualified in its entirety by
the information and financial statements (including notes thereto) appearing in
the documents incorporated by reference in this Proxy Statement.
57
<PAGE>
ICC will furnish to any stockholder, without charge, a copy of these
documents upon written request to Larry Danziger, Corporate Controller, 805
Third Avenue, 9th Floor, New York, New York 10022. A copy of any exhibits to
these documents will be furnished to any stockholder upon written request.
These documents and ICC's other SEC filings are also available to the
public over the Internet at the SEC's web site at http://www.sec.gov. This web
site contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. You may also read and
copy any document filed by ICC at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the SEC's public reference room in Washington, D.C. by calling the
SEC at 1-800-SEC-0330.
58
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other business that will be
presented at the Special Meeting. If any other business is properly brought
before the Special Meeting, it is intended that proxies in the enclosed form
will be voted in accordance with the judgment of the persons voting the proxies.
Whether you intend to be present at the Special Meeting or not, we urge
you to return your signed proxy promptly.
By order of the Board of Directors,
/s/ Dr. Geoffrey S. Carroll
----------------------------------------
Dr. Geoffrey S. Carroll
President and
Chief Executive Officer
Dated: October 13, 2000
59
<PAGE>
INTERNET COMMERCE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING TO BE HELD ON NOVEMBER 6, 2000.
The undersigned stockholder of Internet Commerce Corporation ("ICC" or
the "Company") acknowledges receipt of the Notice of Special Meeting of
Stockholders and the Proxy Statement each dated October 13, 2000 and the
undersigned revokes all prior proxies and appoints Dr. Geoffrey S. Carroll and
Walter M. Psztur as proxy for the undersigned, each with full power of
substitution, to vote all shares of Class A Common Stock, Class B Common Stock
and/or Series C Preferred Stock of the Company which the undersigned is entitled
to vote at the Company's Special Meeting of Stockholders to be held on November
6, 2000 at 10:00 a.m., New York time, at the New York Marriott East Side, 525
Lexington Avenue, New York, New York 10017 and at any postponement or
adjournment thereof, and the undersigned authorizes and instructs such proxies
or their substitutes to vote as follows:
1. APPROVAL OF THE SHARE ISSUANCE: To approve the issuance of up to 3,315,890
shares of ICC Class A Common Stock to shareholders of Research Triangle
Commerce, Inc., a North Carolina corporation ("RTCI"), in connection with the
merger of ICC Acquisition Corporation, Inc., a North Carolina corporation and a
wholly-owned subsidiary of the Company ("Buyer"), into RTCI pursuant to a Merger
Agreement dated June 14, 2000 among the Company, Buyer, RTCI and the
shareholders of RTCI identified therein:
FOR >> AGAINST >> ABSTAIN >>
2. APPROVAL OF THE OPTION PLAN AMENDMENT: To approve the amendment of our
Amended and Restated Stock Option Plan to increase the number of shares of ICC
Common Stock issuable pursuant to the exercise of options granted thereunder
from 5,000,000 to 7,000,000:
FOR >> AGAINST >> ABSTAIN >>
3. In their discretion upon any other matter that may properly come before the
Special Meeting or any postponement or adjournment thereof.
(Continued and to be dated and signed on the other side.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IN THE ABSENCE OF DIRECTION, THIS PROXY
WILL BE VOTED FOR APPROVAL OF THE SHARE ISSUANCE AND THE OPTION PLAN AMENDMENT
AND, IN ACCORDANCE WITH THE JUDGMENT OF THE PROXIES, FOR OR AGAINST ANY OTHER
MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING AND ANY POSTPONEMENT OR
ADJOURNMENT THEREOF.
PLEASE DATE, SIGN AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Dated: _____________________________, 2000
------------------------------------------
(Signature of Stockholder)
------------------------------------------
(Signature of Stockholder)
Please sign exactly as your name(s) appears
on your stock certificate. If signing as
attorney, executor, administrator, trustee
or guardian, please indicate the capacity in
which signing. When signing as joint
tenants, all parties to the joint tenancy
must sign. When the proxy is given by a
corporation, it should be signed by an
authorized officer.
2
<PAGE>
RESEARCH TRIANGLE COMMERCE, INC.
FINANCIAL STATEMENTS
INDEX
Page
Report of Independent Accountants F-2
Financial Statements:
Balance Sheets F-3
Statements of Operations F-4
Statements of Cash Flows F-5
Statements of Stockholders' Equity (Deficit) F-7
Notes to Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Research Triangle Commerce, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows and stockholders' equity (deficit) present fairly, in
all material respects, the financial position of Research Triangle Commerce,
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. 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 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
from 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 audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 30, 2000
F-2
<PAGE>
Research Triangle Commerce, Inc.
Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------- -----------------
1999 1998 2000
------------ ----------- -----------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 292 $ 8 $ 3,709
Accounts receivable, net of allowance for doubtful accounts of
$73 and
$14 at December 31, 1999 and 1998, respectively and of $70 at
June 30, 2000 (unaudited) 1,193 532 943
Other receivables 15 19 17
Income tax receivable 41 - 33
Inventories 171 162 166
Prepaid expenses 86 49 157
Deferred income taxes - 13 -
------------ ----------- -----------------
Total current assets 1,798 783 5,025
Property and equipment, net 1,171 293 1,103
Capitalized software costs, net 99 108 68
Other assets 63 26 37
------------ ----------- -----------------
Total assets $ 3,131 $ 1,210 $ 6,233
============ =========== =================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 218 $ 222 $ 340
Accrued expenses 592 180 343
Current portion of capital lease obligations 80 17 82
Deferred revenue 10 18 25
Convertible debenture 1,842 - 2,093
Amounts due to lenders - 577 5,000
------------ ----------- -----------------
Total current liabilities 2,742 1,014 7,883
Deferred income taxes - 18 -
Long term portion of capital lease obligations 346 43 302
Commitments and contingencies (Note 13)
Mandatorily redeemable convertible preferred stock, no par value;
2,870,000 shares designated, 2,789,650 shares issued and
outstanding at
December 31, 1999 (liquidation preference of $3,069 as of
December 31,
1999), 2,789,650 shares issued and outstanding at June 30, 2000
(unaudited) (liquidation preference of $3,069 as of June 30, 2000
(unaudited)) 3,140 - 3,093
Stockholders' equity (deficit):
Common stock, $.00011 par value, 20,000,000 shares
authorized, 9,300,000 shares issued and outstanding at - -
December 31, 1999 and June 30, 2000 (unaudited)
Retained earnings (accumulated deficit) (3,097) 135 (5,045)
------------ ----------- -----------------
Total stockholders' equity (deficit) (3,097) 135 (5,045)
------------ ----------- -----------------
Total liabilities and stockholders' equity (deficit) $ 3,131 $ 1,210 $ 6,233
============ =========== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Research Triangle Commerce, Inc.
Statements Of Operations
(in thousands)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
------------------------------- -------------------------------
1999 1998 2000 1999
------------- ------------- ----------- -----------------
(unaudited)
Revenue:
<S> <C> <C> <C> <C>
Services $ 6,032 $4,434 $ 3,536 $ 2,865
Software sales 634 180 204 84
------------- ------------- ------------- -------------
Total revenue 6,666 4,614 3,740 2,949
------------- ------------- ------------- -------------
Costs and operating expenses:
Services 5,093 2,506 2,823 2,315
Software 402 123 196 49
Selling, general and administrative 4,115 1,827 2,410 1,626
------------- ------------- ------------- -------------
Total costs and operating
expenses 9,610 4,456 5,429 3,990
------------- ------------- ------------- -------------
Income (loss) from operations (2,944) 158 (1,689) (1,041)
------------- ------------- ------------- -------------
Interest income (expense):
Interest income 26 1 18 20
Interest expense (82) (79) (324) (5)
------------- ------------- -------------
Interest expense, net (56) (78) (306) 15
------------- ------------- ------------- -------------
Income (loss) before income taxes (3,000) 80 (1,995) (1,026)
Provision (benefit) for income taxes (37) 19 - -
------------- ------------- ------------- -------------
Net income (loss) (2,963) 61 (1,995) (1,026)
Accretion of mandatorily redeemable preferred
stock (553) - 47 (242)
------------- ------------- ------------- -------------
Net income (loss) available to common
stockholders $ (3,516) $ 61 $ (1,948) $ (1,268)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
Research Triangle Commerce, Inc.
Statements Of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
-------------------------- --------------------------
1999 1998 2000 1999
------------ ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,963) $ 61 $ (1,995) $(1,026)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 275 76 242 81
Deferred tax expense (5) 15 - (5)
Noncash interest expense 39 - 269 -
Loss on disposal of property and equipment 16 - - -
Bad debt expense 60 26 36 15
Changes in operating assets and liabilities:
Accounts receivable (721) (75) 214 (229)
Other receivables 4 - (2) (1)
Income tax receivable (41) - 8 (22)
Inventories (9) (147) 5 1
Prepaids (37) (62) (71) (22)
Other assets 26 - (18) (31)
Accounts payable (4) 73 122 253
Accrued expenses 412 35 (256) 111
Deferred revenue (8) - 4 2
------------ ----------- ----------- -----------
Net cash provided by (used in) operating activities (2,956) 2 (1,442) (873)
------------ ----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (446) (189) (99) (481)
Purchase/development of software - (56) - (4)
Cash paid for acquisitions (274) - - -
Cash paid for noncompete agreements (113) - - (107)
------------ ----------- ----------- -----------
Net cash used in investing activities (833) (245) (99) (592)
------------ ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable preferred stock
and
and warrants 2,673 - - 2,673
Proceeds from line of credit 3,615 3,335 2,774 808
Payments on line of credit (3,892) (3,320) (2,774) (1,078)
Proceeds from issuance of notes, convertible debenture and 2,000 - 5,000 -
warrants
Payments on notes payable to related party - (115) - -
Proceeds from (payments on) term note (300) 300 - (282)
Payments on capital lease obligations (23) (15) (42) (9)
------------ ----------- ----------- -----------
Net cash provided by financing activities 4,073 185 4,958 2,112
------------ ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 284 (58) 3,417 647
Cash and cash equivalents at beginning of year 8 66 292 8
------------ ----------- ----------- -----------
Cash and cash equivalents at end of year $ 292 $ 8 $ 3,709 $ 655
============ =========== =========== ===========
</TABLE>
The accompanying notes are an itegral part of these financial statements.
F-5
<PAGE>
Research Triangle Commerce, Inc.
Statements Of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year ended Six months ended
December 31, June 30,
-------------------------- --------------------------
1999 1998 2000 1999
------------ ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Supplemental cash flow disclosures:
Interest paid $ 25 $ 79 $ 37 $ 5
============ =========== =========== ===========
Taxes paid $ 5 $ 14 - -
============ =========== =========== ===========
Supplemental disclosure of noncash transactions:
Execution of capital lease agreements $ 389 $ 21 - -
============ =========== =========== ===========
Accretion of mandatorily redeemable preferred stock $ 553 - $(47) $ 242
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Research Triangle Commerce, Inc.
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-In - (Accumulated
Shares Amount Capital Deficit) Total
--------------- ------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 9,300,000 $ - $ - $ 74 $ 74
Net income - - - 61 61
--------------- ------------- -------------- ---------------- ---------------
Balance at December 31, 1998 9,300,000 - - 135 135
Issuance of common stock warrants - - 284 - 284
Accretion of mandatorily
redeemable
preferred stock - - (284) (269) (553)
Net loss - - - (2,963) (2,963)
--------------- ------------- -------------- ---------------- ---------------
Balance at December 31, 1999 9,300,000 - - (3,097) (3,097)
Accretion of mandatorily redeemable
preferred stock (unaudited) - - - 47 47
Net loss (unaudited) - - - (1,995) (1,995)
--------------- ------------- -------------- ---------------- ---------------
Balance at June 30, 2000 (unaudited) 9,300,000 $ - $ - $ (5,045) $(5,045)
=============== ============= ============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
1. Business and Operating Environment
Research Triangle Commerce, Inc., (formerly Research Triangle Consultants
Inc.) (the "Company") is a North Carolina based corporation incorporated in
1991. The Company is a vertically integrated provider of education and
consulting services, custom programming, internetworking operations,
software sales and related services that enable organizations to implement
Electronic Commerce ("EC") methodologies to integrate their business
applications, both internally and with external business partners.
During 1999, the Company increased its number of employees, office space
and other technical capabilities to prepare for anticipated growth in its
business. This growth has been slower than anticipated, due partially to
customers' Y2K concerns, and accordingly, the Company incurred a net loss
from operations for the year 1999.
In the opinion of management, the accompanying unaudited June 30, 1999 and
June 30, 2000 financial statements include all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the financial
position, results of operations, and cash flows of the Company. Results for
the interim periods are not necessarily indicative of the results for any
other interim period or for the full fiscal year.
Management anticipates an increase in revenues and cash flow from
operations in 2000, which it believes, along with temporary borrowings
under its $2,000,000 line of credit, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for the
next year. In addition, management is currently attempting to obtain
additional capital through a private placement of its equity securities to
finance its long-term expansion plans. However, there can be no assurance
that the Company will be able to meet its operating plans, achieve
profitability, or raise additional equity financing. See Note 14.
2. Summary of Significant Accounting Policies
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.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less at the date of purchase to be cash
equivalents.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash equivalents, accounts receivable, accounts payable and other accrued
expenses approximate their fair values due to their short maturities. Based
on borrowing rates currently available to the Company for loans with
similar terms, the carrying value of the convertible debenture and capital
lease obligations approximates fair value.
F-8
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of temporary cash and
trade receivables. The Company primarily places its temporary cash with
high-credit quality financial institutions. Cash deposits are all in
financial institutions in the United States. The Company performs ongoing
credit evaluations to reduce credit risk and requires no collateral from
its customers. Management estimates the allowance for uncollectible
accounts based on its historical experience and credit evaluation.
At December 31, 1999, two customers accounted for 27% of gross accounts
receivable. There were no significant individual customer balances at
December 31, 1998. At June 30, 2000, one customer accounted for 12% of
gross accounts receivable (unaudited). For the years ended December 31,
1999 and 1998, two customers accounted for 23% and 33%, respectively, of
total revenue. For the six month period ended June 30, 2000, one customer
accounted for 18% of revenues (unaudited). For the six month period ended
June 30, 1999, one customer accounted for 16% of revenues (unaudited).
Inventories
Inventories are valued at the lower of cost or market, with cost determined
using the first-in, first-out method. Inventory primarily consists of
software for resale.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. Property and
equipment held under capital leases, which involve a transfer of ownership,
are amortized over the estimated useful life of the asset. Other property
and equipment held under capital leases and leasehold improvements are
amortized over the shorter of the lease term or the estimated useful life
of the related asset. Upon retirement or sale, the cost of assets disposed
of and the related accumulated depreciation are removed from the accounts
and any resulting gain or loss is credited or charged to income. Repairs
and maintenance costs are expensed as incurred.
Capitalized Software Costs
Software development costs are capitalized beginning when a product's
technological feasibility has been established and ending when a product is
available for general release.
Capitalized software costs are amortized over their expected useful life,
but in no case over a period greater than three years. Capitalized software
costs are presented net of accumulated amortization of $67,000 and $33,000
at December 31, 1999 and 1998, respectively.
Income Taxes
The Company accounts for income taxes using the liability method which
requires the recognition of deferred tax assets or liabilities for
temporary differences between financial reporting and tax bases of the
Company's assets and liabilities and for tax carryforwards. A valuation
allowance is recorded, if necessary, to reduce net deferred tax assets to
an amount which management believes is more likely than not to be realized.
Revenue Recognition
Service revenues are recognized over the period in which services are
provided to customers according to individual contract terms. Revenues from
the sale of software products having no significant ongoing obligations are
recognized after delivery of the products and fulfillment of acceptance
terms, including installation. In the event services are billed prior to
performing work, revenues are deferred and recognized over the period the
work is performed.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform
to current year presentation.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation based on the provisions
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"), which states that no
F-9
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
compensation expense is recorded for stock options or other stock-based
awards to employees that are granted with an exercise price equal to or
above the estimated fair value of the Company's common stock on the grant
date. In the event that stock options are granted with an exercise price
below the estimated fair value of the Company's common stock at the grant
date, the difference between the fair value of the Company's common stock
and the exercise price is recorded as deferred compensation. Deferred
compensation is amortized to compensation expense over the vesting period
of the related stock option. The Company has adopted the disclosure
requirements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS No. 123"), which requires pro forma net
income (loss) to be disclosed as if compensation had been recorded based on
the fair value of the options granted at the date of grant. Stock-based
awards to non-employees are accounted for under the provisions of SFAS No.
123.
Redeemable Preferred Stock
The carrying value of redeemable convertible preferred stock is increased
by periodic accretions so that the carrying amount will equal the
redemption amount at the redemption date.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
were approximately $78,000 and $29,000 for the years ended December 31,
1999 and 1998, respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivatives
Investments and Hedging Activities" (SFAS No. 133). SFAS No. 133
established a new model for accounting for derivatives and hedging
activities and supercedes several existing standards. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company does not expect that the
adoption of SFAS No. 133 will have a material impact on the financial
statements.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 provides
specific guidance, among other things, as to the recognition of revenue
related to up-front non-refundable fees and services charges received in
connection with a contractual arrangement. The Company has applied the
provisions of SAB 101 for the year ended December 31, 1999, and its
adoption did not have a material impact on the Company's financial
condition or results of operations.
F-10
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
3. Contract Termination
On December 1, 1996, the Company entered into an agreement with a customer
in which the Company agreed to establish and operate an internetworking
center and to promote, market and sell EC services for the customer. The
agreement was for one year with automatic one-year renewal periods, unless
either party to the agreement provided the other party with written notice
at least ninety days prior to the expiration of the initial period or any
additional one-year period.
On November 24, 1998, the customer and the Company agreed to an early
termination of the agreement. In exchange for the Company agreeing to this
early termination, the customer agreed to pay the balance of its monthly
retainer and maintenance fee through December 31, 1998, and to transfer
ownership of certain other assets utilized in the internetworking center to
the Company. The Company recorded these assets at their estimated fair
values as set forth below.
<TABLE>
<S> <C>
Computer equipment $113,000
Inventory - software 150,000
Other 1,000
-----------
Total $264,000
===========
</TABLE>
4. Acquisition
During June 1999, the Company acquired the fixed assets of EDI Partners,
Ltd. in exchange for cash of $250,000. The purchase price was allocated
among the assets purchased.
5. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
Useful Life December 31, June 30,
-------------------------------- ---------------------
(Years) 1999 1998 2000
---------------- --------------- ---------------------
(unaudited)
<S> <C> <C> <C> <C>
Computer equipment and software 3 - 5 $1,109,000 $ 412,000 $1,198,000
Office equipment 5 - 7 207,000 78,000 210,000
Leasehold improvements 5 38,000 11,000 38,000
Furniture and fixtures 7 208,000 22,000 218,000
---------------- --------------- ---------------------
1,562,000 523,000 1,664,000
Less accumulated depreciation (391,000) (230,000) (561,000)
---------------- --------------- ---------------------
Property and equipment, net $1,171,000 $ 293,000 $1,103,000
================ =============== =====================
</TABLE>
F-11
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
6. Other Assets
Other assets are comprised of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Deferred charges $112,000 $ 8,000
Security deposit 4,000 4,000
Other - 18,000
------------- -------------
116,000 30,000
Less accumulated amortization (53,000) (4,000)
------------- -------------
$ 63,000 $ 26,000
============= =============
</TABLE>
Deferred charges are recorded at cost and amortized over a period of one to
three years.
7. Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
December 31, June 30,
-------------------------------------- -------------------
1999 1998 2000
----------------- ---------------- -------------------
(unaudited)
<S> <C> <C> <C>
Accrued salaries, benefits and related costs $321,000 $155,000 $264,000
Professional fees 82,000 - -
Lease termination fees 66,000 - -
Other 123,000 25,000 79,000
----------------- ---------------- -------------------
$592,000 $180,000 $343,000
================= ================ ===================
</TABLE>
F-12
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
8. Due to Lenders
Amount due to lenders consisted of the following at December 31:
<TABLE>
<CAPTION>
December 31, June 30,
------------------------------ --------------
1999 1998 2000
------------- -------------- --------------
(unaudited)
<S> <C> <C> <C>
Term loan, with a bank, principal amount of $300,000,
interest payable monthly at prime plus 1.5% (9.25% at
December 31, 1998) per annum $ - $ 300,000 $ -
Revolving line of credit, with a bank, maximum
borrowing capacity of $2,000,000; interest payable
monthly capacity at prime plus 1% (8.75% at December
31, 1998) per annum; collateralized by all assets of the
company - 277,000 -
Note payable to Internet Commerce Corporation, convertible or
payable on August 15, 2000 interest
at 7.5% per annum (See Note 14) 5,000,000
------------- -------------- --------------
$ - $ 577,000 $5,000,000
============= ============== ==============
</TABLE>
The Company has allocated $50,000 of the revolving line of credit to serve
as a letter of credit to secure the Company's facility lease.
9. Convertible Debenture
During December 1999, the Company issued a $2,000,000 subordinated
convertible debenture (the "Debenture"). The note accrues interest at a
rate of 8% per annum. The unpaid principal amount of, and accrued but
unpaid interest under, the Debenture shall be automatically converted into
shares of Preferred Stock or other securities of the Company, as more fully
described below, sold to investors in the Company's next transaction or
series of related transactions in which the Company sells equity securities
and in which the gross proceeds to the Company equal or exceed $5,000,000
(the "Next Equity Financing").
If, prior to June 30, 2000, either (i) the Company completes an initial
public offering, or (ii) another entity obtains 50% or more of the
outstanding voting power of the Company or purchases all or substantially
all of the assets of the Company, then the Debenture shall automatically
convert into shares of the Company's Series A Preferred Stock.
Notwithstanding the foregoing, if (i) a term sheet for the Next Equity
Financing has not been signed by June 30, 2000, (ii) the Next Equity
Financing does not close on or prior to December 15, 2000, and (iii) the
Debenture has not otherwise been converted, then the unpaid principal
amount of, and accrued but unpaid interest under, the Debenture shall be
automatically converted into shares of the Company's Series A Preferred
Stock.
F-13
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
The owner of the Debenture shall receive one share of Preferred Stock for a
number of dollars in principal and interest amount of the Debenture so
converted equal to the Preferred Stock Purchase Price. For purposes of the
Debenture, the Preferred Stock Purchase Price shall be the price per share
of equity securities sold to investors in the Company's Next Equity
Financing. See Note 14.
In the event that the Debenture is converted as a result of an initial
public offering or a transaction whereby another entity obtains 50% or more
of the outstanding voting power of the Company, then the Preferred Stock
Purchase Price shall be $2.857143.
Notwithstanding the foregoing, if (i) a term sheet for the Next Equity
Financing has not been signed by June 30, 2000, or (ii) the Next Equity
Financing does not close on or prior to December 15, 2000, then the
Preferred Stock Purchase Price shall be that amount equal to the product of
two times the Company's revenue between July 1, 1999 and June 30, 2000,
inclusive, divided by 14,000,000.
In connection with this Debenture, the Company issued warrants to purchase
shares of common stock. The number of shares that can be purchased in
conjunction with these warrants is dependent upon the type of securities
the Debenture will be converted into at a later date. These warrants are
exercisable at $0.01 per share and expire in December 2004. The Company
allocated $198,000 of the $2,000,000 gross proceeds to the warrants based
on their fair value as determined using the Black-Scholes pricing model.
This amount was recorded as debt discount and additional paid-in capital.
The debt discount is being amortized in interest expense over the life of
the Debenture.
10. Income Taxes
The components of income tax expense (benefit) consist of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Current tax expense (benefit):
Federal $ (33,000) 1,000
State 1,000 3,000
---------------- ----------------
Current tax expense (benefit) (32,000) 4,000
---------------- ----------------
Deferred tax expense (benefit):
Federal (4,000) 1,000
State (1,000) 14,000
---------------- ----------------
Deferred tax expense (benefit) (5,000) 15,000
---------------- ----------------
Net tax expense (benefit) $ (37,000) $ 19,000
================ ================
</TABLE>
The tax benefit of $37,000 for 1999 relates to the carryback of the 1999
net operating loss to recover income taxes paid for the previous two years.
F-14
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
Significant components of net deferred tax assets and liabilities consist
of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
--------------- -----------------
<S> <C> <C>
Domestic net operating loss carryforwards $ 1,063,000 $ -
Accounts receivable 29,000 6,000
Deferred revenue - 7,000
Compensation accruals 74,000 -
Fixed assets 3,000 -
Other accruals 5,000 -
--------------- -----------------
Total deferred tax assets 1,174,000 13,000
Valuation allowance for deferred assets (1,093,000) -
--------------- -----------------
Deferred tax assets 81,000 13,000
=============== =================
Capitalized software 81,000 18,000
--------------- -----------------
Total deferred tax liabilities 81,000 18,000
=============== =================
Net deferred tax assets (liability) $ - $ (5,000)
=============== =================
</TABLE>
At December 31, 1999, the Company provided a full valuation allowance
against its net deferred tax assets since realization of these benefits
could not be reasonably assured. The increase in valuation allowance
resulted primarily from the additional net operating loss carryforward
generated.
As of December 31, 1999, the Company had federal and state net operating
loss carryforwards of $2,710,000. These net operating loss carryforwards
begin to expire in 2019 and 2014 for federal and state purposes,
respectively. The utilization of the federal net operating loss
carryforward may be subject to limitation under the rules regarding a
change in stock ownership as determined by the Internal Revenue Code.
Taxes computed at the statutory federal income tax rate of 34% are
reconciled to the provision for income taxes as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- --------------
Effective rate 1.2% 23.7%
---------------- --------------
<S> <C> <C> <C> <C>
United States Federal tax at statutory rate $ (1,020,000) 34.0% $ 27,000 33.6%
States taxes (net of Federal benefit) (147,000) 4.9% 4,000 5.0%
Change in valuation reserves 1,093,000 36.5% - 0.0%
Carryback of net operating loss (at other 20,000 -0.7% - 0.0%
than 34%)
Other nondeductible expenses 17,000 -0.5% (12,000) -14.9%
---------------- --------- -------------- ------------
Provision for income taxes $ (37,000) 1.2% $ 19,000 23.7%
================ ========= ============== ============
</TABLE>
F-15
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
11. Capital Stock
Common Stock
The Company has authorized 20,000,000 shares of common stock with a par
value of $.00011 per share. Holders of these shares have one vote per
share. The holders of common stock are also entitled to receive dividends
whenever funds are legally available and when declared by the Board of
Directors, subject to the prior rights of holders of all classes of stock
outstanding. Upon dissolution, liquidation or winding up of the Company,
holders of common stock will be entitled to receive the assets of the
Company after the satisfaction of the preferential rights of the
outstanding Series A mandatorily redeemable convertible preferred stock or
any other outstanding stock ranking on liquidation senior to or on parity
of the common stock.
Mandatorily Redeemable Convertible Preferred Stock
On January 22, 1999, the Company designated 2,870,000 shares of no par
value Series A preferred stock (the "Preferred Stock") and entered into a
stock purchase agreement (the "Agreement") with a venture capital fund. The
Company sold 2,730,000 shares of the Preferred Stock with warrants for
gross proceeds of $3,000,000 that was paid as follows: $2,000,000 on
January 22, 1999 and $1,000,000 on April 9, 1999.
On April 10, 1999 the Company issued 59,650 additional shares of Series A
preferred stock to the venture capital fund in accordance with the stock
purchase agreement anti-dilution clause.
Rights, Preference and Terms of Preferred Stock
The following is a summary of the rights, preferences, and terms of the
Company's outstanding series of preferred stock:
Dividends
The Series A Preferred Stockholders (the "Holders") shall be entitled to
receive cash dividends as and when declared by the Board of Directors (the
"Board") out of the assets of the Corporation. In the event the Board
declares a dividend to the common stockholders, the Board shall at the same
time declare a dividend for the Holders payable at the same time as the
dividend due to the common stockholders in an amount for each share of
Preferred Stock equal to the dividend payable on the number of shares of
common stock into which such shares of Preferred Stock may be converted.
Dividends on the Preferred Stock shall accumulate from the date of
declaration and shall not bear interest.
Conversion
Each share of Preferred Stock is convertible at the option of the Holder
into common stock on a one-for-one basis. This conversion shall be adjusted
upon the issuance by the Company of additional common shares for
consideration per share less that the original per share issue price of
Series A Preferred Stock of $.91 per share.
F-16
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
Voting
Holders of Preferred Stock have voting rights on an as-if-converted to
common stock basis.
Mandatory Conversion
A mandatory conversion event, as defined in the Agreement, is the closing
of an underwritten initial public offering of the common stock of the
Corporation resulting in gross proceeds to the Company of at least $15
million or the vote of a majority of the Holders of outstanding shares to
convert the preferred shares to common stock. If a mandatory conversion
event were to occur, as defined by the Agreement, all outstanding shares of
Preferred Stock shall, without any action on the part of the Holder
thereof, be converted automatically into shares of the common stock by
dividing the Preferred Stock purchase price by the then applicable
conversion price. The conversion price shall be adjusted from time to time
if the Company, while there are shares of Preferred Stock outstanding,
issues or sells shares of the common stock of the Corporation at a cash or
non-cash price per share less than the conversion price in effect
immediately prior to issuance or sale.
Redemption
Each Holder of Preferred Stock may require the Company to redeem all or any
portion of such Holder's preferred shares at any time after December 31,
2004. The redemption price per preferred share shall equal the product of
(i) an amount equal to two times the sum of the Company's gross revenues,
as defined, for the twelve month calendar period immediately preceding the
date of the notice less all debts and other liabilities of the Company
multiplied by (ii) one and then, divided (iii) by number of fully diluted
common shares of the Company. This calculation resulted in a redemption
value of $9,023,000 as of December 31, 1999 and $5,454,000 as of June 30,
2000 (unaudited). The Series A Preferred Stock was initially recorded at
$1,669,000 as of January 22, 1999 based on the cash received, net of issue
costs of $245,000 and the fair value of warrants of $86,000. Additional
Series A Preferred Stock was initially recorded at $918,000 as of April 9,
1999 based on cash received, net of issue costs of $82,000. The Series A
Preferred Stock is being accreted to the redemption value, utilizing the
interest method. The accretion is recorded as an increase or decrease to
additional paid-in capital and an increase or decrease to the recorded
value of the Series A Preferred Stock through December 2004, the redemption
date. The Company recorded increases(decreases) to stockholders' equity of
$553,000 for accretion for the year ended December 31, 1999 and ($47,000)
and $242,000 for the six months ended June 30, 2000 and 1999 (unaudited),
respectively.
Liquidation
In the event of liquidation, dissolution or winding up of the Company, the
Holders shall be entitled to receive an amount per share in cash equal to
$1.10 per share, plus any declared but unpaid dividends, plus an amount
equal to eight percent per annum times an amount equal to the Preferred
Purchase Price ($1.10) for such share; provided that if the assets and
funds available for distribution to the Holders as to liquidation
preference shall be insufficient to permit the payment to all such Holders
of the full amount of their liquidation preferences, then the Holders shall
share ratably in any distribution of the remaining assets and funds of the
Company.
F-17
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
Warrants
In connection with the issuance of the Preferred Stock in January 1999, the
Company issued warrants to purchase 218,400 shares of common stock at an
exercise price of $1.21 per share. The warrants expire upon the earlier of
(i) January 22, 2003 or (ii) upon the effectiveness of a registration
statement under the Securities Act of 1933, as amended, and sale of the
Company's stock in a firm commitment underwritten public offering. The
Company allocated $86,000 of the $3,000,000 gross proceeds to the warrants
and recorded additional paid-in capital based on their fair value as
determined using the Black-Scholes pricing model.
12. Stock Options
During 1998, the Company's Board of Directors approved a plan (the "Plan")
whereby 1,500,000 shares of common stock have been reserved for issuance to
employees and consultants at terms and prices to be determined by the Board
of Directors. The Plan specifies that the exercise price cannot be less
than 100% of the fair market value of the stock on the date of grant.
However, if the optionee owns more than 10% of the outstanding stock on the
option grant date, the incentive stock price per share shall not be less
that 110% of the fair market value of the stock on the option grant date.
The maximum term for options granted is ten years. Options granted under
the Plan generally vest ratably over a three or four year period from the
date of grant and expire ten years from the grant date.
The activity for the Plan is presented in the following table:
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------------------
Weighted Weighted
Number Average Number Average
of Exercise of Exercise
Options Price Options Price
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Outstanding - beginning of period 728,000 $ .75 - $ -
Granted below fair value - - - -
Grant at fair value 587,500 1.05 737,000 .75
Exercised - - - -
Forfeited (21,000) .86 (9,000) .75
-------------- --------------- --------------- ---------------
Outstanding - end of period 1,294,500 $ .89 728,000 $ .75
============== =============== =============== ===============
Exercisable at end of period 238,667 .75 - -
Weighted average grant date fair value $ 1.05 $ .75
</TABLE>
F-18
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
The following table summarizes information about the Company's stock
options:
<TABLE>
<CAPTION>
Options Outstanding at December 31, 1999
---------------------------------------------------------------------------
Remaining
Exercise Number Contractual Options
Price Outstanding Life Exercisable
---------------- ----------------------- ---------------------- -------------------
<S> <C> <C> <C>
$ .75 716,000 8.5 years 238,667
$ 1.00 517,500 9.5 -
$ 1.50 61,000 9.9 -
</TABLE>
If the company had elected to recognize compensation expense based on fair
value of stock-based instruments at the grant date as prescribed by SFAS
No. 123, its net loss for the year ended December 31, 1999, would have been
($3,002,000). The fair value of options was estimated using the minimum
value method with the following assumptions: expected life of 4 years for
options vesting over a 3 year period and 5 years for options vesting over a
4 year period; interest rate (5.71%); no volatility and no dividend yield.
13. Commitments and Contingencies
The Company leases its facilities and equipment under operating and capital
lease agreements. Future minimum lease payments under noncancelable
operating and capital leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------------- ------------------
<S> <C> <C> <C>
2000 $ 119,000 $ 583,000
2001 115,000 561,000
2002 114,000 577,000
2003 102,000 593,000
2004 92,000 606,000
----------------- ------------------
542,000 $2,920,000
------------------
Less amounts representing interest (116,000)
-----------------
426,000
Less current maturities (80,000)
-----------------
$ 346,000
=================
</TABLE>
Rent expense for the years ended December 31, 1999 and 1998 was $414,000
and $202,000, respectively.
In September 1999, the Company entered into an agreement with a software
development company (the "software company"). The Company has agreed to
sell a minimum of $62,500 of software for the software company quarterly.
If the Company is unable to sell this amount, they have agreed to reimburse
the software company for the difference between the $62,500 and the amount
sold. This agreement expires September 30, 2000. The Company had accrued
$12,000 associated with fourth quarter 1999 sales at December 31, 1999.
F-19
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
14. Subsequent Events (Unaudited)
The Company and Internet Commerce Corporation ("ICC") entered into an
Agreement and Plan of Merger dated June 14, 2000 (the "Merger Agreement").
Pursuant to the Merger Agreement, the Company will become a wholly-owned
subsidiary of ICC. ICC will pay aggregate consideration of $42,000,000, in
ICC stock and cash, to the Company's stockholders and option and warrant
holders.
On June 14, 2000 the Company signed a promissory note to ICC for
$5,000,000. The note shall be payable immediately after the effective date
of the merger provided however, that upon the merger and in any event on
August 15, 2000, the note would automatically convert into shares of the
Company's common stock. The Company converted the promissory note into
1,793,896 shares of common stock.
On August 10, 2000 the Company adopted a Restricted Stock Plan. The Plan is
designed to award shares of common stock, on a restricted basis, to certain
individuals, conditioned upon and subject to the closing of a proposed
transaction between the Company and ICC. One stockholder will transfer
825,000 shares of common stock owned by the stockholder to the individuals
awarded in the form of restricted stock.
On August 15, 2000, the Company converted the Convertible Debenture into
738,500 shares of common stock.
F-20
<PAGE>
Exhibit A
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
June 14, 2000, among Internet Commerce Corporation, a Delaware corporation
("ICC"), a party to this Agreement but not a constituent corporation in the
Merger (as hereinafter defined), ICC Acquisition Corporation, Inc., a North
Carolina corporation ("Buyer"), all of whose capital stock is owned directly by
ICC, Research Triangle Commerce, Inc., a North Carolina corporation (the
"Company"), and the individuals listed on the signature pages hereto (such
persons being herein referred to individually as a "Seller" and collectively as
"Sellers").
WHEREAS, the Boards of Directors of ICC, Buyer and the
Company, deeming it advisable and for the respective benefit of Buyer and the
Company, and their respective shareholders, have approved the merger of Buyer
with and into the Company on the terms and conditions hereinafter set forth, and
have approved this Agreement and authorized the transactions contemplated
hereby; and
WHEREAS, the Board of Directors of the Company has determined
to recommend to all of the Company's shareholders, including Sellers, that the
Merger and this Agreement be approved; and
WHEREAS, ICC, Buyer, the Company and Sellers desire to make
certain representations, warranties and agreements in connection with, and
establish various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"Articles of Merger"--as defined in Section 2.2.
"Balance Sheet Date"--April 30, 2000.
"Blue Water"-- Blue Water Venture Fund II, L.L.C.
"Blue Water Convertible Note"--the Company's Convertible Subordinated
8% Debenture dated December 7, 1999 in the principal amount of $2 million
payable to the order of Blue Water.
"Blue Water Waiver Letter"--the side letter dated June 14, 2000 from
Blue Water to ICC pursuant to which Blue Water agrees to waive Blue Water's
rights under the Company's certificate of incorporation and under the Investor
Rights Agreement dated as of January 22, 1999 by and among the Company, Blue
Water and certain holders of the Company Capital Stock as set forth therein.
"Buyer"--as defined in the first paragraph of this Agreement.
"Cash at Closing"--the cash on hand of the Company at the Effective
Time in excess of the sum of (x) the amount of the Company's borrowings under
its existing bank line of credit and (y) accrued and unpaid interest on the
Promissory Note, up to a maximum of $4,000,000.
"Closing"--as defined in Section 2.1(b).
"Closing Date"--the date and time as of which the Closing actually
takes place.
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"Code"--as defined in Section 2.4.
"Commission"--the United States Securities and Exchange Commission.
"Company"--as defined in the first paragraph of this Agreement.
"Company Capital Stock"--the Company Common Stock (including Company
Restricted Stock) and the Series A Preferred Stock.
"Company Common Stock"--the Common Stock, no par value per share, of
the Company.
"Company Restricted Stock"-- as defined in Section 2.12(b).
"Company Series A Preferred Stock"--the Series A Preferred Stock, no
par value per share, of the Company.
"Company Shareholders"-- the holders of the Company Capital Stock.
"Company Shareholders Meeting"--as defined in Section 4.28.
"Contract"--any agreement, contract, obligation, promise or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Conversion Number"-- the number obtained by dividing (a) $42,000,000
less the Cash at Closing by (b) the Market Price of ICC Common Stock.
"Damages"--as defined in Section 11.2(a).
"Disclosure Schedule"--the disclosure schedule delivered by Sellers and
the Company to ICC and Buyer concurrently with the execution and delivery of
this Agreement.
"Effective Time"--as defined in Section 2.2.
"Effective Day for the Registration Statement"--the day on which the
Commission declares a Registration Statement on Form S-3 relating to the resale
of the ICC Shares pursuant to Sections 2.7(a), (b) and/or (c) effective.
"Encumbrance"--any mortgage, charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income or exercise of any other
attribute of ownership.
"Environment"--soil, land surface or subsurface strata, surface waters,
groundwaters, drinking water supply, stream sediments, ambient air, plant and
animal life and any other environmental medium or natural resource.
"Environmental, Health and Safety Liabilities"--any cost, damages,
expense, liability, obligation or other responsibility arising from or under any
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to: (a) any environmental, health or safety matter or condition
(including on-site or off-site contamination, generation, handling and disposal
of hazardous substances, occupational safety and health and regulation of
chemical and hazardous substances or products); (b) fines, penalties, judgments,
awards, settlements, legal or administrative proceedings, damages, losses,
litigation, including civil and criminal claims, demands and response,
investigative, remedial, response or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law; (c) financial
responsibility under Environmental Law or Occupational Safety and Health Law for
cleanup costs or corrective action, including any investigation, cleanup,
removal, containment or other remediation or response actions required by
applicable Environmental Law or Occupational Safety and Health
2
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Law and for any natural resource damages; or (d) any other compliance,
corrective, investigative or remedial measures required under Environmental Law
or Occupational Safety and Health Law. The terms "removal," "remedial" and
"response action" include the types of activities covered by the United States
Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C.
ss. 9601 et seq., as amended ("CERCLA").
"Environmental Law"--any and all federal, state, local, provincial and
foreign, civil and criminal laws, statutes, ordinances, orders, codes, rules,
regulations, permits, policies, guidance documents, judgments, decrees and
agreements with any Governmental Authority of or relating to the protection of
health and the Environment, worker health and safety, and/or governing the
handling, use, generation, treatment, storage, transportation, disposal,
manufacture, distribution, packaging, labeling or release of Hazardous
Materials, including CERCLA; the Resource Conservation and Recovery Act, 42
U.S.C.ss. 6901 et seq.; the Clean Air Act, 42 U.S.C.ss. 7401 et seq.; and the
Occupational Safety and Health Act, 29 U.S.C.ss. 651 et seq.; and the state
analogues thereto and any common law doctrine, including negligence, nuisance,
trespass, personal injury or property damage related or arising out of the
presence, release or exposure to Hazardous Materials.
"ERISA"--the Employee Retirement Income Security Act of 1974, as
amended, or any successor law.
"Exchange Act"--the Securities Exchange Act of 1934, as amended, or any
successor law.
"Facilities"--any real property, leaseholds or other interests
currently or formerly owned or operated by the Company and any buildings,
plants, structures or equipment (including motor vehicles) currently or formerly
owned or operated by the Company.
"Financial Statements"--as defined in Section 4.5(a).
"Fully Diluted Number of Shares"--the sum of (i) the total number of
shares of Company Common Stock (including Company Restricted Stock) outstanding
immediately prior to the Effective Time and (ii) the total number of shares of
Company Common Stock issuable upon the exercise or conversion of all Company
Series A Preferred Stock, options, warrants and other exercisable or convertible
securities, including the Blue Water Convertible Note but excluding the
Promissory Note, outstanding immediately prior to the Effective Time.
"GAAP"--generally accepted United States accounting principles applied
on a basis consistent with the basis on which the financial statements of the
Company referred to in Section 4.5 were prepared.
"Governmental Authority" --any court, tribunal, authority, agency,
commission, bureau, department, official or other instrumentality of the United
States, any foreign country or any domestic, foreign, state, local, county, city
or other political subdivision.
"Governmental Permit" --any license, franchise, permit or other
authorization of any Governmental Authority.
"Hazardous Activity"--the distribution, generation, handling,
manufacturing, processing, production, release, storage, transportation,
treatment, disposal or use of Hazardous Materials in, on, under, about or from
the Facilities or any part thereof into the Environment, and any other act,
business or operation that increases the danger or poses an unreasonable risk of
harm to persons or property on or off the Facilities or that may affect the
value of the Facilities or the Company.
"Hazardous Materials"--any waste or other substance that is listed,
defined, designated or classified as, or otherwise determined to be, hazardous,
radioactive or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law.
"ICC"--as defined in the first paragraph of this Agreement.
"ICC Common Stock"--the Class A Common Stock, $.01 par value per share,
of ICC.
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"ICC Common Stock Issuance"--as defined in Section 7.6.
"ICC SEC Reports"--as defined in Section 5.4(a).
"ICC Shares"--the shares of ICC Common Stock to be issued to the
Company Shareholders in connection with the Merger.
"ICC Stockholders Meeting"--as defined in Section 4.28.
"Indemnified Persons"-- as defined in Section 11.2(a).
"Intellectual Property Assets" --as defined in Section 4.21(a).
"IRS"--the United States Internal Revenue Service or any successor
agency and, to the extent relevant, the United States Department of the
Treasury.
"Joint Proxy Statement"--as defined in Section 4.28.
"Letter of Intent"--the Letter of Intent dated May 15, 2000 by and
between ICC and the Company.
"Liabilities"--any liability or other obligation of any kind or nature
whatsoever, and whether absolute, accrued, contingent or otherwise, and whether
known or unknown.
"Market Price of ICC Common Stock"--the average of the closing prices
per share of the ICC Common Stock for the ten trading days ending three trading
days prior to the Effective Time; provided, however, that if the Market Price of
ICC Common Stock is greater than $21.111111 or less than $12.666667, then the
Market Price of ICC Common Stock shall be deemed to be $21.111111 or $12.666667,
respectively.
"Material Adverse Effect"--as defined in Section 4.7.
"Merger"--as defined in Section 2.1(a).
"New Certificates"--as defined in Section 2.9(a).
"Occupational Safety and Health Law"--any legal or governmental
requirement or obligation relating to safe and healthful working conditions and
to reduce occupational safety and health hazards, and any program, whether
governmental or private (including those promulgated or sponsored by industry
associations and insurance companies), designed to provide safe and healthful
working conditions.
"Old Certificates"--as defined in Section 2.9(a).
"Options"--as defined in Section 2.12(a).
"Option Plan"--as defined in Section 2.12(a).
"Organizational Documents"--(a) the articles or certificate of
incorporation and the bylaws or code of regulations of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) the certificate of formation and operating
agreement of a limited liability company; (e) any charter or similar document
adopted or filed in connection with the creation, formation or organization of a
Person; and (e) any amendment to any of the foregoing.
"Partially Diluted Number of Shares"--the sum of (i) the total number
of shares of Company Common Stock (excluding Company Restricted Stock)
outstanding immediately prior to the Effective Time and (ii) the total number of
shares of Company Common Stock issuable upon the exercise or conversion of all
Company Series A
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Preferred Stock, options, warrants and other exercisable or convertible
securities, including the Blue Water Convertible Note but excluding the
Promissory Note, outstanding immediately prior to the Effective Time.
"Person"--any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union or other entity
or Governmental Authority.
"Proceeding"--as defined in Section 4.13.
"Promissory Note"--the Company's Convertible Promissory Note, dated
June 14, 2000, in the principal amount of $5,000,000 payable to the order of
ICC.
"Registration Rights Agreement"--as defined in Section 8.10.
"Resale Registration Statement"--as defined in the Registration Rights
Agreement.
"Securities Act"--the Securities Act of 1933, as amended, or any
successor law.
"Seller"--as defined in the first paragraph of this Agreement.
"Sellers"--Jeffrey LeRose and Blue Water.
"Seller Parties"--as defined in Section 11.3(a).
"Shares"--the Company Capital Stock owned by the Sellers.
"Stockholders Meetings"--as defined in Section 4.28.
"Subsidiary"--of any person is any corporation, joint venture, limited
liability company, partnership, association or other business entity of which
more than 20% of the total voting power of stock or other equity entitled to
vote generally in the election of directors or managers thereof is owned or
controlled, directly or indirectly, by such Person.
"Surviving Corporation"--as defined in Section 2.1(a).
2. THE MERGER; CLOSING
2.1 THE MERGER
(a) Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the North Carolina Business Corporation
Act (the "NCBCA"), Buyer shall be merged with and into the Company at the
Effective Time (the "Merger"). Following the Merger, the separate corporate
existence of Buyer shall cease and the Company shall continue as the surviving
corporation (the "Surviving Corporation") under the name "Research Triangle
Commerce, Inc.".
(b) Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
10 and subject to the satisfaction or waiver of the conditions set forth in
Sections 8 and 9, the consummation of the Merger will take place as promptly as
practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Sections 8 and 9 at the offices of Kramer
Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York (the
"Closing"), unless another date, time or place is agreed to in writing by the
parties hereto.
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2.2 EFFECTIVE TIME
As soon as practicable following the Closing, the parties shall (i)
file articles of merger (the "Articles of Merger") in such form as is required
by and executed in accordance with the relevant provisions of the NCBCA, and
(ii) make all other filings or recordings required under the NCBCA. The Merger
shall become effective at such time as the Articles of Merger are duly filed
with the Secretary of State of the State of North Carolina or at such subsequent
time as the Company and ICC shall agree and be specified in the Articles of
Merger (the date and time the Merger becomes effective being the "Effective
Time").
2.3 EFFECTS OF THE MERGER
At and after the Effective Time, the Merger will have the effects set
forth in the NCBCA. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time the Buyer shall merge with and into the
Company and the Company shall continue as the Surviving Corporation. As a result
of the Merger, the separate existence of the Company and Buyer shall cease.
Title to all real estate and other property owned separately by the Company and
Buyer shall be vested in the Surviving Corporation without reversion or
impairment; the Surviving Corporation shall have all liabilities and obligations
of the Company and Buyer; and a proceeding pending by or against the Company or
Buyer may be continued as if the Merger did not occur or the Surviving
Corporation may be substituted in the proceeding for the Company or Buyer, as
the case may be.
2.4 ARTICLES OF INCORPORATION
At the Effective Time, the articles of incorporation of the Surviving
Corporation shall be amended in accordance with the NCBCA such that the articles
of incorporation of the Surviving Corporation shall consist of the provisions of
the articles of incorporation of Buyer, until thereafter changed or amended as
provided therein or by applicable law, except that Article I of the Articles of
Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows: "The name of this Corporation is Research Triangle
Commerce, Inc."
2.5 BY-LAWS
The by-laws of Buyer as in effect at the Effective Time shall be the
by-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
2.6 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION
The officers of the Company immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, in each case until
the earliest of their resignation or removal from office or their otherwise
ceasing to be officers or until their respective successors are duly elected and
qualified. The directors of the Buyer immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation until the earlier of
their resignation or removal or otherwise ceasing to be directors or until their
respective successors are duly elected and qualified.
2.7 CONVERSION OR CANCELLATION OF CAPITAL STOCK OF THE COMPANY
At the Effective Time of the Merger, by virtue of the Merger and
without any action on the part of any holder thereof:
(a) Subject to the provisions of Sections 2.7(e) and 2.8, the
shares held by each holder of shares of the Company Common Stock outstanding
immediately prior to the Effective Time, other than shares of Company Restricted
Stock, shall be converted into (1) the right to receive an amount of cash equal
to the Cash at Closing multiplied by a fraction, the numerator of which shall be
the number of shares of outstanding Company Common Stock held by such holder
immediately prior to the Effective Time and the denominator of which shall be
equal to the Partially Diluted Number of Shares plus (2) an aggregate number of
shares of ICC Common Stock equal to the Conversion Number multiplied by a
fraction, the numerator of which shall be the number of shares of outstanding
Company Common Stock held by such holder immediately prior to the Effective Time
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and the denominator of which shall be equal to the Fully Diluted Number of
Shares; provided, however, that if the number of shares of ICC Common Stock to
which any such holder is entitled includes a fractional share, such number of
shares shall be rounded up to the next whole number of shares.
(b) Subject to the provisions of Section 2.8, the shares held
by each holder of shares of the Company Series A Preferred Stock outstanding
immediately prior to the Effective Time shall be converted into (1) the right to
receive an amount of cash equal to the Cash at Closing multiplied by a fraction,
the numerator of which shall be the number of shares of Company Common Stock
issuable upon conversion of all such shares of Company Series A Preferred Stock
immediately prior to the Effective Time and the denominator of which shall be
equal to the Partially Diluted Number of Shares plus (2) an aggregate number of
shares of ICC Common Stock equal to the Conversion Number multiplied by a
fraction, the numerator of which shall be the number of shares of Company Common
Stock issuable upon conversion of all of such shares of Company Series A
Preferred Stock immediately prior to the Effective Time and the denominator of
which shall be the Fully-Diluted Number of Shares; provided, however, that if
the number of shares of ICC Common Stock to which any such holder is entitled
includes a fractional share, such number of shares shall be rounded up to the
next whole number of shares.
(c) Each authorized but unissued share of Company Capital
Stock shall cease to exist.
(d) Each share of Buyer's Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall be converted into
one share of Common Stock, par value $.01 per share, of the Surviving
Corporation.
(e) Notwithstanding any provision to the contrary, the holder
of the Promissory Note, or of the Company's Common Stock issued upon conversion
of the Promissory Note, shall not be entitled to any portion of either the Cash
at Closing or the ICC Shares distributed upon consummation of the Merger.
2.8 DISSENTERS
Shares of Company Capital Stock owned by a holder (each a "Dissenting
Shareholder" and, collectively, the "Dissenting Shareholders") who (i) shall not
have voted in favor of the Merger and (ii) shall have given to the Company, and
the Company shall have actually received, before the Company Shareholders
Meeting, written notice of such holder's intent to demand payment for such
holder's shares if the Merger is effectuated, in the manner provided in Section
55-13-21 of the NCBCA, shall not be cancelled, extinguished and converted as
provided in Section 2.7(a) or (b) of this Agreement, as the case may be, but the
holder of such shares shall be entitled to receive such consideration as shall
be provided in Section 55-13-25 of the NCBCA. To the extent the Company or any
Seller knows the identify of any Dissenting Shareholder at the Closing, the
Company shall notify ICC and Buyer in writing of the details of the Dissenting
Shareholders and the number of shares of Company Capital Stock that they own.
The Company shall not enter into any agreement or settlement with any Dissenting
Shareholder without the prior written consent of ICC.
2.9 ISSUANCE OF MERGER CONSIDERATION
(a) Subject to the provisions of Section 2.7 and 2.8, at or as
soon as practicable after the Effective Time, ICC shall issue and deliver, upon
surrender by a Company Shareholder of one or more certificates ("Old
Certificates") representing Company Capital Stock for cancellation, to a holder
that surrenders Old Certificates representing Company Capital Stock one or more
certificates ("New Certificates"), registered in the name of such holder, for a
number of shares of ICC Common Stock equal to the number of shares of ICC Common
Stock into which the number of shares of Company Capital Stock represented by
the Old Certificates has been converted pursuant to the provisions of Section
2.7. If more than one stock certificate representing Company Capital Stock shall
be surrendered for the account of the same holder, the number of whole shares of
ICC Common Stock for which such certificates shall be exchanged pursuant to this
Section 2.9 shall be computed on the basis of the aggregate number of shares of
Company Capital Stock evidenced by all of such certificates.
(b) No dividends or other distributions declared on shares of
ICC Common Stock that are to be represented by New Certificates shall be paid to
any Person otherwise entitled to receive the same until Old
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Certificates have been surrendered in exchange for such New Certificates in the
manner herein provided, and upon such surrender such dividends or other
distributions shall be paid to such Persons in accordance with their terms. In
no event shall the Persons entitled to receive such dividends or other
distributions be entitled to receive interest on such dividends or other
distributions.
(c) ICC shall pay any transfer taxes in connection with the
exchange of Old Certificates for New Certificates, except that if any New
Certificate is to be issued in a name other than that in which the Old
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the Person requesting such exchange shall pay to
ICC any transfer or other taxes required by reason of the issuance of the New
Certificate in a name other than the registered holder of such Old Certificate,
or shall establish to the satisfaction of ICC that such tax has been paid or is
not applicable.
2.10 STOCK TRANSFER BOOKS
At the close of business on the day prior to the Effective Time of the
Merger, the stock transfer books of the Company shall be closed and no transfer
of Company Capital Stock shall thereafter be made on such stock transfer books.
2.11 TAX-FREE REORGANIZATION
The parties intend that the Merger qualify as a tax-free reorganization
pursuant to Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code").
2.12 OPTIONS AND WARRANTS
(a) As of the Effective Time, each option, warrant or similar
right outstanding at the Effective Time to purchase shares of Company Common
Stock ("Options") under the Company's Stock Option Plan dated July 1, 1998 (the
"Option Plan") or an agreement, instrument or certificate identified in Section
4.3 of the Disclosure Schedule, which Options are listed in Section 4.3 of the
Disclosure Schedule, shall constitute an option to purchase, on the same terms
and conditions set forth in the Option Plan and/or as provided in the respective
agreement, instrument or certificate governing such Option immediately prior to
the Effective Time, (1) an amount of cash equal to the Cash at Closing
multiplied by a fraction, the numerator of which shall be the number of shares
of Company Common Stock issuable upon exercise of such Option immediately prior
to the Effective Time and the denominator of which shall be equal to the
Partially Diluted Number of Shares plus (2) the number of whole shares of ICC
Common Stock equal to the Conversion Number multiplied by a fraction, the
numerator of which shall be the number of shares of Company Common Stock
underlying such Option immediately prior to the Effective Time and the
denominator of which shall be the Fully-Diluted Number of Shares of Company
Common Stock immediately prior to the Effective Time, rounded up to the nearest
whole number of shares of ICC Common Stock, at a price per share equal to the
amount determined by multiplying the exercise price per share of Company Common
Stock at which such Option was exercisable immediately prior to the Effective
Time by a fraction, the numerator of which is the number of shares of Company
Common Stock issuable upon exercise of such Option immediately prior to the
Effective Time and the denominator of which is the number of shares of ICC
Common Stock issuable upon exercise of such Option as of the Effective Time,
rounded up to the nearest whole cent. As soon as practicable following the
Effective Time, ICC will cause to be delivered to each holder of an outstanding
Option an appropriate notice setting forth such holder's rights pursuant to such
Option and that such Option shall continue in effect on the same terms and
conditions in accordance with this Section 2.12(a).
(b) The shares held by each holder of shares of Company Common
Stock that are issued pursuant to the restricted stock plan contemplated by
Section 6.2(e) ("Company Restricted Stock") shall be converted into an aggregate
number of shares of ICC Common Stock equal to the Conversion Number multiplied
by a fraction, the numerator of which shall be the number of shares of Company
Restricted Stock held by such holder immediately prior to the Effective Time and
the denominator of which shall be equal to the Fully Diluted Number of Shares;
provided, however, that if such aggregate number of shares of ICC Common Stock
includes a fractional share, such aggregate number of shares shall be rounded up
to the next whole number of shares and provided, further, that the shares of ICC
Common Stock into which the Company Restricted Stock is converted shall be
subject to the same terms, conditions and restrictions that are applicable to
the Company Restricted Stock
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immediately prior to the Effective Time. Any ICC Shares that are forfeited
pursuant to the terms of such restricted stock plan shall be reissued in the
name of Jeffrey LeRose without any such restrictions thereon.
2.13 BLUE WATER CONVERTIBLE NOTE
The Blue Water Convertible Note shall be converted into (1) the right
to receive an amount of cash equal to the Cash at Closing multiplied by a
fraction, the numerator of which shall be the number of shares of Company Common
Stock issuable upon conversion of the Blue Water Convertible Note (or upon
conversion of convertible securities issuable upon conversion of the Blue Water
Convertible Note) immediately prior to the Effective Time and the denominator of
which shall be equal to the Partially Diluted Number of Shares plus (2) an
aggregate number of shares of ICC Common Stock equal to the Conversion Number
multiplied by a fraction, the numerator of which shall be the number of shares
of Company Common Stock issuable upon conversion of the Blue Water Convertible
Note (or upon conversion of convertible securities issuable upon conversion of
the Blue Water Convertible Note) immediately prior to the Effective Time and the
denominator of which shall be the Fully-Diluted Number of Shares; provided,
however, that if such number of shares of ICC Common Stock includes a fractional
share, such number of shares shall be rounded up to the next whole number of
shares.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE SELLERS
Each Seller severally and not jointly represents and warrants to ICC
and Buyer as to itself as follows:
3.1 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid and binding
obligation of such Seller, enforceable against such Seller in accordance with
its terms. Such Seller has the right, power, authority and capacity to execute
and deliver this Agreement and to perform his or her obligations under this
Agreement, and this Agreement has been duly authorized and approved, executed
and delivered by such Seller and constitutes a legal, valid and binding
obligation of such Seller, enforceable against such Seller in accordance with
its terms.
(b) Neither the execution and delivery of this Agreement by
such Seller nor the consummation or performance by such Seller of any of the
transactions contemplated hereby will, directly or indirectly (with or without
notice or lapse of time or both) contravene, conflict with or result in a
violation or breach of or a default under any legal requirement or any order or
any Contract to which such Seller may be subject.
3.2 OWNERSHIP OF SHARES
Such Seller owns, beneficially and of record, and has good, valid and
marketable title to and the right to transfer to Buyer, that number of the
Shares set forth opposite its name on the signature page hereto executed by such
Seller, free and clear of any and all Encumbrances. Except as described on
Schedule 3.2, there are no voting trusts, shareholder agreements or any other
agreements or understandings to which such Seller is a party with respect to the
transfer, voting or registration of the capital stock of the Company.
3.3 LEGAL PROCEEDINGS
There is no pending Proceeding against such Seller that challenges, or
may have the effect of preventing, delaying or making illegal, or otherwise
interfering with, any of the transactions contemplated hereby and, to the
knowledge of such Seller, no such Proceeding has been threatened and no event or
circumstance exists that is reasonably likely to give rise to or serve as a
basis for the commencement of any such Proceeding.
3.4 INVESTMENT REPRESENTATIONS OF SELLER
(a) Such Seller is either (i) an accredited investor as that term is
defined in Rule 501 under the Securities Act, or (ii) has, either alone or with
his, her or its purchaser representative or representatives (as that term
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is defined in Rule 501 under the Securities Act), such knowledge and experience
in financial and business matters that it is capable of evaluating the merits
and risks of an investment in the ICC Common Stock.
(b) The ICC Common Stock is being acquired by such Seller for its own
account, and not for any other Person, for investment only and with no intention
of reselling, assigning, transferring or otherwise disposing of (collectively,
"Transfer") such ICC Common Stock or any part thereof or interest therein. Such
Seller will not Transfer any of such shares of ICC Common Stock, or any part
thereof or interest therein, in a transaction that would be a violation of the
securities laws of the United States of America, or any state, without
prejudice, however, to the rights of such Seller to Transfer all or any part of
such ICC Common Stock under an effective registration statement or applicable
exemption from registration under the Securities Act and any applicable state
securities law. Such Seller has no contract, undertaking, agreement or
arrangement with any Person to Transfer the ICC Common Stock, or any part
thereof or interest therein, and such Seller has no present plans to enter into
any such contract, undertaking, agreement or arrangement.
(c) Such Seller has read this Agreement and all other documents
provided by ICC in connection herewith, including the ICC SEC Reports, and fully
understands the terms and conditions under which the ICC Common Stock is being
issued to it pursuant hereto. ICC and Buyer have made available to such Seller
the opportunity to ask questions of and receive answers from ICC or Buyer
concerning ICC and the terms and conditions under which ICC Common Stock will be
issued to it and to obtain any additional information which ICC or Buyer
possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy of information furnished in connection with
this Agreement or in response to any request for information. Such Seller is
satisfied with such answers and information.
(d) Subject to Section 5.8(a), such Seller agrees that, so long as
required by law, certificates evidencing the ICC Shares and any securities
issued in exchange for or in respect thereof shall bear a legend to the
following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH LAWS."
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Company and the Sellers hereby each individually represents and
warrants to ICC and Buyer as follows:
4.1 ORGANIZATION AND GOOD STANDING
(a) Section 4.1 of the Disclosure Schedule contains a complete
and accurate list for the Company of its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do business and
its capitalization (including the identity of each shareholder and the number of
shares held by each). The Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as conducted and to own or use the properties and assets that it purports to own
or use. The Company is duly qualified to do business as a foreign corporation
and is in good standing under the laws of each state or other jurisdiction in
which either the ownership or use of the properties owned or used by it, or the
nature of the activities conducted by it, requires such qualification, except
where the failure to be so qualified could not reasonably be expected to have a
Material Adverse Effect on the Company.
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(b) The Company has delivered to ICC correct and complete
copies of the Organizational Documents of the Company.
4.2 AUTHORITY; NO CONFLICT
(a) The Company has the right, power, authority and capacity
to execute and deliver this Agreement, to consummate the Merger and to perform
its obligations under this Agreement. This Agreement has been duly authorized
and approved, executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, subject to approval of the Merger by the Company
Shareholders.
(b) Except as set forth in Section 4.2(b) of the Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company
nor the consummation or performance by the Company of the Merger or any of the
other transactions contemplated hereby will, directly or indirectly (with or
without notice or lapse of time or both):
(i) contravene, conflict with or result in a
violation or breach of (A) any provision of the Organizational Documents of the
Company, (B) any resolution adopted by the board of directors (or any Committee
thereof) or the shareholders of the Company, (C) any legal requirement or any
order of any Governmental Authority to which the Company or any of the
properties or assets owned or used by the Company may be subject, or (D) any
Governmental Permit, which is held by the Company;
(ii) result in a breach of or constitute a default,
give rise to a right of termination, cancellation or acceleration, create any
entitlement to any payment or benefit, or require the consent or approval of or
any notice to or filing with any third party, under any Contract to which the
Company is a party or by which its properties or assets are bound, or require
the consent or approval of or any notice to or filing with any Governmental
Authority to which the Company or any of its properties or assets is subject; or
(iii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the properties or assets owned or
used by the Company; except, with respect to clauses (ii) or (iii) of this
Section 4.2, where any such breach, default, termination right, cancellation or
acceleration right or Encumbrance could not reasonably be expected to have a
Material Adverse Effect on the Company or would not adversely affect the ability
of the Company to consummate the Merger or the other transactions contemplated
hereby.
(c) The only votes required by the Company Shareholders to
approve the Merger are the affirmative vote of (i) a majority of the outstanding
shares of Company Common Stock and Company Series A Preferred Stock voting on an
as-converted basis, voting together as a single class, and (ii) a majority of
the Company Series A Preferred Stock voting as a separate class.
4.3 CAPITALIZATION
The authorized equity securities of the Company consist only of
20,000,000 shares of Company Common Stock, of which 9,300,000 shares are issued
and outstanding, and 2,870,000 shares of preferred stock, no par value per
share, of which 2,789,650 shares are issued and outstanding. All of such shares
of preferred stock are designated as Series A Preferred Stock. All of the
outstanding equity securities of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. Except as listed and
described in Section 4.3 of the Disclosure Schedule, there are no outstanding or
unexercised warrants, options, agreements or understandings, convertible
securities (other than the Series A Preferred Stock) or other commitments
(contingent or otherwise) pursuant to which the Company is or may become
obligated to issue any shares of its capital stock or other securities of the
Company or any securities with profit participation features or any stock
appreciation rights or phantom stock plans. Except as listed and described in
Section 4.3 of the Disclosure Schedule, there are no voting trusts or other
agreements or understandings to which the Company is a party with respect to the
transfer, voting or registration of the capital stock of the Company, nor are
there any Contracts relating to the issuance, sale or transfer of any equity
securities or other securities of the Company. None of the outstanding equity
securities or other securities of the
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Company were issued in violation of the Securities Act or any other legal
requirement. The Company does not have any Subsidiaries or own or have any
Contract to acquire, any equity securities or other securities of any Person or
any, direct or indirect, equity or ownership interest in any other business. No
Person has any preemptive rights with respect to any security of the Company.
4.4 BOOKS AND RECORDS
The books of account and other records of the Company, all of which
have been made available to ICC, are, in all material respects, correct and
complete. Except as disclosed in Section 4.4 of the Disclosure Schedule, the
minute books of the Company contain correct and complete records of all meetings
held of, and corporate action taken by, the shareholders, the Board of Directors
and committees of the Board of Directors of the Company. The stock book of the
Company is correct and complete. At the Closing, all of such books and records
will be in the possession of the Company.
4.5 FINANCIAL STATEMENTS
(a) For purposes of this Agreement, "Financial Statements"
shall mean the audited consolidated balance sheets of the Company as of December
31, 1998 and December 31, 1999, and the related consolidated income statements
for the two years then ended, and the unaudited consolidated balance sheets of
the Company as of April 30, 1999 and April 30, 2000 and the related consolidated
income statements for the four months ended on such dates (the "Interim
Financial Statements"). The Company has delivered to ICC correct and complete
copies of the Financial Statements.
(b) The Financial Statements (i) have been prepared from the
books and records of the Company in accordance with GAAP, (ii) reflect all
Liabilities of the Company required to be reflected therein on such basis as at
the date thereof and (iii) fairly present in all material respects the financial
position of the Company as of the respective dates of the balance sheets
included in the Financial Statements and the consolidated results of its
operations for each of the periods then ended.
(a) There has been no material adverse change since the
Balance Sheet Date in the amount or delinquency of accounts payable of the
Company (either individually or in the aggregate).
(b) Section 4.5(d) of the Disclosure Schedule sets forth as of
June 9, 2000 (a) the amount of all indebtedness of the Company then outstanding
and the interest rate applicable thereto, (b) any Encumbrances which relate to
such indebtedness and (c) the name of the lender or the other payee of each such
indebtedness.
4.6 NO UNDISCLOSED LIABILITIES
The Company has no Liabilities except for Liabilities reflected or
reserved against in the Financial Statements and current Liabilities incurred in
the ordinary course of business consistent with past practice since the Balance
Sheet Date, which current Liabilities are consistent with the representations
and warranties contained in this Agreement and will not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
4.7 NO MATERIAL ADVERSE CHANGE
Since December 31, 1999, there has not been any material adverse change
in the business, operations, properties, assets, prospects, liabilities, results
of operations or condition (financial or otherwise) (a "Material Adverse
Effect") of the Company and no event has occurred or circumstance exists that
would reasonably be expected to result in a Material Adverse Effect on the
Company.
4.8 TAXES
The Company has (a) properly and timely filed all federal, state, local
and foreign tax returns, declarations of estimated tax, tax reports, information
returns, amended returns and statements (collectively, the "Returns") required
to be filed by the Company relating to any Taxes (as defined below) with respect
to any income, properties
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or operations of the Company; (b) as of the time of filing, the Returns were
complete and correct in all material respects and the Company has timely paid,
collected or withheld, or caused to be paid, collected or withheld, all material
amounts of Taxes required to be paid, collected or withheld, other than such
Taxes for which adequate reserves in the Financial Statements have been
established; (c) the Company has not been delinquent in the payment of any
Taxes, nor has the Company requested any extension of time within which to file
any Return, which Return has not since been filed; (d) there are no pending tax
audits of any Returns of the Company; (e) no Tax liens have been filed and no
deficiency or addition to Taxes, interest or penalties for any Taxes with
respect to any income, properties or operations of the Company have been
proposed, asserted or assessed in writing against the Company; (f) the Company
has not been granted any extension of the statute of limitations applicable to
any Return or other Tax claim with respect to any income, properties or
operations of the Company; (g) the Company has not, during the five-year period
preceding the date hereof, been a personal holding company within the meaning of
Section 542 of the Code (or any corresponding provision of state, local or
foreign law); (h) the Company has not made any election under Section 341(f) of
the Code (or any corresponding provisions of state, local or foreign law); (i)
the Company is not liable for the Taxes of any other Person, nor is the Company
currently under any contractual obligation to indemnify any Person with respect
to Taxes (except for customary agreements to indemnify lenders or security
holders in respect of taxes other than income taxes), nor is the Company party
to any tax sharing agreement or any other agreement providing for payments by
the Company with respect to Taxes of any other Person; (j) the Company has not
agreed, nor is the Company required, as a result of a change in method of
accounting or otherwise, to include any adjustment under Section 481 of the Code
(or any corresponding provision of state, local or foreign law) in taxable
income; and (k) the Company has not elected S Corporation status within the
meaning of Section 1361(a)(1) of the Code (or any corresponding provision of
state, local or foreign law). As used in this Agreement, the term "Tax" shall
mean any of the Taxes and the term "Taxes" shall mean, with respect to any
Person, (i) all income taxes (including any tax on or based upon net income, or
gross income, or income as specially defined, or earnings, or profits, or
selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property or windfall profits
taxes, alternative or add-on minimum taxes, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties, additions to tax or additional amounts imposed by any taxing
authority (domestic or foreign) on such Person and (ii) any liability for the
payment of any amount of the type described in the immediately preceding clause
(i) as a result of being a "transferee" (within the meaning of Section 6901 of
the Code or any other applicable law) of another Person or a member of an
affiliated or combined group.
4.9 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the
Financial Statements, and all receivables arising after the date of the Interim
Financial Statements and prior to the Closing Date (collectively, the "Accounts
Receivable"), represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of business.
To the knowledge of the Company or any of the Sellers, all of the Accounts
Receivable are or will be collectible at the full recorded amount thereof, less
any applicable reserves established in accordance with GAAP, in the ordinary
course of business without resort to litigation.
4.10 TITLE TO PROPERTIES; ENCUMBRANCES
Section 4.10 of the Disclosure Schedule contains a correct and complete
list of all real property, leaseholds or other interests therein owned or held
by the Company. The Company has delivered or made available to Buyer correct and
complete copies of the real property leases to which the Company is party or
pursuant to which it uses or occupies any real property. The Company has good
title to all of the properties and assets, real and personal, tangible and
intangible, it owns, purports to own or uses in its business, including those
reflected on its books and records and in the Financial Statements (except for
accounts receivable collected and materials and supplies disposed of in the
ordinary course of business consistent with past practice after the date of the
most recent Financial Statements). The Company has a valid leasehold, license or
other interest in all of the other assets, real or personal, tangible or
intangible, which are used in the operation of its business. All material
properties and assets owned, leased or used by the Company are free and clear of
all Encumbrances, except for (a) liens for current taxes not yet due, (b)
workman's, common carrier and other similar liens arising in the ordinary course
of business, none of which materially detracts from the value or impairs the use
of the property or asset subject thereto, or impairs the operations of the
Company, (c) Encumbrances disclosed in the Financial Statements and (d) with
respect to real
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property, (i) minor imperfections of title, if any, none of which is substantial
in amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of the Company and (ii) zoning laws
and other land use restrictions that do not impair the present use of the
property subject thereto.
4.11 CONDITION AND SUFFICIENCY OF ASSETS
The Facilities and other property and assets owned or used by the
Company are structurally sound, are in good operating condition and repair, and
are adequate for the uses to which they are being put, and none of such
Facilities or other property or assets owned or used by the Company is in need
of maintenance or repairs except for ordinary, routine maintenance and repairs
that are not material in nature or cost. The Facilities and other property and
assets owned or used by the Company are sufficient for the continued conduct of
its business after the Effective Time in substantially the same manner as
conducted prior to the Effective Time.
4.12 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Section 4.12 of the Disclosure
Schedule, the Company is in compliance in all material respects with all
federal, state and local laws, regulations, licenses, orders, ordinances,
judgments and decrees affecting the properties and assets owned or used by the
Company and the business or operations of the Company. The Company has not been
charged with violating, nor, to the knowledge of the Company or any of the
Sellers, threatened with a charge of violating, nor, to the knowledge of the
Company or any of the Sellers, is the Company under investigation with respect
to a possible violation of, any provision of any federal, state or local law,
regulation, license, order, ordinance, judgment or decree relating to any of its
properties or assets or any aspect of its business or operations.
(b) Section 4.12 of the Disclosure Schedule contains a
complete and accurate list of each material Governmental Permit that is held by
the Company or that otherwise relates to the business or operations of, or to
any of the properties or assets owned or used by, the Company. Each Governmental
Permit listed or required to be listed in Section 4.12 of the Disclosure
Schedule is valid and in full force and effect.
4.13 LEGAL PROCEEDINGS
Except as set forth in Section 4.13 of the Disclosure Schedule, there
is no pending claim, action, investigation, arbitration, litigation or other
proceeding ("Proceeding"):
(i) that has been commenced by or against the Company
or that otherwise relates to or may affect the business of, or any of the
properties or assets owned or used by, the Company; or
(ii) that challenges, or that is reasonably likely to
have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the transactions contemplated hereby.
To the knowledge of the Company or any of the Sellers, no such
Proceeding has been threatened. The Company has made available to Buyer true,
correct and complete copies of all pleadings, correspondence and other documents
relating to each Proceeding listed in Section 4.13 of the Disclosure Schedule.
The Proceedings listed in Section 4.13 of the Disclosure Schedule could not
reasonably be expected to have a Material Adverse Effect on the Company.
4.14 ABSENCE OF CERTAIN CHANGES AND EVENTS
Except as set forth in Section 4.14 of the Disclosure Schedule, since
the Balance Sheet Date, the Company has conducted its business only in the
ordinary course, consistent with past practice, and the Company has not:
(a) declared or paid any dividend or other distribution in
respect of shares, or redeemed or otherwise repurchased, any shares of the
capital stock of the Company;
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(b) issued or sold or authorized for issuance or sale, or
granted any Options with respect to, any shares of its capital stock or any
other type of its securities, or made any change in its outstanding shares of
capital stock or other ownership interests or its capitalization, whether by way
of a reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise;
(c) paid or increased any bonuses, salaries or other
compensation to any stockholder, director, officer, consultant or (except in the
ordinary course of business consistent with past practice) employee or entered
into any employment, severance or similar Contract with any director, officer or
employee;
(d) adopted or increased the payments to or benefits under any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan for or with any employees;
(e) suffered any damage to or destruction or loss of any
property or asset, whether or not covered by insurance, which could reasonably
be expected to have a Material Adverse Effect on the Company;
(f) entered into, terminated or received notice of termination
of any Contract or transaction involving a total remaining commitment by or to
the Company of at least $25,000, or any other Contract, the entering into or
termination of which could reasonably be expected to have a Material Adverse
Effect on the Company, including the entry into (i) any document evidencing any
indebtedness, (ii) any capital or other lease or (iii) any guaranty;
(g) sold, leased, or otherwise disposed of (other than in the
ordinary course of business consistent with past practice) any property or asset
or mortgaged, pledged or imposed any Encumbrance on any material property or
asset;
(h) cancelled, compromised or waived any claim or right with a
value to the Company in excess of $25,000 or instituted or settled any
Proceeding;
(i) changed the method of accounting or the accounting
principles or practices used by the Company in the preparation of the Financial
Statements; or
(j) agreed, whether orally or in writing, to do any of the
foregoing.
4.15 CONTRACTS; NO DEFAULTS
(a) Section 4.15(a) of the Disclosure Schedule contains a
correct and complete list, and the Company has delivered to ICC correct and
complete copies, of:
(i) each Contract that involves performance of
services or delivery of goods or materials by the Company of an amount or value
in excess of $50,000;
(ii) each Contract that involves performance of
services or delivery of goods or materials to the Company of an amount or value
in excess of $50,000;
(iii) each lease, license and other Contract
affecting any leasehold or other interest in any real or personal property;
(iv) each collective bargaining agreement and other
Contract to or with any labor union or other employee representative of a group
of employees;
(v) each joint venture, partnership and other
Contract involving a sharing of profits, losses, costs or liabilities by the
Company with any other Person or requiring the Company to make any capital
contribution;
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(vi) each Contract containing covenants that in any
way purport to restrict the business activity of the Company or limit the
freedom of the Company to engage in any line of business or to compete with any
Person or hire any Person;
(vii) each agreement between the Company and an
officer or director of the Company or any Seller or any affiliate of any of the
foregoing;
(viii) each power of attorney that is currently
effective and outstanding;
(ix) each Contract for capital expenditures in excess
of $50,000;
(x) each agreement under which any money has been or
may be borrowed or loaned or any note, bond, factoring agreement, indenture or
other evidence of indebtedness has been issued or assumed (other than those
under which there remain no ongoing obligations of the Company), each guaranty
(including "take-or-pay" and "keepwell" agreements) of any evidence of
indebtedness or other obligation, or of the net worth, of any Person (other than
endorsements for the purpose of collection in the ordinary course of business)
and each pledge, security or other agreement pursuant to which any Encumbrance
is created in any material asset or property of the Company;
(xi) each agreement containing restrictions with
respect to the payment of dividends or other distributions in respect of the
Company's capital stock;
(xii) each stock purchase, merger or other agreement
pursuant to which the Company acquired any material amount of assets, and all
relevant documents and agreements delivered in connection therewith;
(xiii) each agreement containing a change of control
provision;
(xiv) each other agreement having an indefinite term
or a fixed term of more than one (1) year (other than those that are terminable
at will or upon not more than sixty (60) days' notice by the Company without
penalty) or requiring payments by the Company of more than $50,000 per year; and
(xv) each standard form of agreement pursuant to
which the Company provides services to customers.
(b) Each Contract identified or required to be identified in
Section 4.15(a) of the Disclosure Schedule is in full force and effect and is
valid and enforceable against the Company and, to the knowledge of Company or
any of the Sellers, against the other parties thereto in accordance with its
terms.
(c) Except as set forth in Section 4.15(c) of the Disclosure
Schedule:
(i) the Company is in compliance in all material
respects with all applicable terms and requirements of each Contract under which
the Company has any obligation or liability or by which the Company or any of
the assets owned or used by the Company is or was bound, except for such
noncompliance that could not reasonably be expected to have a Material Adverse
Effect on the Company;
(ii) to the knowledge of the Company or any of the
Sellers, each other person that has or had any obligation or liability under any
Contract under which the Company has any rights is in compliance in all material
respects with all applicable terms and requirements of such Contract; and
(iii) no event has occurred or, to the knowledge of
the Company or any of the Sellers, circumstance exists that (with or without
notice or lapse of time or both) is reasonably likely to result in a violation
or breach of any Contract, which violation or breach could reasonably be
expected to have a Material Adverse Effect on the Company.
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4.16 INSURANCE
Section 4.16 of the Disclosure Schedule sets forth the premium payments
and describes all the insurance policies of the Company, which policies are in
full force and effect in accordance with their terms and expire on the dates
shown on Section 4.16 of the Disclosure Schedule. There has been no material
default in the payment of premiums on any of such policies, and, to the
knowledge of the Company or any of the Sellers, there is no ground for
cancellation or avoidance of any such policies, or any increase in the premiums
thereof, or for reduction of the coverage provided thereby. Such policies insure
the Company in amounts and against losses and risks customary and sufficient for
businesses similar to that of the Company, and, to the knowledge of the Company
or any of the Sellers, such policies shall continue in full force and effect up
to the expiration dates shown in Section 4.16 of the Disclosure Schedule.
Correct and complete copies of all insurance policies listed in Section 4.16
have been previously furnished to ICC.
4.17 ENVIRONMENTAL MATTERS
(a) The Company is, and at all times has been, in compliance
in all material respects with, and has not been and is not in violation of or
liable under, any Environmental Law. The Company has obtained and is in
compliance with all permits required under Environmental Laws. Neither the
Sellers or the Company has received any actual or threatened order, notice or
other communication from (i) any Governmental Authority or third party, or (ii)
the current or prior owner or operator of any Facilities, of any actual or
potential violation or failure to comply with any Environmental Law, or of any
actual or threatened Environmental, Health, and Safety Liabilities with respect
to any of the Facilities or any other properties or assets in which the Company
has had an interest or the operation of its business, or with respect to any
property or Facility at or to which Hazardous Materials were generated,
manufactured, transported, used or processed by the Company.
(b) There are no pending or, to the knowledge of the Company
or any of the Sellers, threatened claims, Encumbrances, or other restrictions of
any nature, resulting from any Environmental, Health, and Safety Liabilities or
arising under or pursuant to any Environmental Law, with respect to or affecting
any of the Facilities or any other properties or assets in which the Company has
or had an interest.
(c) None of the Sellers or the Company has knowledge of any
basis to expect, nor has any of them received, any inquiry, notice, order or
other communication that relates to Hazardous Activity, Hazardous Materials or
any violation or failure to comply with any Environmental Law, or of any
obligation to undertake or bear the cost of any Environmental, Health, and
Safety Liabilities with respect to any of the Facilities or any other properties
or assets in which the Company had an interest, or with respect to any property
or facility to which Hazardous Materials generated, manufactured, transported,
used or processed by the Company have been transported, treated, stored, handled
or disposed.
(d) None of the Sellers or the Company has any Environmental,
Health, or Safety Liabilities with respect to the Facilities or with respect to
any other properties and assets in which the Company (or any predecessor) has or
had an interest that could reasonably be expected to have a Material Adverse
Effect on the Company.
(e) There are no Hazardous Materials present on, in, under or
migrating to or from the Environment at the Facilities, to the knowledge of the
Company or any of the Sellers. Neither the Sellers nor the Company has permitted
or conducted, or is aware of, any Hazardous Activity conducted with respect to
the Facilities or any other properties or assets of the Company except in
compliance in all material respects with all applicable Environmental Laws.
(f) There has been no release or, to the knowledge of the
Company or any of the Sellers, threat of release, of any Hazardous Materials at
or from the Facilities or at any other locations where any Hazardous Materials
were generated, manufactured, transported, produced, used, disposed or processed
from or by the Facilities, or from or by any other properties and assets in
which the Company has or had an interest.
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(g) The Company has delivered to ICC correct and complete
copies and results of any and all reports, studies, analyses, tests or
monitoring possessed or initiated by any of the Sellers or the Company
pertaining to Hazardous Materials or Hazardous Activities in, on or under the
Facilities, or concerning compliance by the Company with Environmental Laws.
4.18 EMPLOYEES
(a) Section 4.18 of the Disclosure Schedule contains a
complete and accurate list of the following information for each employee of the
Company: name, job title, current compensation, vacation accrued and service
credited for purposes of vesting and eligibility to participate under any
employee benefit plan of any nature.
(b) No Seller and no officer of the Company is a party to, or
is otherwise bound by, any agreement or arrangement, including any
confidentiality, noncompetition or proprietary rights agreement, between such
Person and any other Person that materially and adversely affects (i) the
performance of his duties as an officer or employee of the Company or (ii) the
ability of the Company to conduct its business. Neither the Company nor any
Seller is aware of any officer or other key employee of the Company who intends
to terminate his or her employment with the Company.
4.19 EMPLOYEE BENEFITS
(a) Except as listed on Section 4.19 of the Disclosure
Schedule, neither the Company nor any ERISA Affiliate maintains any Employee
Benefit Plans. "Employee Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of ERISA and any other plan, policy, program, practice,
agreement, understanding or arrangement (whether written or oral) providing
compensation or other benefits to any current or former director, officer,
employee or consultant (or to any dependent or beneficiary thereof) of the
Company or any ERISA Affiliate, which are now, or were within the past six
years, maintained by the Company or any ERISA Affiliate, or under which the
Company or any ERISA Affiliate has any obligation or liability, whether actual
or contingent, including all incentive, bonus, deferred compensation, vacation,
holiday, cafeteria, medical, disability, stock purchase, stock option, stock
appreciation, phantom stock, restricted stock or other stock-based compensation
plans, policies, programs, practices or arrangements. "ERISA Affiliate" means
any entity (whether or not incorporated) other than the Company that, together
with the Company, is or was a member of (i) a controlled group of corporations
within the meaning of Section 414(b) of the Code, (ii) a group of trades or
businesses under common control within the meaning of Section 414(c) of the Code
or (iii) an affiliated service group within the meaning of Section 414(m) of the
Code.
The Company has delivered to ICC or its counsel prior to the
date of this Agreement correct and complete copies of (i) any employment
agreements and any procedures and policies relating to the employment of
employees of the Company and the use of temporary employees and independent
contractors by the Company (including summaries of any procedures and policies
that are unwritten), (ii) plan instruments and amendments thereto for all
Employee Benefit Plans and related trust agreements, insurance and other
contracts, summary plan descriptions, summaries of material modifications and
material communications distributed to the participants of each Plan, (iii) to
the extent annual reports on Form 5500 are required with respect to any Employee
Benefit Plan, the three most recent annual reports and attached schedules for
each Employee Benefit Plan as to which such report is required to be filed and
(iv) where applicable, the most recent (A) opinion, notification and
determination letters, (B) audited financial statements, (C) actuarial valuation
reports and (D) nondiscrimination tests performed under the Code (including
401(k) and 401(m) tests) for each Employee Benefit Plan.
(b) Neither the Company nor any ERISA Affiliate maintains or
has ever maintained an Employee Benefit Plan subject to Title IV of ERISA.
(c) To the knowledge of the Company or any of the Sellers,
with respect to each Employee Benefit Plan, (i) no party in interest or
disqualified person (as defined in Section 3(14) of ERISA and Section 4975 of
the Code, respectively) has at any time engaged in a transaction which could
subject ICC, Buyer or the Company, directly or indirectly, to a tax, penalty or
liability for prohibited transactions imposed by ERISA or the Code and (ii) no
fiduciary (as defined in Section 3(21) of ERISA) with respect to any Employee
Benefit Plan, or for whose
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conduct the Company could have any liability (by reason of indemnities or
otherwise), has breached any of the responsibilities or obligations imposed upon
the fiduciary under Title I of ERISA.
(d) Each Employee Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA (a "Pension Plan") and
which is subject to Sections 201, 301 or 401 of ERISA is covered by a favorable
opinion letter from the Internal Revenue Service covering all amendments
required by the Tax Reform Act of 1986 and prior legislation and, to the
knowledge of the Company or any of the Sellers, there are no circumstances that
are reasonably likely to result in revocation of any such favorable
determination letter. To the knowledge of the Company or any of the Sellers,
each Employee Benefit Plan is and has been operated in all material respects in
compliance with its terms and all applicable laws, and by its terms can be
amended and/or terminated at any time. As of and including the Closing Date, the
Company shall have made all contributions required to be made by them up to and
including the Closing Date with respect to each Employee Benefit Plan, or
adequate accruals therefor will have been provided for and will be reflected on
the Financial Statements provided to ICC by the Company. All notices, filings
and disclosures required by ERISA or the Code (including notices under Section
4980B of the Code) have been timely made.
(e) Neither the Company nor any of the Sellers has received or
is aware of any actions, claims (other than routine claims for benefits),
lawsuits or arbitrations pending or, to the knowledge of the Company or any of
the Sellers, threatened with respect to any Employee Benefit Plan or against any
fiduciary of any Employee Benefit Plan, and neither the Company nor any of the
Sellers has knowledge of any facts that could give rise to any such actions,
claims, lawsuits or arbitrations. To the knowledge of the Company or any of the
Sellers, there has not occurred any circumstances by reason of which the Company
may be liable for an act, or a failure to act, by a fiduciary with respect to
any Employee Benefit Plan.
(f) No Employee Benefit Plan provides for medical or health
benefits (through insurance or otherwise) or provides for the continuation of
such benefits or coverage for any participant or any dependent or beneficiary of
any participant after such participant's retirement or other termination of
employment except as may be required by Part 6 of Subtitle B of Title I of ERISA
and Section 4980B of the Code ("COBRA").
(g) Neither the Company or any ERISA Affiliate has ever
contributed to, or withdrawn in a partial or complete withdrawal from, any
"multiemployer plan" (as defined in Section 3(37) of ERISA) or has any fixed or
contingent liability under Section 4204 of ERISA.
(h) No Employee Benefit Plan is a "multiple employer plan" as
described in Section 3(40) of ERISA or Section 413(c) of the Code.
(i) No Employee Benefit Plan, other than a "pension plan"
within the meaning of Section 3(2) of ERISA ("Pension Plan"), is funded through
a trust intended to be exempt from tax pursuant to Section 501 of the Code.
(j) Except as provided in Section 4.19 of the Disclosure
Schedule, no person or entity has an employment, severance, consulting or
independent contractor agreement with the Company. No "leased employee" (within
the meaning of Section 414(n) or (o) of the Code) performs any material services
for the Company.
Except as set forth in Section 4.19 of the Disclosure
Schedule, the consummation of the transactions contemplated by this Agreement
will not result in (i) any payment (including severance, unemployment
compensation, golden parachute or bonus payments or otherwise) becoming due to
any director, officer, employee or consultant of the Company, (ii) any increase
in the amount of compensation or benefits payable in respect of any director,
officer, employee or consultant of the Company or (iii) accelerate the vesting
or timing of payment of any benefits or compensation payable in respect of any
director, officer, employee or consultant of the Company. No Employee Benefit
Plan provides benefits or payments contingent upon, triggered by or increased as
a result of a change in the ownership or effective control of the Company.
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4.20 LABOR RELATIONS
Except as set forth in Section 4.20 of the Disclosure Schedule:
(a) The Company has satisfactory relationships with its
employees.
(b) No condition or state of facts or circumstances exists
which is reasonably likely to materially adversely affect the Company's
relations with its employees, including the consummation of the transactions
contemplated by this Agreement.
(c) The Company is in compliance in all material respects with
all applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and is not engaged in any unfair
labor practice.
(d) No collective bargaining agreement with respect to the
business of the Company is currently in effect or being negotiated. The Company
has not encountered any labor union or collective bargaining organizing activity
with respect to its employees. The Company has no obligation to negotiate any
such collective bargaining agreement and, to the knowledge of the Company or any
of the Sellers, there is no indication that the employees of the Company desire
to be covered by a collective bargaining agreement.
(e) There are no strikes, slowdowns, work stoppages or other
labor trouble pending or, to the knowledge of the Company or any of the Sellers,
threatened with respect to the employees of the Company, nor has any of the
above occurred or, to the knowledge of the Company or any of the Sellers, been
threatened.
(f) There is no representation claim or petition pending
before the National Labor Relations Board or any state or local labor agency
and, to the knowledge of the Company or any of the Sellers, no question
concerning representation has been raised or threatened respecting the employees
of the Company.
(g) There are no complaints or charges against the Company
pending before the National Labor Relations Board or any state or local labor
agency and, to the knowledge of the Company or any of the Sellers, no complaints
or charges have been filed or threatened to be filed against the Company with
any such board or agency.
(h) To the knowledge of the Company or any of the Sellers, no
charges with respect to or relating to the business of the Company are pending
before the Equal Employment Opportunity Commission or any state or local agency
responsible for the prevention of unlawful employment practices.
(i) Section 4.20 of the Disclosure Schedule accurately sets
forth all unpaid severance which, as of the date hereof, is due or claimed, in
writing, to be due from the Company to any Person whose employment with the
Company was terminated.
(j) None of the Sellers or the Company has received notice of
the intent of any government body responsible for the enforcement of labor or
employment laws to conduct an investigation of the Company and, to the knowledge
of the Company or any of the Sellers, no such investigation is in progress.
(k) To the knowledge of the Company or any of the Sellers,
neither the Company nor any employee of the Company is in violation in any
material respect of any employment agreement, non-disclosure agreement,
non-competition agreement or any other agreement regarding an employee's
employment with the Company.
(l) The Company has paid all wages which are due and payable
to each employee and each independent contractor.
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4.21 INTELLECTUAL PROPERTY RIGHTS
(a) As used herein, the term "Intellectual Property Assets"
shall mean all worldwide industrial and intellectual property rights, including,
without limitation, patents, patent applications, patent rights, trademarks,
trademark applications, trademark rights, service marks, service mark
applications, service mark rights, copyrights, copyright applications, trade
names, unfair competition rights, franchises, licenses, inventories, know-how,
trade secrets, moral rights, rights of publicity, customer lists, proprietary
information, technologies, processes and formulae, all source and object code,
algorithm, architecture, structure, display screens, layouts, inventions,
development tools, and all documentation and media constituting, describing or
relating to the above, including, without limitation, manuals, memoranda and
records in any format, whether hard copy or machine-readable only.
(b) The Company is the sole legal and beneficial owner, free
and clear of any Encumbrance, of the entire right, title and interest in and to
the Intellectual Property Assets used in the conduct of the Company's business
as presently conducted and as proposed to be conducted and such rights to use,
sell or license are sufficient for such conduct of its business. The execution,
delivery and performance of this Agreement and the consummation of the
transaction contemplated hereby will not constitute a breach of any Contract
involving any of the Company's Intellectual Property Assets, will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Intellectual Property Asset or impair the rights of the Company to use,
sell or license its Intellectual Property Assets or any portion thereof.
(c) Set forth in Section 4.21(c) of the Disclosure Schedule is
a complete and correct list of (i) all patents and patent applications, if any,
owned by the Company worldwide, (ii) all trademarks and service marks, all
trademark and service mark applications and registrations and all trade names
owned by the Company worldwide, (iii) all copyrights and registrations and
applications owned by the Company worldwide and (iv) all licenses owned by the
Company in which the Company is (A) a licensor with respect to any of the
patents, trademarks, service marks, trade names or copyrights listed in Section
4.21(c) of the Disclosure Schedule or (B) a licensee of any other person's
patents, trade names, trademarks, service marks or copyrights. The Company has
made all necessary filings and recordations to protect and maintain its
interests in the patents, patent applications, trademark and service mark
registrations, trademark and service mark applications, trade names, copyright
registrations and copyright applications and licenses set forth in Section
4.21(c) of the Disclosure Schedule, except for such filings and recordations the
failure of which to make would not have a Material Adverse Effect on the
Company.
(d) Except as set forth in Section 4.21(d) of the Disclosure
Schedule, and except as would not reasonably be expected to result in a Material
Adverse Effect on the Company, each patent, patent application, trademark or
service mark registration, trademark or service mark application and copyright
registration or copyright application of the Company set forth in Section
4.21(c) of the Disclosure Schedule, is valid and subsisting and has not been
judged invalid, unregistrable or unenforceable, in whole or in part, and is
valid, registrable and enforceable. Each license of the Company identified in
Section 4.21(c) of the Disclosure Schedule is valid, subsisting and enforceable
and has not been adjudged invalid or unenforceable, in whole or in part. The
Company has notified ICC of all uses of any item of its Intellectual Property
Assets becoming invalid or unenforceable, including uses which were not
supported by the good will of the business connected with such Intellectual
Property Assets. The Company has not made a previous assignment, transfer or
Contract constituting a present or future assignment, transfer or Encumbrance of
any Intellectual Property Asset. Except as listed in Section 4.21(d) of the
Disclosure Schedule, the Company has not granted any license, release, covenant
not to sue, or non-assertion assurance to any person with respect to any part of
the Intellectual Property Assets.
(e) Except as set forth in Section 4.21(e) of the Disclosure
Schedule, and except as would not reasonably be expected to result in a Material
Adverse Effect on the Company, no use of the Intellectual Property Assets, nor
the manufacture, marketing, license, sale or use of any product or service
currently licensed or sold by the Company or currently under development by the
Company violates any license agreement between the Company and any third party
or infringes any proprietary rights of any third party and there is no pending
or threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any Intellectual Property Asset or product nor
is there any basis for any such claim. Further, the Company has not received any
notice asserting that any of the Company's Intellectual Property Assets or
products, or the proposed use, sale, license or
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disposition thereof, conflicts or will conflict with the
rights of any other party, nor is there any basis for any such assertion.
(f) Except as set forth in Section 4.21(f) of the Disclosure
Schedule, there is no unauthorized use, infringement or misappropriation of any
of the Company's Intellectual Property Assets by any third party, including any
employee or former employee of the Company.
(g) Except as set forth in Section 4.21(g) of the Disclosure
Schedule, there are no royalties, honoraria, fees or other fixed or contingent
amounts or payments payable by Company to any person with respect to any
Intellectual Property Assets.
(h) The Company has taken reasonable and practicable steps
designed to safeguard and maintain the secrecy and confidentiality of, and the
Company's proprietary rights in, the Intellectual Property Assets. Except as set
forth in Section 4.21(h) of the Disclosure Schedule, all officers, employees and
consultants of or to the Company having access to or developing any Intellectual
Property Assets of the Company have executed and delivered an agreement
regarding the protection of proprietary information and the license or
assignment to the Company of all proprietary rights arising from the services
performed by such persons, such proprietary rights are licensed or assigned to
the Company or are works made-for-hire and the Company is the author and owner
of all such rights under the Copyright Act of 1976, as amended. To the knowledge
of the Company or any Seller, no current or prior officers, employees or
consultants of or to the Company (i) claims or have a right to claim an
ownership interest in any Intellectual Property Assets as a result of having
been involved in the development or licensing of any such property while
employed by or consulting to the Company, or otherwise, or (ii) owns any
Intellectual Property Assets directly or indirectly competitive with those of
the Company.
(i) Section 4.21(i) of the Disclosure Schedule contains a
complete list of all material development tools used or currently intended to be
used by the Company in the development of any product of the Company or used in
the conduct of the Company's business as presently conducted and as proposed to
be conducted, except for any such tools that are generally available and are
used in their generally available form (the "Company Development Tools").
Section 4.21(i) of the Disclosure Schedule also sets forth, for each Company
Development Tool: (i) for any Company Development Tool not entirely developed
internally by Company employees, the identity of the independent contractors and
consultants involved in such development and a list of the agreements with such
independent contractors and consultants, (ii) a list of any third parties with
any rights to receive royalties or other payments with respect to such Company
Development Tools and a schedule of all such royalties payable, (iii) a list of
agreements containing any restrictions on the Company's unrestricted right to
use and distribute such Company Development Tools and (iv) a list of all
agreements with third parties for the use by such third party of such Company
Development Tools. The Company has sufficient right, title and interest in and
to the Company Development Tools necessary for the conduct of its business as
currently conducted and as to any products currently in development or proposed
to be developed and, except as set forth on Section 4.21(i) of the Disclosure
Schedule, all Company Development Tools are works made-for-hire and the Company
is the author and owner of all such Company Development Tools under the
Copyright Act of 1976, as amended.
(j) Section 4.21(j) of the Disclosure Schedule lists all
products and services of the Company sold or proposed to be sold by the Company.
Section 4.21(j) of the Disclosure Schedule sets forth, for each product and
service, the following information: (i) a list of all Contracts (including all
development agreements, trademark or service mark licenses, technology licenses,
manufacturer's representative agreements, distribution or other agreements)
relating to the product or service, (ii) as to any Contract under which
compliance or performance continues to be required, the advances paid or
payable, and the royalties or other sums payable, to any third parties with
respect to such product or service and (iii) a list of third parties with
distribution rights to such product or service together with a description of:
(a) the territory in which the third party has distribution rights and (b)
whether such distribution rights are exclusive or nonexclusive.
(k) Any software products or services owned, provided or
otherwise developed by the Company, or used in the conduct of the Company's
business as presently conducted, whether in whole or in part, by or for the
Company, which incorporate any date-related information or otherwise process any
date-related information, provide, among other things, the following
functionality: (i) accurate processing of date-related information before,
during and after January 1, 2000, including accepting the date input, providing
the date output
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and performing calculations on dates or portions of dates, (ii) accurate
functioning without interruption before, during and after January 1, 2000
without any change in operation associated with the advent of the new century,
(iii) ability to respond to two-digit date input in a way that resolves any
ambiguity as to century in a disclosed, defined and predetermined manner and
(iv) the ability to store and provide output date information in ways that are
unambiguous as to century.
(l) Except as set forth in Section 4.21(l) of the Disclosure
Schedule, each employee of or consultant to the Company who has or is proposed
to have access to the Company's source code or any material confidential and
proprietary information of the Company, each of whom is listed on Section
4.21(l) of the Disclosure Schedule, has executed and delivered an agreement with
the Company relating to non-competition, non-disclosure, proprietary information
and invention assignment, a correct and complete copy of which has been
delivered to ICC.
4.22 CERTAIN PAYMENTS
Neither the Company nor any director, officer, agent or employee of the
Company or, to the knowledge of the Company or any of the Sellers, any other
Person associated with or acting for or on behalf of the Company has directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any Person, private or public, regardless
of form, whether in money, property or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for business
secured, (iii) to obtain special concessions, or for special concessions already
obtained, for or in respect of the Company or any affiliate of the Company or
(iv) in violation of any legal requirement or (b) established or maintained any
fund or asset that has not been recorded in the books and records of the
Company.
4.23 RELATIONSHIPS WITH RELATED PERSONS; USE OF NAME
(a) Except as set forth in Section 4.23 of the Disclosure Schedule,
none of the Sellers, or any officer, director or employee of the Company, or any
spouse or child of any of them or any Person associated with any of them (a
"Related Person") has any interest in any property or asset used in or
pertaining to the business of the Company. None of the Sellers or any Related
Person has owned an equity interest or any other financial or profit interest in
a Person that has (i) had business dealings with the Company or (ii) engaged in
competition with the Company. None of the Sellers or any Related Person is a
party to any Contract with, or has any claim or right against, the Company,
except employment or consulting agreements listed in Section 4.19(j) of the
Disclosure Schedule.
(b) The business carried on by the Company has been conducted by the
Company directly and not through any Related Person or through any other Person.
The Company owns and has the exclusive right, title and interest in and to the
name "Research Triangle Commerce" and no other Person has the right to use the
same, or any confusing derivative thereof, as its corporate name or otherwise in
connection with the operation of any business similar or related to the business
conducted by the Company.
4.24 BROKERS OR FINDERS
Except as listed and described in Section 4.3 of the Disclosure
Schedule, neither the Company nor any of the Sellers nor their respective agents
has incurred any obligation or liability, contingent or otherwise, for brokerage
or finders' fees or agents' commissions or financial advisory services or other
similar payment in connection with this Agreement.
4.25 DEPOSIT ACCOUNTS
Section 4.25 of the Disclosure Schedule contains a true, correct and
complete list of (a) the name of each financial institution in which the Company
has an account or safe deposit box, (b) the names in which each account or box
is held, (c) the type of account and (d) the name of each person authorized to
draw on or have access to each account or box.
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4.26 CLIENT RELATIONSHIPS
To the knowledge of the Company or any of the Sellers, there are no
facts or circumstances, including the consummation of the transactions
contemplated by this Agreement, that are reasonably likely to result in the loss
of any material client of the Company or a material change in the relationship
of the Company with such a client.
4.27 DISCLOSURE
No representation or warranty of the Company or any of the Sellers
contained in this Agreement and no statement in the Disclosure Schedule is
inaccurate in any material respect or omits to state a material fact necessary
to make the statements herein or therein, in light of the circumstances under
which they were made, not misleading.
4.28 RESALE REGISTRATION STATEMENT; JOINT PROXY STATEMENT
The information supplied by the Sellers and the Company with respect to
the Sellers and the Company and their respective officers, directors,
stockholders and other affiliates (collectively, the "Company Information") for
inclusion in the Resale Registration Statement shall not at the time the Resale
Registration Statement is declared effective by the Commission 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
light of the circumstances under which they were made, not misleading. The
Company Information supplied by the Sellers and the Company for inclusion in the
joint proxy statement (such joint proxy statement as amended or supplemented is
referred to herein as the "Joint Proxy Statement") to be sent to (a) the
stockholders of the Company in connection with the meeting of the stockholders
of the Company to consider the Merger (the "Company Shareholders Meeting") and
(b) the stockholders of ICC in connection with the meeting of the stockholders
of ICC (the "ICC Stockholders Meeting" and, together with the Company
Shareholders Meeting, the "Stockholders Meetings") to consider the ICC Common
Stock Issuance will not, on the date the Joint Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to stockholders or at the time of
the Stockholders Meetings, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or shall omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Stockholders
Meetings which has become false or misleading. If at any time prior to the
Effective Time any event relating to the Sellers or the Company or any of their
respective officers, directors, stockholders or other affiliates should be
discovered by the Sellers or the Company which should be set forth in an
amendment or a supplement to the Joint Proxy Statement, the Sellers or the
Company, as the case may be, shall promptly inform ICC. The Joint Proxy
Statement shall comply as to form in all material respects with the requirements
of the Exchange Act. Notwithstanding the foregoing, the Sellers and the Company
make no representation or warranty with respect to any information supplied by
ICC or Buyer which is contained or incorporated by reference in, or furnished in
connection with the preparation of, the Resale Registration Statement or the
Joint Proxy Statement.
5. REPRESENTATIONS AND WARRANTIES OF ICC AND BUYER
ICC and Buyer jointly and severally represent and warrant to the
Company and the Sellers as follows:
5.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina. ICC is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each of ICC and Buyer has full corporate power and authority
to conduct its business as it is now being conducted and to own or use the
properties and assets that it purports to own or use. Each of ICC and Buyer is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which either the ownership
or use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect on
ICC and Buyer, taken as a whole.
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5.2 AUTHORITY; NO CONFLICT
(a) ICC and Buyer each has the right, power, authority and
capacity to execute and deliver this Agreement, to consummate the Merger and to
perform its respective obligations under this Agreement. This Agreement has been
duly authorized and approved, executed and delivered by ICC and Buyer and
constitutes the legal, valid and binding obligation of ICC and Buyer,
enforceable against each in accordance with its terms, subject to approval of
the ICC Common Stock Issuance by the stockholders of ICC.
(b) Neither the execution and delivery of this Agreement by
ICC or Buyer nor the consummation or performance by ICC or Buyer of the Merger
or any of the other transactions contemplated hereby will, directly or
indirectly (with or without notice or lapse of time or both):
(i) contravene, conflict with, or result in a
violation or breach of (A) any provision of the Organizational Documents of ICC
or Buyer, (B) any resolution adopted by the board of directors (or any committee
thereof) or the stockholders of ICC or Buyer, (C) any legal requirement or any
order to which ICC or Buyer or any of the properties or assets owned or used by
them may be subject or (D) any Governmental Permit held by ICC or Buyer;
(ii) result in a breach of or constitute a default,
give rise to a right of termination, cancellation or acceleration, create any
entitlement to any payment or benefit, or require the consent or approval of or
any notice to or filing with any third party, under any Contract to which ICC or
Buyer is a party or by which their respective properties or assets are bound, or
require the consent or approval of or any notice to or filing with any
Governmental Authority to which either ICC, Buyer or their respective assets are
subject; or
(iii) result in the imposition or creation of any
Encumbrance upon or with respect to any of the properties or assets owned or
used by ICC or Buyer, except, with respect to clause (i) (C) or (D), (ii) or
(iii) of this Section 5.2, where any such contravention, conflict, violation,
breach, default, termination right, cancellation or acceleration right or
Encumbrance could not reasonably be expected to have a Material Adverse Effect
on ICC or could not reasonably be expected to adversely affect the ability of
ICC or Buyer to consummate the Merger or the other transactions contemplated by
this Agreement.
5.3 CAPITALIZATION; ICC SHARES
(a) The authorized capital stock of ICC consists of 40,000,000
shares of Class A Common Stock, par value $.01 per share, of which as of June 9,
2000 6,287,301 shares were issued and outstanding; 2,000,000 shares of Class B
Common Stock, par value $.01 per share, of which as of June 9, 2000 3,218 shares
were issued and outstanding; 2,000,000 shares of Class E-1 Common Stock, par
value $.01 per share, of which as of June 9, 2000 no shares were issued and
outstanding; 2,000,000 shares of Class E-2 Common Stock, par value $.01 per
share, of which as of June 9, 2000 no shares were issued and outstanding; and
5,000,000 shares of preferred stock, $.01 par value per share, of which as of
June 9, 2000 (i) 10,000 shares, designated Series A Convertible Redeemable
Preferred Stock, were authorized and 868 shares were outstanding, (ii) 10,000
shares, designated Series C Convertible Redeemable Preferred Stock, were
authorized and outstanding and (iii) 175 shares, designated Series S Preferred
Stock, were authorized and none was outstanding. All of the issued and
outstanding capital stock of Buyer is owned of record and beneficially by ICC.
(b) The ICC Shares issuable as a result of the Merger have
been duly authorized and upon the Effective Time, will be validly issued, fully
paid and nonassessable and designated for quotation on The NASDAQ SmallCap
Market.
5.4 FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
(a) ICC has delivered to each Seller correct and complete
copies of its Prospectus dated March 28, 2000 as filed with the Commission
pursuant to Rule 424(b) under the Securities Act (the "Prospectus"), its Annual
Report on Form 10-KSB for the year ended July 31, 1999 (the "Form 10-KSB") and
its Quarterly Reports on Form 10-QSB for the quarters ended October 31, 1999,
January 31, 2000 and April 30, 2000 (the
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"Forms 10-QSB") The Prospectus, the Form 10-KSB and the Forms 10-QSB (the "ICC
SEC Reports") have been timely filed pursuant to the Securities Act or the
Exchange Act, as applicable.
(b) The Prospectus, the Form 10-KSB and the Forms 10-QSB
complied as to form in all material respects with the requirements of the
Securities Act and the Exchange Act, as applicable, in effect on the respective
dates thereof. None of the Prospectus, the Form 10-KSB or the Forms 10-QSB, when
filed pursuant to the Securities Act or the Exchange Act, as applicable,
contained any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) Each of the financial statements (including the related
notes) included in the Form 10-KSB and the Forms 10-QSB presents fairly, in all
material respects, the consolidated financial position and consolidated results
of operations and cash flows of ICC as of the respective dates or for the
respective periods set forth therein, all in conformity with GAAP consistently
applied during the periods involved, except as otherwise noted therein, and
subject, in the case of any unaudited interim financial statements included
therein, to normal year-end adjustments and to the absence of complete
footnotes.
5.5 NO MATERIAL ADVERSE CHANGE
Since July 31, 1999, there has not been any material adverse change in
the business, operations, properties, prospects, liabilities, results of
operations, assets or condition (financial or otherwise) of ICC taken as a
whole. Certain recent developments involving ICC are described in Section 5.5 of
the Disclosure Schedule.
5.6 LEGAL PROCEEDINGS
Except as set forth in Section 5.6 of the Disclosure Schedule, there is
no pending Proceeding against ICC or Buyer that challenges, or that may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the transactions contemplated by this Agreement. To the knowledge of ICC,
no such Proceeding has been threatened in writing.
5.7 BROKERS OR FINDERS
Neither ICC nor Buyer nor any of its officers and agents has incurred
any obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or financial advisory services or other similar
payment in connection with this Agreement, except for fees that will be paid by
ICC.
5.8 RESALE REGISTRATION STATEMENT; JOINT PROXY STATEMENT
Subject to the accuracy of the representations of the Company in
Section 4.28, the Resale Registration Statement pursuant to which the ICC Shares
will be registered with the Commission shall not at the time the Resale
Registration Statement is declared effective by the Commission 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. The
information with respect to ICC and its officers, directors, stockholders and
other affiliates included in the Joint Proxy Statement will not, on the date the
Joint Proxy Statement (or any amendment thereof or supplement thereto) is first
mailed to stockholders, or at the time of the Stockholders Meetings, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or
shall omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not false
or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meetings which has become false or misleading. If
at any time prior to the Effective Time any event relating to ICC or Buyer or
any of their respective officers, directors, stockholders or affiliates should
be discovered by ICC which should be set forth in an amendment or a supplement
to the Joint Proxy Statement, ICC shall promptly inform the Sellers and the
Company. The Joint Proxy Statement shall comply as to form in all material
respects with the requirements of the Exchange Act. Notwithstanding the
foregoing, ICC and Buyer make no representation or warranty with respect to any
Company
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Information which is contained or incorporated by reference in, or furnished in
connection with the preparation of, the Resale Registration Statement or the
Joint Proxy Statement.
5.9 EMPLOYEES
ICC is not aware of any officer or other key employee of ICC who
intends to terminate his or her employment with ICC.
5.10 CONTINUATION OF BUSINESS
After the Effective Time ICC intends to operate the Company as a going
concern substantially in accordance with the Company's present plan of operation
(without regard to acquisitions) and at the Effective Time ICC will offer
employment to all the present employees of the Company on terms substantially
comparable to the terms of employment of comparable ICC employees, subject to
reasonable adjustments related to location, cost of living and other relevant
factors and subject in all cases to the discretion of the Board of Directors of
ICC.
6. COVENANTS OF THE COMPANY AND THE SELLERS
The Company and the Sellers hereby each individually covenants and
agrees with ICC and Buyer as follows:
6.1 NORMAL COURSE
From the date of this Agreement until the Closing, the Company will and
the Sellers will cause the Company to: (a) maintain its corporate existence in
good standing, (b) maintain the general character of its business, (c) use all
reasonable commercial efforts to maintain in effect all of its presently
existing insurance coverage (or substantially equivalent insurance coverage),
preserve its business organization substantially intact, keep the services of
its present principal employees and preserve its present business relationships
with its material suppliers and customers, (d) permit ICC, Buyer, their
accountants, their legal counsel and their other representatives full access to
its management, minute books and stock transfer records, other books and
records, Contracts, properties and operations at all reasonable times and upon
reasonable notice and (e) in all respects conduct its business in the usual and
ordinary manner consistent with past practice, including without limitation with
respect to any cash provided to the Company by ICC in connection with the
transactions contemplated by this Agreement and the Letter of Intent, and
perform in all material respects all agreements or other obligations with banks,
customers, suppliers, employees and others.
6.2 CONDUCT OF BUSINESS
Without limiting the provisions of Section 6.1 and except as otherwise
expressly permitted by this Agreement, from the date of this Agreement until the
Closing, the Company will not, and the Sellers will cause the Company not to,
without the prior written consent of ICC, enter into any Contract or take or
fail to take any action that, if it had occurred after the Balance Sheet Date
and prior to the date of this Agreement would be required to be disclosed in
Section 4.14 of the Disclosure Schedule:
(a) amend or otherwise modify its Organizational Documents;
(b) pay any material Liability, except for any current
Liabilities and the current portion of any long term Liabilities shown on the
Financial Statements (or not required as of the date thereof to be shown thereon
in accordance with GAAP) or incurred since the Balance Sheet Date in the
ordinary course of business consistent with past practice;
(c) make any loan or advance in excess of $10,000 to any
Person other than travel and other similar routine advances in the ordinary
course of business consistent with past practice, or acquire any capital stock
or other securities of or any ownership interest in any other business
enterprise;
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(d) make any capital expenditure or capital addition or
betterment in amounts which exceed $100,000 in the aggregate, except as
contemplated in capital budgets in effect on the date of this Agreement; or
(e) enter into any commitment to do any of the foregoing;
provided, however, that prior to the Closing the Company may adopt a restricted
stock plan reasonably satisfactory to ICC and award shares of Company Restricted
Stock subject to forfeiture by the recipients of such shares on the terms and
conditions set forth in such plan. The total number of shares of Company
Restricted Stock awarded under such plan may not exceed the lesser of (x)
825,000 shares of Company Restricted Stock and (y) the number of shares
contributed by Jeffrey LeRose to the capital of the Company prior to the
Closing.
6.3 CERTAIN FILINGS
The Company and the Sellers agree to cooperate with ICC with respect to
all filings with regulatory authorities that are required to be made,
respectively, by any of the Sellers or by the Company to carry out the
transactions contemplated by this Agreement, including providing information and
cooperating in the preparation and filing of the Resale Registration Statement
(or such other form as may be appropriate) and the Joint Proxy Statement. The
Sellers shall assist and shall cause the Company to assist ICC and Buyer in
making all such filings, applications and notices as may be necessary or
desirable in order to obtain the authorization, approval or consent of any
governmental entity which may be reasonably required or which ICC and Buyer may
reasonably request in connection with the consummation of the transactions
contemplated by this Agreement. The Joint Proxy Statement shall include the
unanimous recommendation of the Board of Directors of the Company in favor of
the Merger and this Agreement and such recommendation shall not be withdrawn
modified or changed in a manner adverse to ICC or the Company, respectively.
6.4 CONSENTS AND APPROVALS
The Company and the Sellers shall use their respective reasonable
commercial efforts to obtain as promptly as practicable all consents,
authorizations, approvals and waivers required in connection with the
consummation of the transactions contemplated by this Agreement.
6.5 COMMERCIALLY REASONABLE BEST EFFORTS TO SATISFY CONDITIONS
(a) The Company and the Sellers shall use their commercially
reasonable best efforts to cooperate with ICC for purposes of satisfying the
conditions set forth in Sections 8 and 9 that are within their control.
(b) The Company and the Sellers shall use their commercially
reasonable best efforts to cause the Persons listed in Section 4.21(h) and
Section 4.21(l) of the Disclosure Schedule to sign the Company's standard form
of non-compete, non-disclosure, proprietary information and invention assignment
agreement.
6.6 INTERCOMPANY PAYMENTS
All loans, payables and other amounts due between, to or from the
Company and its affiliates as listed in Section 6.6 of the Disclosure Schedule,
if any, shall be paid in full, written off or adjusted to zero balances at or
prior to the Closing. Such amounts due may be paid from cash on hand or as may
otherwise be available to the Company from existing lines of credit with third
party lenders.
6.7 NOTIFICATION OF CERTAIN MATTERS
The Company and each Seller shall promptly notify ICC of (i) the
occurrence or non-occurrence of any fact or event of which such Seller or the
Company has knowledge which would be reasonably likely (A) to cause any
representation or warranty of such Seller or the Company contained in this
Agreement or the Disclosure Schedule to be untrue or inaccurate in any material
respect at any time from the date of this Agreement to the Closing Date or (B)
to cause any covenant, condition or agreement of such Seller or the Company in
this Agreement not to be complied with or satisfied in any material respect and
(ii) any failure of such Seller or the Company to comply with
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or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder in any material respect; provided, however, that no such
notification shall affect the representations or warranties of the Sellers or
the Company or the right of ICC or Buyer to rely thereon, or the conditions to
the obligations of ICC or Buyer. The Company shall give prompt notice to ICC of
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.
6.8 TAX TREATMENT
The Company and each Seller agrees not to take any action that would
jeopardize treatment of the Merger as a tax-free reorganization as described in
Section 2.11.
6.9 RESTRICTIVE COVENANTS
(a) Scope and Reasonableness. Mr. LeRose acknowledges that ICC
would not consummate the transactions contemplated by this Agreement without the
assurance that he will not engage in the activities prohibited by this Section
6.9 as and for the period set forth below. In order to induce ICC to consummate
the transactions contemplated by this Agreement, Mr. LeRose agrees to restrict
his actions and activities throughout the United States (the "Territory") as
provided in this Section 6.9. Mr. LeRose acknowledges and agrees that the
restrictions in this Section 6.9 are reasonable in light of the benefits of the
transactions contemplated by this Agreement to him.
(b) Non-competition. Mr. LeRose hereby covenants and agrees
that from the Closing Date until the second (2nd) anniversary of the Closing
Date, it will not in the Territory, directly or indirectly, (a) engage on its
own behalf in the RTCI Business (as hereinafter defined) or (b) own any interest
in or engage in or perform any service for any Person, either as a partner,
owner, employee, consultant, agent, officer, director or shareholder, that (A)
derives a meaningful portion of its revenues from the RTCI Business or (B) is a
meaningful competitor in the RTCI Business. Notwithstanding any provision of
this Section 6.9(b), it shall not be a violation of this Section 6.9(b) for Mr.
LeRose to own two percent (2%) or less of a public company, provided that he
does not exert or have the power to exert any management or other control over
such public company. The RTCI Business means Data Transformation and Mapping (as
hereinafter defined) for business-to-business electronic commerce over the
Internet. "Data Transformation and Mapping" means using commercially available
translation software to communicate between systems.
(c) Non-Solicitation. Mr. LeRose hereby covenants and agrees
that from the Closing Date through the first (1st) anniversary of the Closing
Date, he will not induce or attempt to induce, in any manner, directly or
indirectly, any employee, agent, representative, customer or any other person or
concern dealing with or in any way associated with the Company to terminate or
to modify, in any fashion to the material detriment of the Company, such
association with the Company. Mr. LeRose acknowledges that the provisions of
Sections 6.9(b) and 6.9(c) are his separate agreement.
(d) Remedies. Mr. LeRose's agreements contained in this
Section 6.9 relate to matters of unique character and peculiar value impossible
of replacement, that breach of such agreements by Mr. LeRose will cause the
Company great and irreparable injury, that the remedy at law for any breach of
the agreements contained in this Section 6.9 will be inadequate and that ICC, in
addition to any other remedy available to it, shall be entitled to temporary
restraining orders and temporary and permanent injunctive relief or other
equitable relief without the necessity of proving actual damage or of providing
a bond so as to prevent a breach or threatened breach of any of the agreements
contained in this Section 6.9 and to secure the enforcement thereof.
6.10 COMPANY SHAREHOLDERS MEETING
The Company shall call the Company Shareholders Meeting as promptly as
practicable for the purpose of voting upon the approval of the Merger. The
Company shall take all reasonable action necessary or advisable to secure the
vote or consent of stockholders of the Company in favor of approval of the
Merger and this Agreement
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and shall not take any action that could reasonably be expected to prevent the
vote or consent of stockholders in favor of such approval.
6.11 AGREEMENT TO VOTE COMPANY CAPITAL STOCK
Each of the Sellers shall, at any meeting of the stockholders of the
Company prior to the Effective Time, however called, vote, or shall execute a
written consent with respect to all of, its shares of Company Capital Stock (a)
in favor of the Merger and this Agreement, (b) against any action or agreement
that would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of the Company or the Sellers under this Agreement
and (c) against any action or agreement (other than this Agreement) that would
impede, interfere with, delay, postpone or attempt to discourage the Merger,
including, but not limited to: (i) any extraordinary corporate transaction, such
as a merger, consolidation or other business combination involving the Company,
(ii) a sale or transfer of a material amount of assets of the Company or a
reorganization, recapitalization or liquidation of the Company, except as
provided in this Agreement, (iii) any change in the management or board of
directors of the Company, except as otherwise agreed to in writing by ICC, (iv)
any material change in the present capitalization or dividend policy of the
Company, except as provided in this Agreement or (v) any other material change
in the Company's corporate structure or business, except as provided in this
Agreement.
6.12 GRANT OF IRREVOCABLE PROXY; APPOINTMENT OF PROXY
(a) Effective upon the mailing of the Joint Proxy Statement, each
Seller hereby irrevocably appoints and grants to Dr. Geoffrey S. Carroll and
Walter M. Psztur or either of them, in their respective capacities as officers
or directors of ICC, and any individual who shall hereafter succeed to any such
office or directorship of ICC, and each of them individually, as such Seller's
proxy and attorney-in-fact (with full power of substitution and resubstitution),
for and in the name, place and stead of such Seller, to vote, or execute a
written consent with respect to all of, the shares of Company Capital Stock held
by such Seller in favor of the Merger and against each matter contemplated by
(b) and (c) in Section 6.11.
(b) Each Seller represents and warrants that any proxies heretofore
given in respect of the shares of Company Capital Stock held by such Seller are
revocable, and that any such proxies are hereby revoked. Each Seller hereby
affirms that the irrevocable proxy set forth in this Section is given to secure
the performance of the duties of such Seller under this Agreement. Each Seller
hereby further affirms that the irrevocable proxy is coupled with an interest
and may under no circumstances be revoked. Each Seller hereby ratifies and
confirms all that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy is executed and intended to be irrevocable
in accordance with the applicable provisions of the NCBCA.
6.13 AGREEMENT TO COOPERATE
The Company and each Seller shall provide to ICC such financial
(including financial statements) and other information concerning the Company,
and shall otherwise fully cooperate with ICC, in connection with the preparation
and filing with the Commission of any registration statement, report or other
document required to be filed by ICC. ICC shall pay all reasonable out-of-pocket
costs incurred by the Company in preparing such financial and other information
if and to the extent the Company would not otherwise have incurred such costs.
All such information shall be true and correct and none shall 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 light
of the circumstances under which they were made, not misleading.
6.14 BOARD MEMBERSHIP
In the event the Merger is either (i) not consummated or (ii) not
effective by November 30, 2000 (unless extended by mutual agreement of the
parties), then the Company and each Seller shall cause one person nominated by
ICC to be elected to the Company's board of directors for so long as ICC owns
any shares of the Company's capital stock acquired upon the conversion of the
Promissory Note. This covenant shall survive the termination of this Agreement
for any reason and by any of the parties to this Agreement.
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6.15 EXERCISE OF WARRANTS
Immediately prior to the Effective Time, Blue Water shall exercise all
warrants to purchase Company Capital Stock held by it.
7. COVENANTS OF ICC AND BUYER
ICC and Buyer each covenants and agrees with the Company as follows:
7.1 NORMAL COURSE
From the date of this Agreement until the Closing, each of ICC and
Buyer will: (a) maintain its corporate existence in good standing, (b) maintain
the general character of its business, (c) use all reasonable commercial efforts
to maintain in effect all of its presently existing insurance coverage (or
substantially equivalent insurance coverage), preserve its business organization
substantially intact, keep the services of its present principal employees and
preserve its present business relationships with its material suppliers and
customers, (d) permit the Company, the Sellers, their accountants, their legal
counsel and their other representatives full access to its management, minute
books and stock transfer records, other books and records, Contracts, properties
and operations at all reasonable times and upon reasonable notice and (e) in all
respects conduct its business in the usual and ordinary manner consistent with
past practice and perform in all material respects all agreements or other
obligations with banks, customers, suppliers, employees and others.
7.2 CERTAIN FILINGS
ICC and Buyer agree to make or cause to be made all filings with
regulatory authorities that are required to be made by ICC or Buyer or their
respective affiliates to carry out the transactions contemplated by this
Agreement. ICC shall use its best efforts to file a Registration Statement on
Form S-8 as soon reasonably practicable after the Effective Time to register the
Options to be granted pursuant to Section 2.12(a) and, to the extent
permissible, the ICC Shares issued pursuant to Section 2.12(b).
7.3 COMMERCIALLY REASONABLE BEST EFFORTS TO SATISFY CONDITIONS
Each of ICC and Buyer agrees to use its commercially reasonable best
efforts to satisfy the conditions set forth in Sections 8 and 9 that are within
its control.
7.4 NOTIFICATION OF CERTAIN MATTERS
ICC and Buyer shall promptly notify the Company and the Sellers of (i)
the occurrence or non-occurrence of any fact or event of which ICC or Buyer has
knowledge which would be reasonably likely (A) to cause any representation or
warranty of ICC or Buyer contained in this Agreement to be untrue or inaccurate
in any material respect at any time from the date hereof to the Closing Date or
(B) to cause any covenant, condition or agreement of ICC or Buyer in this
Agreement not to be complied with or satisfied in any material respect and (ii)
any failure of ICC or Buyer to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall affect the
representations or warranties of ICC and Buyer, or the Company's or the Sellers'
right to rely thereon, or the conditions to the obligations of the Company and
the Sellers. ICC and Buyer shall give prompt notice to the Company of 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.
7.5 TAX TREATMENT
ICC agrees not to take any action that would jeopardize treatment of
the Merger as a tax-free reorganization as described in Section 2.11.
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7.6 ICC STOCKHOLDERS MEETING
ICC shall call the ICC Stockholders Meeting as promptly as practicable
for the purpose of authorizing and approving the issuance by ICC of the ICC
Shares in the Merger, as contemplated by this Agreement (the "ICC Common Stock
Issuance"), as required by the National Association of Securities Dealers, Inc.
(the "NASD"). ICC shall solicit from its stockholders proxies in favor of
approval of the ICC Common Stock Issuance, shall take all other reasonable
action necessary or advisable to secure the vote or consent of stockholders in
favor of such approval and shall not take any action that could reasonably be
expected to prevent such vote or consent of stockholders in favor of such
approval. The Joint Proxy Statement for the ICC Stockholders Meeting shall
include the unanimous recommendation of the Board of Directors of the Company in
favor of the ICC Common Stock Issuance, and such recommendations shall not be
withdrawn modified or changed in a manner adverse to the Company.
7.7 DELIVERY OF ICC SHARES
At the Effective Time or as soon thereafter as reasonably practicable,
ICC shall deliver, or caused to be delivered, the ICC Shares.
8. CONDITIONS TO OBLIGATIONS OF ICC AND BUYER
The obligations of ICC and Buyer under this Agreement to consummate the
Merger shall be subject to the satisfaction, on or before the Closing Date, of
each of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company and the Sellers
contained in this Agreement or in the Disclosure Schedule or in any certificate
delivered pursuant to this Agreement shall be complete and correct as of the
date when made, shall be deemed repeated at and as of the Closing Date as if
made on the Closing Date and, without giving effect to any qualification as to
materiality (or any variation of such term) contained in any representation or
warranty, shall then be complete and correct in all material respects.
8.2 PERFORMANCE OF COVENANTS
The Company and the Sellers shall have performed and complied in all
material respects with each covenant, agreement and condition required by this
Agreement to be performed or complied with by them prior to or on the Closing
Date.
8.3 LACK OF ADVERSE CHANGE
Since the date of this Agreement, there shall not have occurred any
incident or event which, individually or in the aggregate, has had or is
reasonably likely to result in a Material Adverse Effect on the Company,
including the loss of any significant customer of the Company.
8.4 UPDATE CERTIFICATE
ICC and Buyer shall have received favorable certificates, dated the
Closing Date, signed by the Company and each of the Sellers as to the matters
set forth in Sections 8.1, 8.2 and 8.3.
8.5 NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION
No order of any Governmental Authority shall be in effect that
restrains or prohibits any transaction contemplated by this Agreement or that
would limit or affect ICC's or Buyer's ownership or operation of the business of
the Company; no suit, action, investigation, inquiry or proceeding by any
Governmental Authority shall be pending or threatened against ICC, Buyer, the
Company or any Seller that challenges the validity or legality, or
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that seeks to restrain the consummation, of the transactions contemplated by
this Agreement or that seeks to limit or otherwise affect ICC's right to own or
operate the business of the Company and no written advice shall have been
received by ICC, Buyer, the Company or any Seller or by any of their respective
counsel from any Governmental Authority, and remain in effect, stating that a
Proceeding will, if the Merger is consummated or sought to be consummated, be
filed seeking to invalidate or restrain the Merger or limit or otherwise affect
ICC's or Buyer's ownership or operation of the business of the Company.
8.6 APPROVALS AND CONSENTS
All consents, waivers, approvals, authorizations or orders required to
be obtained, and all filings required to be made, by the Company for the
authorization, execution and delivery of this Agreement, the consummation by it
of the transactions contemplated by this Agreement and the continuation in full
force and effect of any and all material rights, documents, agreements or
instruments of the Company shall have been obtained and made by the Company,
except where the failure to receive such consents, waivers, approvals,
authorizations or orders could not reasonably be expected to have a Material
Adverse Effect on the Company.
8.7 OPINION OF COUNSEL
The Sellers and the Company shall have delivered to ICC and Buyer an
opinion of Kilpatrick Stockton LLP, dated the Closing Date and addressed to ICC
and Buyer, as to such matters as are customarily covered by opinions in
connection with transactions similar to the Merger, in form and substance
reasonably satisfactory to ICC.
8.8 SHAREHOLDER APPROVAL
This Agreement shall have been duly approved at or prior to the
Effective Time of the Merger by the requisite vote of the Company Shareholders
in accordance with the NCBCA. The ICC Stock Issuance shall have been duly
approved at or prior to the Effective Time by the requisite vote of ICC's
stockholders in accordance with the Delaware General Corporation Law.
8.9 REGISTRATION RIGHTS AGREEMENT
The Sellers shall have delivered an executed Registration Rights
Agreement (the "Registration Rights Agreement"), in the form attached to this
Agreement as Exhibit 8.9, with respect to the ICC Shares.
8.10 TERMINATION OF AGREEMENTS
The Registration Rights Agreement dated as of April 9, 1999 by and
between the Company and Marion Bass Securities Corporation and the Voting Trust
Agreement dated as of March 9, 2000 by and among the Company, the Trustee (as
defined therein) and the Shareholders (as defined therein) shall both be
terminated and shall have no further force and effect as of the Closing.
8.11 BLUE WATER WAIVER LETTER
The Blue Water Waiver Letter shall remain in full force and effect.
9. CONDITIONS TO OBLIGATION OF THE COMPANY AND THE SELLERS
The obligations of the Company and the Sellers under this Agreement to
consummate the Merger shall be subject to the satisfaction, on or before the
Closing Date, of each of the following conditions:
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9.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of ICC and Buyer contained in this
Agreement or in any certificate delivered pursuant to this Agreement shall be
complete and correct as of the date when made, shall be deemed repeated at and
as of the Closing Date as if made on the Closing Date and, without giving effect
to any qualification as to materiality (or any variation of such term) contained
in any representation or warranty, shall then be complete and correct in all
material respects.
9.2 LACK OF ADVERSE CHANGE
Since the date of this Agreement, there shall not have occurred any
incident or event which, individually or in the aggregate, has had or is
reasonably likely to result in a Material Adverse Effect on ICC, including the
loss of any significant customer of ICC.
9.3 PERFORMANCE OF COVENANTS
ICC and Buyer shall have performed and complied in all material
respects with each covenant, agreement and condition required by this Agreement
to be performed or complied with by them prior to or on the Closing Date.
9.4 UPDATE CERTIFICATE
The Company and the Sellers shall have received favorable certificates,
dated the Closing Date, signed by ICC and Buyer as to the matters set forth in
Sections 9.1, 9.2 and 9.3.
9.5 NO GOVERNMENTAL OR OTHER PROCEEDING OR LITIGATION
No order of any Governmental Authority shall be in effect that
restrains or prohibits the Merger, and no written advice shall have been
received by ICC, Buyer, the Company or any Seller or by any of their respective
counsel from any Governmental Authority, and remain in effect, stating that a
Proceeding will, if the Merger is consummated or sought to be consummated, be
filed seeking to invalidate or restrain the Merger.
9.6 OPINION OF COUNSEL
ICC shall have delivered to Sellers an opinion of Kramer Levin Naftalis
& Frankel LLP, dated the Closing Date and addressed to Sellers, as to such
matters as are customarily covered by opinions in connection with transactions
similar to the Merger, in form and substance reasonably satisfactory to Sellers.
9.7 BOARD MEMBERS
Two directors nominated by the Sellers shall have been elected to ICC's
Board of Directors, one of whom shall be Jeffrey LeRose and the other of whom
shall be an independent individual with recognized experience and reputation in
the industry, which individual shall be reasonable acceptable to ICC in
consultation with its investment bankers; provided, however, that in the event
that such second individual is not identified at the Effective Time, the Sellers
shall nominate a current member of the Company's Board of Directors to be a
director of the ICC Board of Directors, which member shall be reasonably
acceptable to the ICC Board of Directors.
9.8 REGISTRATION RIGHTS AGREEMENT
ICC shall have delivered an executed Registration Rights Agreement with
respect to the ICC Shares.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated upon the occurrence of any of the
following events:
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10.1 MUTUAL CONSENT
At any time prior to the Effective Time, by mutual consent of ICC,
Buyer and the Company.
10.2 TRANSACTION DATE
By ICC, Buyer or the Company if the Effective Time shall not have
occurred by November 30, 2000, unless such failure shall be due to a material
breach of any representation or warranty, or the nonfulfillment in any material
respect, and failure to cure such nonfulfillment, of any covenant or agreement
contained in this Agreement on the part of the party or parties seeking to
terminate.
10.3 BREACH
By ICC or Buyer if there has been a material misrepresentation by the
Company or the Sellers, or a material breach on the part of the Company or the
Sellers of any of their warranties or covenants set forth in this Agreement, or
a material failure on the part of the Company or the Sellers to comply with any
of their other obligations under this Agreement, or by the Company if there has
been a material misrepresentation by ICC or Buyer, or a material breach on the
part of ICC or Buyer of any of their warranties or covenants set forth in this
Agreement, or a material failure on the part of ICC or Buyer to comply with any
of their other obligations under this Agreement. No such termination shall
relieve any party of the consequences of any such misrepresentation, breach or
failure.
11. INDEMNIFICATION; REMEDIES
11.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE
All representations, warranties, covenants, and obligations in this
Agreement, the Disclosure Schedule and any other certificate or document
delivered pursuant to this Agreement shall survive the Closing until ICC files
with the Commission its Annual Report on Form 10-K (or 10-KSB) for the year
ending July 31, 2001, except as to Sections 4.8, 4.17 and 4.19, which shall
survive for the applicable statute of limitations, and Sections 3.2, 3.4, 4.3,
4.23 and 4.24, which shall survive indefinitely; provided, however, that a claim
asserted within such time may continue beyond any such time limit. The right to
indemnification, payment of Damages (as defined below) or other remedy based on
such representations, warranties, covenants and obligations will not be affected
by any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty, covenant
or obligation.
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLERS
(a) Each Seller hereby agrees to indemnify and hold harmless
ICC, Buyer, the Company and their respective representatives (including all
officers and directors), stockholders, controlling persons and affiliates
(collectively, the "Indemnified Persons") from and against, and will pay to the
Indemnified Persons the amount of any loss, liability, claim, damage, cost or
expense (including reasonable costs of investigation and defense and reasonable
attorneys' and experts' fees and expenses) or diminution of value, whether or
not involving a third-party claim (collectively, "Damages"), arising, directly
or indirectly, from or in connection with or incurred as a result of:
(i) any breach of any representation or warranty made
by such Seller or the Company in this Agreement, the Disclosure Schedule or in
any certificate delivered by such Seller or the Company pursuant to this
Agreement; and
(ii) any breach by such Seller or Company of any
covenant or obligation of such Seller or Company in this Agreement.
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<PAGE>
(b) Notwithstanding anything in this Section 11.2 to the
contrary, no Seller shall have any obligation to indemnify the Indemnified
Persons for any Damages resulting from the breach or breaches of any
representation or warranty of the Sellers or the Company contained in Section 4
of this Agreement or in the Disclosure Schedule or in any certificate relating
thereto and delivered by any of the Sellers or the Company pursuant to this
Agreement: (i) until the Indemnified Persons have suffered Damages, by reason of
such breach or breaches, in excess of $500,000 in the aggregate (the "Seller
Basket"); provided that once the Indemnified Persons' aggregate Damages exceed
the Seller Basket, the Sellers shall indemnify the Indemnified Persons for all
such Damages suffered, and (ii) to the extent the aggregate Damages the
Indemnified Persons have suffered by reason of all such breaches of
representations and warranties of the Sellers or the Company exceed $21,000,000
(the "Seller Cap"), in the absence of fraud or intentional misrepresentation,
the Sellers will have no obligation to indemnify the Indemnified Persons for
further Damages in excess of the Seller Cap. Such indemnification shall be
payable by the Sellers by relinquishing that number of ICC Shares equal to the
amount of such Damages (subject to the Seller Cap) divided by the Market Price
of ICC Common Stock; provided, however, that the Sellers shall be severally
liable for such Damages in amount determined for each Seller by multiplying the
amount of such Damages by a fraction, the numerator of which shall be the number
of ICC Shares into which such Seller's shares of Company Capital Stock were
converted pursuant to Section 2.7 and the denominator of which shall be the
total number of ICC Shares into which both Sellers' shares of Company Capital
Stock were converted pursuant to Section 2.7. For purposes of determining
whether a breach of any representation or warranty of the Sellers or the Company
contained in Section 4 of this Agreement or in the Disclosure Schedule or in any
certificate relating thereto and delivered by the Sellers or the Company
pursuant to this Agreement has occurred and results in Damages in excess of the
Seller Basket or the Seller Cap, any requirement in any representation or
warranty that an event or fact be material, have a Material Adverse Effect or be
qualified to the Sellers' knowledge in order for such event or fact to
constitute a breach of such representation or warranty (a "Materiality
Condition") shall be ignored, and if the aggregate of all the claims for
indemnification for breaches of a representation or warranty exceeds the Seller
Basket, in each case ignoring all Materiality Conditions, the Indemnified
Persons shall be indemnified in accordance with this Section 11.
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY ICC AND BUYER
(a) ICC and Buyer will indemnify and hold harmless the Sellers
and their respective heirs, estates and personal representatives ("Seller
Parties") and will pay to the Seller Parties the amount of any Damages arising,
directly or indirectly, from or in connection with or incurred as a result of
(a) any breach of any representation or warranty made by ICC or Buyer in this
Agreement or in any certificate delivered by ICC or Buyer pursuant to this
Agreement, (b) any breach by ICC or Buyer of any covenant or obligation of ICC
or Buyer in this Agreement or (c) any claim by any Person for brokerage or
finder's fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by such Person with ICC or Buyer in
connection with the transactions contemplated by this Agreement.
(b) Notwithstanding anything in this Section 11.3 to the
contrary, ICC and Buyer shall not have any obligation to indemnify the Seller
Parties for any Damages resulting from the breach or breaches of any
representation or warranty of ICC or Buyer contained in Section 5 of this
Agreement or in any certificate relating thereto and delivered by either ICC or
Buyer pursuant to this Agreement: (i) until the Seller Parties have suffered
Damages, by reason of such breach or breaches, in excess of $500,000 in the
aggregate (the "ICC Basket"); provided that once the Seller Parties' aggregate
Damages exceed the ICC Basket, ICC and Buyer shall indemnify the Seller Parties
for all such Damages suffered, and (ii) to the extent the aggregate Damages the
Seller Parties have suffered by reason of all such breaches of representations
and warranties of ICC or Buyer exceed $21,000,000 (the "ICC Cap"), in the
absence of fraud or intentional misrepresentation, ICC and Buyer will have no
obligation to indemnify the Seller Parties for further Damages in excess of the
ICC Cap. For purposes of determining whether a breach of any representation or
warranty of ICC or Buyer contained in Section 5 of this Agreement or in any
certificate relating thereto and delivered by ICC or Buyer pursuant to this
Agreement has occurred and results in Damages in excess of the ICC Basket or the
ICC Cap, any requirement in any representation or warranty that an event or fact
be material, have a Material Adverse Effect or be qualified to ICC's or Buyer's
knowledge in order for such event or fact to constitute a breach of such
representation or warranty (a "Materiality Condition") shall be ignored, and if
the aggregate of all the claims for indemnification for breaches of a
representation or warranty exceeds the ICC Basket, in each case ignoring all
Materiality Conditions, the Indemnified Persons shall be indemnified in
accordance with this Section 11.
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<PAGE>
11.4 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) An indemnified party shall promptly give notice to each
indemnifying party after obtaining knowledge of any matter as to which recovery
may be sought against such indemnifying party because of the indemnity set forth
above, and, if such indemnity shall arise from the claim of a third party, shall
permit such indemnifying party to assume the defense of any such claim or any
Proceeding resulting from such claim; provided, however, that failure to
promptly give any such notice shall not affect the indemnification provided
under this Section 11 except to the extent such indemnifying party shall have
been actually and materially prejudiced as a result of such failure.
Notwithstanding the foregoing, an indemnifying party may not assume the defense
of any such third-party claim or Proceeding if it does not demonstrate to the
reasonable satisfaction of the indemnified party that it has adequate financial
resources to defend such claim or Proceeding and pay any and all Damages that
may result therefrom, or if the claim or Proceeding (i) could result in
imprisonment of the indemnified party, (ii) could result in a criminal penalty
or fine against the indemnified party the consequences of which would be
reasonably likely to have a Material Adverse Effect on the indemnified party
unrelated to the size of such penalty or fine or (iii) could result in an
equitable remedy which would materially impair the indemnified party's ability
to exercise its rights under this Agreement, or impair ICC's right or ability to
operate the Company. If an indemnifying party assumes the defense of such third
party claim or Proceeding, such indemnifying party shall agree prior thereto, in
writing, that it is liable under this Section 11 to indemnify the indemnified
party in accordance with the terms contained herein in respect of such claim or
Proceeding, shall conduct such defense diligently, shall have full and complete
control over the conduct of such claim or Proceeding on behalf of the
indemnified party and shall, in his or her or its sole discretion, have the
right to decide all matters of procedure, strategy, substance and settlement
relating to such claim or Proceeding; provided, however, that any counsel chosen
by such indemnifying party to conduct such defense shall be reasonably
satisfactory to the indemnified party. The indemnified party may participate in
such claim or Proceeding and retain separate co-counsel at its sole cost and
expense (except that the indemnifying party shall be responsible for the
reasonable fees and expenses of one separate co-counsel for the indemnified
party to the extent the indemnified party is advised by its counsel that the
counsel the indemnifying party has selected has a conflict of interest) and the
indemnifying party will not without the written consent of the indemnified party
consent to the entry of any judgment or enter into any settlement with respect
to the matter which does not include a provision whereby the plaintiff or the
claimant in the matter releases the indemnified party from all liability with
respect thereto. Failure by an indemnifying party to notify the indemnified
party of its election to defend any such claim or Proceeding by a third party
within thirty (30) days after notice thereof shall have been given to such
indemnifying party by the indemnified party shall be deemed a waiver by such
indemnifying party of its right to defend such claim or Proceeding. In the event
more than one of the Sellers is the indemnifying party, then the Sellers shall
appoint one of them to act on behalf of such Sellers in connection with the
defense of any third-party claim or Proceeding pursuant to this Section 11.4.
(b) If no indemnifying party is permitted or elects to assume
the defense of any such claim or Proceeding by a third party, the indemnified
party shall diligently defend against such claim or Proceeding in such manner as
it may deem appropriate and, in such event, the indemnifying party or parties
shall promptly reimburse the indemnified party for all reasonable out-of-pocket
costs and expenses, legal or otherwise, incurred by the indemnified party and
its affiliates in connection with the defense against such claim or Proceeding,
as such costs and expenses are incurred. Any counsel chosen by such indemnified
party to conduct such defense must be reasonably satisfactory to the
indemnifying party or parties, and only one counsel (in addition to local
counsel, if required) shall be retained to represent all indemnified parties in
an action (except that if litigation is pending in more than one jurisdiction
with respect to an action, one such counsel may be retained in each jurisdiction
in which such litigation is pending).
(c) The indemnified party will cooperate in all reasonable
respects with any indemnifying party in the conduct of any claim or Proceeding
as to which such indemnifying party assumes the defense. For the cooperation of
the indemnified party pursuant to this Section 11.4, the indemnifying party or
parties shall promptly reimburse the indemnified party for all reasonable
out-of-pocket costs and expenses, legal or otherwise, incurred by the
indemnified party or its affiliates in connection therewith, as such costs and
expenses are incurred.
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<PAGE>
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, delivery and performance of this Agreement, including
all fees and expenses of agents, representatives, counsel and accountants.
12.2 PUBLIC ANNOUNCEMENTS
Unless required by law or by the NASD, any public announcement or
similar publicity with respect to this Agreement, the Closing or the
transactions contemplated hereby will be issued, if at all, at such time and in
such manner as ICC determines with the concurrence of the Company, which
concurrence shall not be unreasonably withheld or delayed by the Company. Unless
disclosure is consented to by ICC in advance or required by law, the Sellers and
the Company shall keep this Agreement strictly confidential and may not make any
disclosure of this Agreement to any Person. The Sellers and ICC will consult
with each other concerning the means by which the Company's employees, customers
and suppliers and others having dealings with the Company will be informed of
this Agreement, the Closing and the transactions contemplated by this Agreement,
and representatives of ICC may at its option be present for any such
communication.
12.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by fax (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses or fax numbers set forth below (or to
such other address, person's attention or fax number as a party may designate by
notice to the other parties given in accordance with this Section 12.3):
(a) If to ICC or Buyer:
Internet Commerce Corporation
805 Third Avenue
New York, NY 10022
Telecopier No.: (212) 271-8580
Telephone No.: (212) 271-7640
Attention: Dr. Geoffrey S. Carroll
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9288
Attention: Peter S. Kolevzon, Esq.
(b) If to the Company:
Research Triangle Commerce, Inc.
201 Shannon Oaks Circle
Cary, North Carolina 27511
Telecopier No.: (919) 657-1502
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<PAGE>
Telephone No.: (919) 657-1400
Attention: Jeffrey W. LeRose
With a copy to:
Kilpatrick Stockton LLP
3737 Glenwood Avenue, Suite 400
Raleigh, North Carolina 27612
Telecopier No.: (919) 420-1800
Telephone No.: (919) 420-1700
Attention: James F. Verdonik, Esq.
(c) If to any Seller, to the address or fax number and
person's attention set forth opposite such Sellers name on the signature pages
of this Agreement.
12.4 FURTHER ASSURANCES
The parties agree upon request to each other to (a) furnish such
further information, (b) execute and deliver to each other such other documents
and instruments, and (c) do such other acts and things, all as the other party
may reasonably request for the purpose of carrying out the intent of this
Agreement and to put ICC in control of the operations of the Company.
12.5 WAIVER
Neither the failure nor any delay by any party in exercising any right,
power or privilege under this Agreement or the documents referred to in this
Agreement will operate as a waiver of such right, power or privilege.
12.6 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including any correspondence among ICC, Buyer,
the Company and the Sellers) and constitutes (along with the documents referred
to in this Agreement) the entire agreement among the parties with respect to its
subject matter. This Agreement may not be amended, and no provision hereof may
be waived, except by a written agreement executed by the party to be charged
with the amendment or waiver.
12.7 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
No party may assign any of its rights under this Agreement without the
prior written consent of the other parties except that ICC may assign any of its
rights, but not its obligations, under this Agreement to any direct wholly owned
Subsidiary of ICC. Subject to the preceding sentence, this Agreement will apply
to, be binding in all respects upon, and inure to the benefit of the successors
and permitted assigns of the parties and their respective heirs and personal
representatives. Nothing expressed or referred to in this Agreement will be
construed to give any Person other than the parties to this Agreement and the
Persons contemplated by Section 11 any legal or equitable right, remedy or claim
under or with respect to this Agreement or any provision of this Agreement.
12.8 SEVERABILITY
If any provision of this Agreement or the application of any such
provision to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the application of such provision to such person
or circumstances other than those to which it is so determined to be invalid or
unenforceable, shall not be affected thereby, and each provision hereof shall be
enforced to the fullest extent permitted by law. If the final judgment of a
court of competent jurisdiction declares that any item or provision hereof is
invalid or
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<PAGE>
unenforceable, the parties hereto agree that the court making the determination
of invalidity or unenforceability shall have the power, and is hereby directed,
to reduce the scope, duration or area of the term or provision, to delete
specific words or phrases and to replace any invalid or unenforceable term or
provision with a term or provision that is valid and enforceable and that comes
closest to expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified.
12.9 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience
only and will not affect its construction or interpretation. In this Agreement
(i) words denoting the singular include the plural and vice versa, (ii) "it" or
"its" or words denoting any gender include all genders, (iii) the word
"including" shall mean "including without limitation," whether or not expressed,
(iv) any reference to a statute shall mean the statute and any regulations
thereunder in force as of the date of this Agreement or the Closing Date, as
applicable, unless otherwise expressly provided, (v) any reference herein to a
Section, Article, Schedule or Exhibit refers to a Section or Article of or a
Schedule or Exhibit to this Agreement, unless otherwise stated, and (vi) when
calculating the period of time within or following which any act is to be done
or steps taken, the date which is the reference day in calculating such period
shall be excluded and if the last day of such period is not a business day, then
the period shall end on the next day which is a business day. Each party
acknowledges that he, she or it has been advised and represented by counsel in
the negotiation, execution and delivery of this Agreement and accordingly agrees
that if an ambiguity exists with respect to any provision of this Agreement,
such provision shall not be construed against any party because such party or
its representatives drafted such provision.
12.10 GOVERNING LAW; JURISDICTION
This Agreement will be governed by the internal laws of the State of
New York without regard to principles of conflict of laws. In the event of any
controversy or claim arising out of or relating to this Agreement or the breach
or alleged breach hereof, each of the parties irrevocably (i) submits to the
non-exclusive jurisdiction of the U.S. District Court for the Southern District
of New York (or, if such court does not have jurisdiction, the courts of the
State of New York), (ii) waives any objection which it may have at any time to
the laying of venue of any action or proceeding brought in any such court, (iii)
waives any claim that such action or proceeding has been brought in an
inconvenient forum and (iv) agrees that service of any summons and complaint or
other process in any such action or proceeding may be made by ICC upon either
Seller by registered or certified mail directed to such Seller as provided in
Section 12.3, each Seller hereby waiving personal service thereof, and that such
service shall be deemed good, proper and effective service upon such party.
12.11 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
[Remainder of the page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
INTERNET COMMERCE CORPORATION
By: ______________________________
Dr. Geoffrey S. Carroll
President and Chief Executive Officer
ICC ACQUISITION CORPORATION, INC.
By: ______________________________
Dr. Geoffrey S. Carroll President
RESEARCH TRIANGLE COMMERCE, INC.
By: ______________________________
Jeffrey W. LeRose
President and Chief Executive Officer
<PAGE>
SELLERS
------------------------------
Jeffrey W. LeRose
BLUE WATER VENTURE FUND II, L.L.C.
By: ______________________________
Kim Cooke
Managing Director
<PAGE>
- 2 -
Exhibit B
FAIRNESS OPINION
June 13, 2000
Board of Directors
Internet Commerce Corporation
805 Third Avenue
New York, NY 10022
Gentlemen:
We understand that Internet Commerce Corporation (the "Company") and
Research Triangle Commerce, Inc. ("RTCI") propose to enter into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which a wholly-owned
subsidiary of the Company will be merged with and into RTCI (the "Merger").
Under the terms of the proposed merger, the holders of RTCI's common stock,
preferred stock, warrants and stock options will receive, in the aggregate, (x)
an amount of cash equal to the cash on hand of RTCI at the effective time of the
Merger in excess of the amount of RTCI borrowings under its line of credit,
subject to a maximum of $4 million (the "Cash at Closing") and (y) an aggregate
amount of the Company's Class A Common Stock (the "Common Stock") equal to the
number obtained by dividing (1) $42 million less the Cash at Closing by (2) the
weighted average trading price per share of the Company's Common Stock for the
ten trading days ending three trading days prior to the effective time of the
Merger (the "Market Price"), provided that if the Market Price is greater than
$21.111111 or less than $12.666667 then the Market Price shall be deemed to be
$21.111111 or $12.666667, respectively, (collectively "Merger Consideration").
You have requested our opinion as to the fairness, from a financial
point of view, to the Company of the Merger Consideration to be offered in the
Merger. We have acted as financial advisor to the Board of Directors of the
Company in connection with the Merger and will receive a customary fee for our
services. As you are aware, ING Barings has also provided financial advisory and
investment banking services to the Company in connection with the Merger.
In conducting our analysis and arriving at our opinion as expressed
herein, we have reviewed and analyzed, among other things, the following:
(i) the draft Merger Agreement, dated June 12, 2000, and a draft
of the Convertible Promissory Note dated June 12, 2000;
(ii) the Company's Annual Reports on Form 10-KSB for each of the
fiscal years in the two year period ended July 31, 1999, and
the Company's Quarterly Reports on Form 10-QSB for the
quarters ended October 31, 1998 and 1999 and January 31, 1999
and 2000, and the Company's Form 8-Ks dated November 23, 1999,
November 24, 1999, February 14, 2000, February 15, 2000, March
16, 2000, March 28, 2000, and May 15, 2000;
(iii) certain other publicly available information concerning the
Company and the trading market for the Common Stock;
(iv) certain internal information and other data relating to the
Company, its business and prospects, including certain
historical and projected financial statements, provided to us
by management of the Company; (v) certain non-public
information and other data relating to the business and
prospects of RTCI, including certain historical and projected
financial statements, provided to us by the management of
RTCI;
(vi) certain publicly available financial data, stock market data,
trading multiples and valuation parameters concerning
companies engaged in businesses which we believe to be
generally comparable to the Company and to RTCI; and
(vii) the financial terms of certain recent business combinations
which we believe to be relevant.
<PAGE>
We have also met with certain officers and employees of the Company and RTCI
concerning its business and operations, assets, present condition and prospects
and undertook such other studies, analyses and investigations as we deemed
appropriate.
In arriving at our opinion, we have relied upon the accuracy and
completeness of the financial and other information used by us and have not
attempted independently to verify such information, nor do we assume any
responsibility to do so. With respect to the projected financial results
provided to us by the Company and RTCI, we have assumed that they have been
reasonably prepared based on the current estimates and judgment of the senior
management of each respective company as to their future respective results of
operations and financial condition. We have visited but have not conducted a
physical inspection of the properties and facilities of the Company or RTCI, nor
have we made or obtained any independent evaluation or appraisal of such
properties and facilities. We have also taken into account our assessment of
general economic, market and financial conditions and our experience in similar
transactions, as well as our experience in securities valuation in general. Our
opinion necessarily is based upon economic, market, financial and other
conditions as they exist and can be evaluated on the date hereof and we assume
no responsibility to update or revise our opinion based upon events or
circumstances occurring after the date hereof.
This letter and the opinion expressed herein are for the use of the
Board of Directors of the Company. This opinion does not address the Company's
underlying business decision to enter into the Merger or constitute a
recommendation to the stockholders of the Company as to how such stockholders
should vote or as to any other action such stockholders should take regarding
the Merger. Furthermore, we recognize that the stock prices for publicly-traded
companies whose business is directly or indirectly related to the Internet, such
as the Company and RTCI, have experienced significant volatility in recent
months and this opinion is not intended to predict or otherwise guarantee the
stock price of the Company following the announcement or consummation of the
Merger. This opinion may not be reproduced, summarized, excerpted from or
otherwise publicly referred to or disclosed in any manner without our prior
written consent, except the Company may include this opinion in its entirety in
any proxy statement or information statement relating to the transaction sent to
the Company's stockholders.
Based upon and subject to the foregoing, it is our opinion that the
Merger Consideration is fair, from a financial point of view, to the Company.
Very truly yours,
ING Barings LLC
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<PAGE>
Exhibit C
INTERNET COMMERCE CORPORATION
STOCK OPTION PLAN
(Amended and restated as of June 30, 1999)
1. Purpose.
The purpose of this Internet Commerce Corporation Stock Option Plan
(the "Plan") is to secure for INTERNET COMMERCE CORPORATION (the "Company") and
its stockholders the benefits arising from capital stock ownership by employees,
officers and directors of, and consultants or advisers to, the Company and its
subsidiary corporations who are expected to contribute to the Company's future
growth and success. Except where the context otherwise requires, the term
"Company" shall include all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code"). Those provisions of the Plan
which make express reference to Section 422 of the Code shall apply only to
Incentive Stock Options (as that term is defined in the Plan) granted under the
Plan.
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan ("Options")
shall be authorized by action of the board of Directors of the Company (the
"Board of Directors") (or a committee designated by the Board of Directors of
the Company) and may be either incentive stock options within the meaning of
Section 422 of the Code ("Incentive Stock Options") or non-qualified options,
which are not intended to meet the requirements of Section 422 of the Code.
Options shall be evidenced by agreements in such form as the
"Committee" (as hereinafter defined) shall from time to time approve. All
Options granted under the Plan shall be clearly identified in the agreement
evidencing such Options as either Incentive Stock Options or as non-qualified
options.
If and to the extent the Board of Directors determines it is
appropriate for the compensation payable as a result of a grant of any Option to
qualify as "performance-based compensation" within the meaning of Section
162(m)(4)(C) of the Code, such Option shall be authorized and granted by the
compensation committee or a similar committee of the Board of Directors (or a
subcommittee thereof), which shall consist of two or more individuals, each of
whom is an "outside director" within the meaning of Section 162(m) of the Code
and the regulations thereunder.
(b) Administration. The Plan will be administered by a committee (the
"Committee") appointed by the Board of Directors. The delegation of powers to
the Committee shall be consistent with applicable laws or regulations
(including, without limitation, applicable state law, Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"), or any successor
rule ("Rule 16b-3") and Section 162(m) of the Code). The Committee may, in its
sole discretion, grant Options to purchase shares of the Company's Common Stock,
$.01 par value per share ("Common Stock") and issue shares upon exercise of such
Options as provided in the Plan. The Committee shall have full authority,
subject to the express provisions of the Plan, to administer the Plan, including
authority to interpret and construe any provision of the respective Option
agreements and the Plan, to prescribe, amend and rescind such rules and
regulations relating to the Plan as the Committee shall deem necessary or
appropriate, to determine the terms and provisions of the respective Option
agreements, which need not be identical, and make all other determinations,
which are, in the judgment of the Committee necessary or desirable for the
administration of the Plan. All decisions of the Committee with respect to the
Plan or any Option agreement shall be final and binding on all parties. The
Committee's determinations under the Plan may, but need not, be uniform and may
be made on a participant-by-participant basis (whether or not two or more
participants are similarly situated). The Committee may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any Option
agreement in the manner and to the extent it shall deem expedient to carry the
Plan into effect and it shall be the sole and final judge of such expediency.
<PAGE>
No member of the Committee shall be liable for any action,
omission, or determination relating to the Plan, and the Company shall indemnify
and hold harmless each member of the Committee and each other director or
employee of the Company to whom any duty or power relating to the administration
or interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or employee
in bad faith and without reasonable belief that it was in the best interests of
the Company.
Subject to adjustment as provided in Section 15 below, the
aggregate number of shares of Common Stock that may be subject to Options
granted to any person in a calendar year shall not exceed 300,000 shares of
Common Stock.
3. Eligibility.
(a) General. Options may be granted to persons selected by the
Committee, in its discretion, who are, at the time of grant, employees, officers
or directors of, or consultants or advisers to, the Company, provided, that,
Incentive Stock Options may be granted only to individuals who are employees of
the Company (within the meaning of Section 3401(c) of the Code). A person who
has been granted an Option may, if he or she is otherwise eligible, be granted
additional Options if the Committee shall so determine, although no such person
shall have an entitlement to receive a grant of any additional Options.
(b) Grant of Options to Reporting Persons and Certain "Covered
Employees". If and to the extent it is intended that any grant of an Option to a
director or an officer who is a Reporting Person (as the terms "director" and
"officer" are defined for purposes of Rule 16b-3) shall comply with Rule 16b-3,
the decision to make the Option grant, the timing of the Option grant, the
exercise price of the Option, the number of shares subject to the Option and the
other terms of the Option shall be determined either by (i) the Board of
Directors, (ii) a committee consisting of two or more directors having full
authority to act in the matter, each of whom shall be a "non-employee director"
within the meaning of Rule 16b-3(b)(3) or (iii) pursuant to provisions for
automatic grants set forth in Section 3(c) below. If and to the extent it is
intended that any Compensation payable as a result of any grant of an Option to
an individual who is or may become a "covered employee" within the meaning of
Section 162(m)(3) of the Code shall be considered qualified "performance-based
compensation" within the meaning of Section 162(m)(4)(C) of the Code and the
regulations thereunder, the decision to make the Option grant, the timing of the
Option grant, the exercise price of the Option, the number of shares subject to
the Option and the other terms of the Option shall be determined by a committee
consisting of two or more directors having full authority to act in the matter,
each of whom shall be an "outside director" within the meaning of Section
162(m)(4)(C) of the Code and the regulations thereunder.
4. Stock Subject to Plan.
The stock subject to Options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock that
may be issued and sold under the Plan since its inception in 1994 is 7,000,000
shares. If an Option granted under the Plan shall expire, terminate or is
cancelled for any reason without having been exercised in full, the unpurchased
shares subject to such Option shall again be available for subsequent Option
grants under the Plan.
5. Forms of Option Agreements.
As a condition to the grant of an Option under the Plan, each recipient
of an Option shall execute an Option agreement in such form not inconsistent
with the Plan as may be approved by the Committee. Such Option agreements may
differ among recipients.
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6. Purchase Price.
General. The purchase price-per-share of stock deliverable upon the
exercise of an Option shall be determined by the Committee at the time of grant
of such Option; provided, however, that in the case of an Incentive Stock Option
or any Option the compensation payable as a result of which is intended to
constitute qualified "performance-based compensation" under Section 162(m)(4)(C)
of the Code, the exercise price shall not be less than (i) 100% of the Fair
Market Value (as hereinafter defined) of such stock, at the time of grant of
such Option, or (ii) solely in the case of an Incentive Stock Option described
in Section 11(b), 110% of such Fair Market Value. "Fair Market Value" of a share
of Common Stock of the Company as of a specified date for the purposes of the
Plan shall mean the closing price of a share of the Common Stock on the
principal securities exchange on which such shares are traded on the date
immediately preceding the date as of which Fair Market Value is being
determined, or on the next preceding date on which such shares are traded if no
shares were traded on such immediately preceding day, or if the shares are not
traded on a securities exchange, Fair Market Value shall be deemed to be the
average of the high bid and low asked prices of the shares in the
over-the-counter market on the day immediately preceding the date on which such
high bid and low asked prices were recorded. If the shares are not publicly
traded, Fair Market Value of a share of Common Stock (including, in the case of
any repurchase of shares, any distributions with respect thereto which would be
repurchased with the shares) shall be determined in good faith by the Committee.
In no case shall Fair Market Value be determined with regard to restrictions
other than restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Company in an amount equal to the exercise price of such
Options, or by any other means which are permitted by the Committee in its sole
discretion and which the Committee determines are consistent with the purpose of
the Plan and with applicable laws and regulations (including, without
limitation, the provisions of Rule 16b-3 and Regulation T promulgated by the
Federal Reserve Board).
7. Option Period.
Each Option shall be exercisable on such date or dates, during such
period and for such number of shares of Common Stock as shall be determined by
the Committee on the day on which such Option is granted and set forth in the
agreement evidencing such Option; provided, however, that no Option shall be
exercisable after the expiration of ten years from the date such Option was
granted; and, provided, further, however, that each Option shall be subject to
earlier termination, expiration or cancellation as provided in the Plan.
8. Exercise of Options.
Each Option granted under the Plan shall be exercisable either in full
or in part, subject to the provisions of the Option agreement evidencing such
Option and subject to the provisions of the Plan. Subject to the requirements in
the immediately preceding sentence, if an Option is not at the time of grant
immediately exercisable, the Committee may (i) in the agreement evidencing such
Option, provide for the acceleration of the exercise date or dates of the
subject Option upon the occurrence of specified events, and/or (ii) at any time
prior to the complete termination of an Option, accelerate the exercise date or
dates of such Option.
9. Nontransferability of Options.
No Option shall be assignable or otherwise transferable by the optionee
except by will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereunder. An Option may be exercised during the lifetime of the optionee only
by the optionee. In the event an optionee dies during his employment by the
Company or any of its subsidiaries, or during the three-month period following
the date of termination of such employment, his Option shall thereafter be
exercisable, during the period specified in the Option agreement, by his
executors or administrators to the full extent to which such Option was
exercisable by the optionee at the time of his death during the periods set
forth in Section 10 or 11(d).
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10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, an optionee may exercise an
Option at any time within three (3) months following the termination of the
optionee's employment or other relationship with the Company or within one (1)
year if such termination was due to the death or "disability" of the optionee,
but, except in the case of the optionee's death, in no event later than the
expiration date of the Option. If the termination of the optionee's employment
is for cause or is otherwise attributable to a breach by the optionee of an
employment or confidentiality or non-disclosure agreement, the Option shall
expire immediately upon such termination. The Board of Directors shall have the
power to determine what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether an optionee
has been terminated for cause or has breached such an agreement, and the date
upon which such termination for cause or breach occurs. Any such determinations
shall be final and conclusive and binding upon the optionee. For purposes
hereof, the term "disability" shall mean, except in connection with an Incentive
Stock Option, any physical or mental condition that would qualify a Participant
for a disability benefit under the long-term disability plan maintained by the
Company or, if there is no such plan, a physical or mental condition that
prevents the Participant from performing the essential functions of the
Participant's position (with or without reasonable accommodation) for a period
of six consecutive months or, in connection with an Incentive Stock Option, a
disability described in Section 422(c)(6) of the Code. The existence of a
disability shall be determined by the Committee in its absolute discretion.
11. Incentive Stock Options.
Options that are intended to be Incentive Stock Options shall be
subject to the following additional terms and conditions.
(a) Express Designation. All Incentive Stock Options shall, at the time
of grant, be specifically designated as such in the Option agreement evidencing
such Incentive Stock Options.
(b) 10% Shareholder. If any employee to whom an Incentive Stock Option
is to be granted is, at the time of the grant of such Incentive Stock Option,
the owner of stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company or any of its "subsidiary corporations"
(within the meaning of Section 424 of the Code) (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) the purchase price per share of the Common Stock subject
to such Incentive Stock Option shall not be less than 110% of the Fair Market
Value of one share of Common Stock at the time of grant; and
(ii) the Option exercise period shall not exceed five years
after the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
Options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) that are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate Fair Market Value, as
of the respective date or dates of grant, of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her Option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the
period of three months after the date of the optionee ceases to be an employee
of the Company (or within such lesser period as may be specified in the
applicable Option agreement), provided, that the agreement with respect to such
Option may designate a longer exercise period and that the exercise after such
three-month period shall be treated as the exercise of a non-qualified Option
under the Plan;
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<PAGE>
(ii) if the optionee dies while in the employ of the Company,
or within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is transferred
by will or the laws of descent and distribution within the period of one year
after the date of death (or within such lesser period as may be specified in the
applicable Option agreement); and
(iii) if the optionee's employment is terminated as a result
of the optionee's disability, the Incentive Stock Option may be exercised within
the period of one year after the date the optionee ceases to be such an employee
because of such disability (or within such lesser period as may be specified in
the applicable Option agreement).
For all purposes of the Plan and any Option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provision.
(a) Additional Option Provisions. The Committee (or the Board of
Directors) may, in its sole discretion, include additional provisions in Option
agreements covering Options including without limitation restrictions on
transfer, repurchase rights, rights of first refusal, commitments to pay cash
bonuses, to make, arrange for or guarantee loans or to transfer other property
to optionees upon exercise of Option, or such other provisions as shall be
determined by the Committee in its discretion; provided, that such additional
provisions shall not be inconsistent with any other term or condition of the
Plan and such additional provisions shall not, unless otherwise specifically
intended by the Committee, cause any Incentive Stock Option granted under the
Plan to fail to qualify as an Incentive Stock Option within the meaning of
Section 422 of the Code.
(b) Acceleration, Extension, Etc. The Committee may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
Option or options may be exercised or (ii) extend the dates during which all or
any particular Option or Options may be exercised; provided, however, that not
such extension shall be permitted if it would cause the Plan to fail to comply
with Section 422.
13. General Restrictions.
(a) Investment Representations. The Company may require (i) any person
to whom an Option is granted as a condition of exercising such Option, to give
written assurances, in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the Option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to make such other
representations or covenants, and (ii) that any certificates for shares or
Common Stock delivered in connection with the exercise of an Option bear such
legends in each case as the Company deems necessary or appropriate in order to
comply with federal and applicable state securities laws, to comply with
covenants or representations made by the Company in connection with any public
offering of its Common Stock or otherwise.
(b) Compliance With Securities Law. Each Option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such Option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with the issuance or purchase of shares of
Common Stock thereunder, such Option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Company to apply for or to obtain such listing, registration or
qualification, or to satisfy such condition. The Committee shall inform an
optionee in writing of any decision to defer or prohibit the exercise of an
Option. During the period that the effectiveness of the exercise of an Option
has been deferred or prohibited, the optionee may, by written notice, withdraw
the optionee's decision to exercise and obtain a refund of any amount paid with
respect thereto.
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<PAGE>
14. Rights as a Shareholder.
The holder of an Option shall have no rights as a shareholder with
respect to any shares covered by the Option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations and
Related Transactions.
(a) Recapitalizations and Related Transactions. If, through or as a
result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new of different shares or other non-cash assets are distributed with respect to
such shares of Common Stock or other securities, an appropriate and
proportionate adjustment shall be made in (x) the maximum number and kind of
shares reserved for issuance under the Plan and, to the extent permitted under
Section 162(m) of the Code and the regulations thereunder, the individual limit
on grants under Section 2, (y) the number and kind of shares or other securities
subject to any then outstanding Options, and (z) the price for each share
subject to any then outstanding Options, without changing the aggregate purchase
price as to which such Options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment would (i) cause the Plan to fail to comply with Section 422 of the
Code or (ii) be considered as the adoption of a new plan requiring stockholder
approval.
(b) Reorganization, Merger and Related Transactions. If the Company
shall be the surviving corporation in any reorganization, merger or
consolidation of the Company with one or more other corporations, any then
outstanding Option granted pursuant to the Plan shall pertain to and apply to
the securities or other property (including cash) to which a holder of the
number of shares of Common Stock subject to such Options would have been
entitled immediately following such reorganization, merger, or consolidation,
with a corresponding proportionate adjustment of the purchase price as to which
such Options may be exercised -shall be the same as the aggregate purchase price
as to which such Options may be exercised for the shares remaining subject to
the Options immediately prior to such reorganization, merger, or consolidation.
(c) Committee Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Committee, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive. No fractional shares will be issued under the Plan on account of
any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, Etc.
(a) General. In the event of any sale, merger, transfer or acquisition
of the Company of all or substantially all of the assets of the Company in which
the Company is not the surviving corporation, if the Company shall have
requested the acquiring or succeeding corporation (or an affiliate thereof) to
assume all outstanding Options or issue substitute or equivalent options, and
such acquiring or succeeding corporation shall have refused or failed to so
assume all Options outstanding under the Plan or to so issue substitute or
equivalent options, then any and all outstanding Options shall accelerate and
become exercisable in full immediately prior to such event. The Committee will
notify holders of Options that any such Options shall be fully exercisable for a
period of time determined by the Committee in its discretion; provided that such
period shall not be less than fifteen (15) days after the date of such notice.
The Options, to the extent not exercised, shall terminate upon expiration of the
period of time determined by the Committee. In addition, notwithstanding the
foregoing, in the event of a merger, transfer or acquisition of the Company
described in this Paragraph, the Committee may, in its sole discretion, elect to
cancel, effective immediately prior to the occurrence of such event, each Option
outstanding immediately prior to such event (whether or not then exercisable),
and, in full consideration of such cancellation, pay to the optionee to whom
such Option was granted, an amount in cash, for each share of Common Stock
subject to such Option equal to the excess of (x) the value, as determined by
the Committee in its absolute discretion, of the securities or other property or
assets (including cash) to be received by the holder of a share of Common Stock
as a result of such event over (y) the exercise price of such Option.
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<PAGE>
(b) Substitute Options. The Company may grant Options in substitution
for options held by employees of another corporation who become employees of the
Company, or a subsidiary of the Company, as a result of a merger or
consolidation of the employing corporation with the Company or a subsidiary of
the Company, as a result of the acquisition by the Company, or one of its
subsidiaries, of property or stock of the employing corporation. The Company may
direct that substitute Options be granted on such terms and conditions as the
Committee considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any Option agreement shall confer
upon any optionee any right with respect to the continuation of his or her
employment or other relationship with the Company or interfere in any way with
the right of the Company at any time to terminate such employment or to increase
or decrease the compensation of the optionee.
18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an Option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may, at any time, suspend or discontinue the
Plan or revise or amend it in any respect whatsoever; provided, however, that if
and to the extent required under Section 422 of the Code (if and to the extent
that the Board of Directors deems it appropriate to comply with Section 422) and
if and to the extent required to treat some or all of the Options as qualified
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Code (if and to the extent that the Board of Directors deems it appropriate
to meet such requirements), no amendment shall be effective without the approval
of the stockholders of the Company, that (i) except as provided in Section 15
hereof, increases the number of shares of Company Stock with respect to which
Options may be issued (either to any individual in any year or in the
aggregate), (ii) modifies the class of individuals eligible to participate in
the Plan or (iii) materially increases the benefits accruing to individuals
pursuant to the Plan. Nothing herein shall restrict the Committee's ability to
exercise its discretionary authority hereunder, which discretion may be
exercised without amendment to the Plan.
(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, reduce his or her rights under an Option previously
granted to him or her. The Committee may amend outstanding Option agreements in
a manner not inconsistent with the Plan; provided, however, no such amendment
shall, without the consent of the optionee, reduce the optionee's rights under
such agreement. Notwithstanding the foregoing, the Board of Directors shall have
the right to amend or modify the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such Options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and to the extent
necessary to ensure that the amounts realized by any optionee who is a "covered
employee" within the meaning of Section 162(m) of the Code as a result of an
Option constitute qualified "performance-based compensation" within the meaning
of Section 162(m)(4)(C) of the Code.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee, whether under the Plan or otherwise, any
federal, state or local taxes of any kind required by law to be withheld with
respect to any shares issued upon exercise of Options. Subject to the prior
approval of the Committee, which may be withheld by the Committee in its sole
discretion, the optionee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company to withhold shares of Common Stock otherwise
issuable pursuant to
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<PAGE>
the exercise of an Option or (ii) by delivering to the Company shares of Common
Stock already owned by the optionee. The shares so delivered or withheld shall
have a Fair Market Value equal to such withholding obligation as of the date in
the amount of tax to be withheld is to be determined. An optionee who has made
an election pursuant to this Section 20(a) may satisfy his or her withholding
obligation only with shares of Common Stock that are not subject to any
repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an
Incentive Stock Option shall constitute an agreement by the optionee (i) to
notify the Company if any and all of such shares are disposed of by the optionee
within two years from the date the Incentive Stock Option was granted or within
one year from the date the shares were issued to the optionee pursuant to the
exercise of the Incentive Stock Option, and (ii) if required by law, to remit to
the Company, at the time of and in the case of any such disposition, an amount
sufficient to satisfy the Company's federal, state and local withholding tax
obligations with respect to such disposition, whether or not, as to both (i) and
(ii), the optionee is in the employ of the Company at the time of such
disposition.
21. Cancellation and New Grant of Options, Etc.
The Committee shall have the authority to effect, at any time and from
time to time, with the consent of the affected optionees, (i) the cancellation
of any or all outstanding Options and the grant in substitution therefor of new
Options covering the same or different numbers of shares of Common Stock and
having an Option exercise price-per-share which may be lower or higher than the
exercise price-per-share of the cancelled Options or (ii) the amendment of the
terms of any and all outstanding Options to provide an Option exercise
price-per-share which is higher or lower than the then-current exercise
price-per-share of such outstanding Options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan, as originally adopted, became effective
August 30, 1994 and was approved by the Company's stockholders on September 21,
1994. The Plan, as amended and restated as of June 30, 1999, shall be effective
as of such date provided that the Plan is approved by the Company's
stockholders. If such stockholder approval is not obtained within twelve months
after the date of the Plan's amendment and restatement, any Options granted in
respect of shares in excess of the 1,960,000 shares available under the Plan
prior to the Plan's amendment and restatement immediately shall be cancelled and
shall be of no force or effect and, the Plan shall remain in effect as it
existed immediately prior to such amendment and restatement.
(b) Termination. Unless sooner terminated in accordance with Section
16, the Plan shall terminate upon the earlier of (i) the close of business on
June 29, 2009, or (ii) the date on which all shares available for issuance under
the Plan shall have been issued. If the date of termination is determined under
(i) above, then Options outstanding on such date shall continue to have force
and effect in accordance with the provisions of the instruments evidencing such
Options.
23. Provision for Foreign Participants.
The Committee may, without amending the Plan, modify Options granted to
individuals who are foreign nationals or employed outside the United States to
recognize differences in laws, rules, regulations or customs of such foreign
jurisdictions with respect to tax, securities, currency, employee benefit or
other matters.
24. Expenses and Receipts.
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Option will be used for general
corporate purposes.
25. Limitations Imposed by Section 162(m) of the Code
Notwithstanding any other provision hereunder, if and to the extent the
Committee determines the Company's federal tax deduction in respect of a
non-qualified Option may be limited as a result of Section 162(m) of the Code,
the Committee may delay the payment in respect of any such non-qualified Option
until a date that is
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<PAGE>
within 30 days after the date that compensation paid to the optionee no longer
is subject to the deduction limitation under Section 162(m) of the Code. In the
event that an optionee exercises a non-qualified Option at a time when the
optionee is a "covered employee" within the meaning of Section 162(m) of the
Code, and the Committee determines to delay the payment in respect of such
non-qualified Option, the Committee shall credit the Fair Market Value of the
Common Stock that otherwise would have been issued to the optionee upon exercise
of the Option to an unfunded account on the books and records of the Company.
The optionee shall have no rights in respect of such account other than as an
unsecured general creditor of the Company, and the amount credited thereto shall
not be transferable by the optionee other than by will or laws of descent and
distribution. The Committee may credit additional amounts to such account as it
may determine in its sole discretion. The amount credited to the account shall
be paid to the optionee if and to the extent (and within 30 days after) the
Committee determines that the Company's federal tax deduction with respect
thereto will not be limited by reason of Section 162(m) of the Code. Any account
created hereunder shall represent only an unfunded unsecured promise by the
Company to pay the amount credited thereto to the optionee in the future.
26. Governing Law.
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws.
