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 [x]
Filed by a party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary proxy statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| 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(c)(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:
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Internet Commerce Corporation
805 Third Avenue, 9th Floor
New York, New York 10022
(212) 271-7640
___________, 2000
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
which will be held on ___________, 2000, at [time], at [address] 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.
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,
-----------------------
Dr. Geoffrey S. Carroll
President and
Chief Executive Officer
<PAGE>
INTERNET COMMERCE CORPORATION
Notice of Special Meeting of Stockholders
to be held __________, 2000
A Special Meeting of Stockholders (the "Special Meeting") of Internet
Commerce Corporation (the "Company") will be held on __________, 2000, at
[time], at [address], 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 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 __________,
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.
_____________, 2000 By Order of the Board of Directors,
---------------------------
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 ___________, 2000 at [time], at
[address], 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 ____________, 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 _________ 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 ________ 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 Proposal One
and any other matter submitted to stockholders for approval at the Special
Meeting 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
<PAGE>
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.
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. [The Company has retained
____________ to assist it in the solicitation of proxies for the Special Meeting
at an estimated cost of $_______.]
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 on or about ___________, 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.
<PAGE>
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, 1999, 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 14 and those factors discussed in ICC's Annual Report
on Form 10-KSB for the year ended July 31, 1999 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......................................................9
PROPOSAL ONE.................................................................10
INTRODUCTION.................................................................10
STOCKHOLDER APPROVAL REQUIRED................................................10
RECOMMENDATION OF THE BOARD..................................................11
BACKGROUND OF THE MERGER.....................................................11
REASONS FOR THE MERGER.......................................................13
RISK FACTORS RELATING TO THE MERGER..........................................14
ICC may not be able to achieve the benefits it
expects to result from the Merger.........................................14
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..........................15
The Merger could adversely affect ICC's combined financial
results or the market price of the ICC Common Stock.......................16
Uncertainties associated with the Merger may cause ICC or
RTCI to lose customers....................................................16
RISKS RELATED TO ICC.........................................................16
RISKS RELATED TO RTCI........................................................16
Management of Growth......................................................16
Fluctuations in Revenues and Operating Results............................16
Fixed-price Contracts.....................................................17
Professional Staff........................................................17
Retention of Clients......................................................17
Potentially Dissatisfied Clients..........................................18
Intense Competition.......................................................18
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TABLE OF CONTENTS
Page
----
Internet Usage............................................................18
Technological Change......................................................18
Key Personnel.............................................................19
Intellectual Property Protection..........................................19
Technical Infrastructure..................................................19
Year 2000 Problem.........................................................19
Future International Operations...........................................19
DESCRIPTION OF ING BARINGS FAIRNESS OPINION..................................20
Selected Comparable Publicly Traded Companies.............................22
Selected Comparable Transaction Analysis..................................23
Pro Forma Contribution Analysis...........................................24
ICC "Has-Gets" Analysis...................................................24
THE MERGER AGREEMENT.........................................................25
Merger Consideration......................................................25
Exchange of Shares........................................................26
Representations...........................................................26
Obligations...............................................................30
Conditions to the Merger..................................................32
Termination of the Merger Agreement.......................................33
Indemnification...........................................................34
OTHER MATTERS PERTAINING TO THE MERGER AGREEMENT.............................36
Promissory Note...........................................................36
Registration Rights Agreement.............................................36
Regulatory Filings and Approvals..........................................36
Appraisal Rights..........................................................36
Material Federal Income Tax Consequences of the Merger....................36
Accounting Treatment of the Merger........................................37
Listing of ICC Shares.....................................................37
MANAGEMENT AFTER THE MERGER..................................................37
Management of ICC.........................................................37
ii
<PAGE>
TABLE OF CONTENTS
Page
----
Management of RTCI........................................................38
UNAUDITED PRO FORMA COMBINED.................................................39
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET......................40
INTERNET COMMERCE CORPORATION.............................................41
INTERNET COMMERCE CORPORATION.............................................42
Notes to Unaudited Pro Forma Combined Condensed Financial Statements......43
Basis of Presentation...................................................43
Pro Forma Adjustments and Assumptions...................................43
Shares Issued for RTCI Acquisition......................................46
THE COMPANIES................................................................47
Description of ICC's Business................................................47
Recent Developments.......................................................47
Business Development......................................................47
Industry Background.......................................................48
The ICC.NET Solution......................................................49
Business Strategy.........................................................51
Competition...............................................................52
Patents and Trademarks....................................................53
Marketing and Sales.......................................................54
Technical Support.........................................................56
Customers.................................................................56
Research and Development..................................................56
Employees.................................................................56
ICC - SELECTED FINANCIAL DATA................................................57
Description of RTCI's Business...............................................58
eConsulting...............................................................58
EAI/EDI/XML Mapping.......................................................58
Internetworking...........................................................59
Customers.................................................................59
Sales & Marketing.........................................................60
iii
<PAGE>
TABLE OF CONTENTS
Page
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Employees.................................................................61
Facilities................................................................61
Management's Discussion and Analysis......................................63
OPERATIONS FOLLOWING THE MERGER..............................................64
INCORPORATION BY REFERENCE...................................................64
OTHER MATTERS................................................................66
Exhibit A -- Merger Agreement
Exhibit B -- Fairness Opinion
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 SmallCap Market, current ICC stockholders must approve the
issuance of these additional shares. We are sending you these materials
to help you decide whether to approve the Stock Issuance.
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 __% and a maximum of
____% of 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 SmallCap Market. The closing price of the ICC Common Stock on
__________, the day prior to the printing of this Proxy Statement, was
$______, as reported by The Nasdaq SmallCap 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
<PAGE>
RTCI Common Stock issued pursuant to the RTCI restricted stock plan described on
page 29 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?
A Our Board of Directors has unanimously determined that the Stock
Issuance is 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.
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 diversified revenue base, additional
locations, additional and different service capacity and additional
experienced management.
Q Who can vote on the Stock Issuance?
A Holders of ICC Class A Common Stock, Class B Common Stock and Series C
Preferred Stock at the close of business on ______, 2000, the record
date relating to the Special Meeting, may vote on the Stock Issuance.
Q When and where will the Special Meeting take place?
A The Special Meeting will be held on ___________, 2000, at [time], at
[address].
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 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?
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<PAGE>
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
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?
A ICC stockholders will not have any appraisal rights with respect to the
Share Issuance.
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.
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 ___________,
2000, at [time], at [address].
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
3
<PAGE>
to a Merger Agreement dated June 14, 2000 among ICC, Buyer, RTCI and the selling
shareholders of RTCI identified therein (the "Merger Agreement").
Voting Rights
The ICC Board of Directors has set the close of business on _______,
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
_________ 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
________ 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.
Introduction (See page 10)
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 11)
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.
4
<PAGE>
To review the background and reasons for the Merger in greater detail,
as well as certain risks related to the Merger, see pages 11-16.
Opinion of Financial Advisor (See pages 19-24)
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 pages 24-25)
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 __% and a maximum of __% of 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 29 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.
Conditions to Completion of the Merger (See pages 31-33)
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
5
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o shareholders of RTCI must approve the Merger and the Merger Agreement.
ICC Board Composition (See page 37)
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 pages 33)
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 34-35)
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.
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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.
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 35-36)
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
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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 35)
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.
Appraisal Rights (See page 36)
Our stockholders are not entitled to appraisal rights in connection with
the Merger.
Tax Treatment of the Merger (See page 36)
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 36)
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 pages 35-36)
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
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registration statement covering those shares or an exemption from the applicable
registration requirements. See "Registration Rights Agreement" on pages 35-36
and "Listing of ICC Shares" on page 36.
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
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.
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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
__% and a maximum of __% of the total issued and outstanding shares of ICC Class
A Common Stock as of the Record Date.
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 SmallCap
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.
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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.
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
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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 35 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.
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.
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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;
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;
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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.
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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.
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
__% and a maximum of ____% of 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 $____ 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.
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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 the Form 10-KSB filed by ICC for the year ended July
31, 1999 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 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.
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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.
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,
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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,
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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 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
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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.
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;
20
<PAGE>
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 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
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<PAGE>
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.
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EAI Software Companies:
BEA Systems, Inc. Broadvision, Inc. Mercator Software, Inc.
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:
- 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
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>
<CAPTION>
<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>
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(a) Premium based on the implied value of most recent private equity investment
in RTCI in January 1998.
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.
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
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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
SmallCap Market. The closing price of the ICC Common Stock on __________, the
day prior to the printing of this Proxy Statement, was $______, as reported by
The Nasdaq SmallCap 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 29 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.
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;
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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;
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<PAGE>
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;
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;
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<PAGE>
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.
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;
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<PAGE>
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;
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.
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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;
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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;
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;
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<PAGE>
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;
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.
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<PAGE>
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
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;
34
<PAGE>
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 contemplated by such Registration Statement has been completed. In
addition, holders of at least 20% of the ICC Shares receive two demand
35
<PAGE>
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 SmallCap Market and/or on any
other market on which ICC's Class A Common Stock shall be trading at the time of
listing.
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<PAGE>
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:
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.
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<PAGE>
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.
38
<PAGE>
UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial
information assumes the acquisition of RTCI by ICC and assumes that the
acquisition of Intercoastal Data Corporation ("IDC") by ICC, which was
consummated on August 3, 2000, was consumated as of April 30, 2000. The combined
condensed pro forma balance sheet combines ICC and RTCI and IDC as of April 30,
2000, as if each acquisition had occurred on April 30, 2000. The pro forma
statements of operations combine ICC's and RTCI's and IDC's historical results
of operations for the twelve months ended July 31, 1999 and the nine months
ended April 30, 2000, as if each acquisition had occurred on August 1, 1998.
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.
39
<PAGE>
<TABLE>
<CAPTION>
INTERNET COMMERCE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
April 30, 2000
(in thousands)
Historical Historical Historical Pro Forma Pro Forma
ICC IDC RTCI Adjustments Combined
-------- -------- --------- ---------- ---------
ASSETS
Current Assets:
<S> <C> <C> <C> <C> <C>
Cash and cash $21,921 $ 319 $ 15 $ 1 (E) $22,256
equivalents
Marketable securities 1,008 1,008
Accounts receivable, net 349 131 1,263 1,743
Other current assets 204 1 359 564
-------- -------- --------- ---------- ---------
Total current 22,474 1,459 1,637 1 25,571
assets
Property and equipment, net 924 386 1,128 (262) (F) 2,176
Intangible assets, net 893 12 80 46,001 (A), (B),(C) 46,986
Other assets 535 43 578
-------- -------- ---------- --------- ---------
$24,826 $1,857 $ 2,888 $45,740 $75,311
======== ======== ========= ========== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 255 $ 1 $ 444 $ 700
Current portion of 330 5 117 452
long-term debt
Convertible debenture 2,007 $ (2,007) (E)
Deferred Taxes 280 280
Other current 960 107 1,106 1,485 (A), (B) 3,658
liabilities
-------- -------- --------- ---------- ---------
1,545 393 3,674 (522) 5,090
Long term debt, net of 288 16 282 586
current portion
Deferred taxes 15 3,998 (G) 4,013
-------- -------- --------- ---------- ---------
Total liabilities 1,833 424 3,956 3,476 9,689
Redeemable preferred stock 3,438 (3,438) (H)
Stockholders' Equity:
Preferred stock
Common stock 63 22 3 (A), (B),(D) 88
Additional paid-in capital 56,841 4 42,600 (A),(B),(D),(E)99,445
Accumulated other
comprehensive income 742 (742) (D)
Accumulated earnings (33,911) 665 (4,506) 3,841 (D) (33,911)
(deficit)
-------- -------- --------- -------- ---------
Total stockholders' 22,993 1,433 (4,506) 45,702 65,622
equity
-------- --------- ---------- --------- ---------
$24,826 $1,857 $2,888 $ 45,740 $75,311
======== ======== ========= ========== =========
See notes to unaudited pro forma combined condensed financial statements
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
INTERNET COMMERCE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Year ended July 31, 1999
(in thousands, except per share amounts)
Historical Historical Historical Pro Forma Pro Forma
ICC IDC RTCI Adjustments Combined
-------- -------- -------- ----------- ---------
Revenues:
<S> <C> <C> <C> <C> <C>
Services $ 105 $ 1,135 $ 5,499 $ (23) (I) $ 6,716
Software sales 299 159 458
-------- -------- -------- ----------- ---------
Total revenues 105 1,434 5,658 (23) 7,174
Expenses:
Cost of services 452 136 4,018 (23) (I) 4,583
Cost of software 103 103
Research and development 517 367 884
Selling and marketing 420 266 686
General and 3,548 595 2,353 5,478 (C) 11,974
administrative
Non-cash charges in
connection with
options, compensation 3,266 3,266
and services
Write down of assets 33 33
-------- -------- -------- ----------- ---------
Total costs and 8,236 1,364 6,474 5,455 21,529
expenses -------- -------- -------- ----------- ---------
Income (loss) from continuing (8,131) 70 (816) (5,478) (14,355)
operations
Interest expense, net (1,490) (8) (1,498)
-------- -------- -------- ----------- ---------
Income (loss) from continuing
operations before income taxes (9,621) 70 (824) (5,478) (15,853)
Income taxes (benefit) 23 8 (751) (J) (720)
-------- -------- -------- ----------- ---------
Net income (loss) $(9,621) $ 47 $(832) $(4,727) $(15,133)
======== ======== ======== =========== =========
Dividends attributable to (191) (252) 252 (H) (191)
preferred stock
Dividends attributable to
preferred stock
resulting from discount
for beneficial
conversion feature (1,222) (1,222)
-------- -------- -------- ----------- ---------
Loss attributable to common $(11,034) $ 47 $(1,084) $(4,475) $(16,546)
shareholders ======== ======== ======== =========== =========
Basic and diluted loss per $ (7.62) $ (4.20)
common share ======== =========
Weighted average number of common
shares outstanding - basic 1,447 3,939
and diluted ======== =========
See notes to unaudited pro forma combined condensed financial statements
41
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
INTERNET COMMERCE CORPORATION
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Nine months ended April 30, 2000
(in thousands, except per share amounts)
Historical Historical Historical Pro Forma Pro Forma
ICC IDC RTCI Adjustments Combined
-------- -------- -------- ----------- ---------
Revenues:
<S> <C> <C> <C> <C> <C>
Services $ 769 $ 979 $ 5,130 $ (21) (I) $ 6,857
Software sales 168 716 884
-------- -------- -------- ----------- ---------
Total revenues 769 1,147 5,846 (21) 7,741
Expenses:
Cost of services 1,584 302 4,420 (21) (I) 6,285
Cost of software 9 465 474
Research and development 507 507
Selling and marketing 2,267 210 2,477
General and 3,291 544 3,850 4,109 (C) 11,794
administrative
Non cash charges in
connection with options,
compensation 3,311 3,311
and services -------- -------- -------- ----------- ---------
Total costs and 10,960 1,065 8,735 4,088 24,848
expenses -------- -------- -------- ----------- ---------
Income (loss) from continuing (10,191) 82 (2,889) (4,109) (17,107)
operations
Interest income (expense), net 373 26 (293) 106
-------- -------- -------- ----------- ---------
Income (loss) from continuing
operations
before income taxes (9,818) 108 (3,182) (4,109) (17,001)
Income taxes (benefit) 91 (33) (563) (J) (505)
-------- -------- -------- ----------- ---------
Net income (loss) $(9,818) $ 17 $(3,149) $(3,546) $(16,496)
======== ======== ======== =========== =========
Dividends attributable to (600) 600 (H)
preferred stock -------- -------- -------- ----------- ---------
Loss attributable to common $(9,818) $ 17 $(3,749) $(2,946) $(16,496)
shareholders ======== ======== ======== =========== =========
Basic and diluted loss per $ (2.68) $ (2.68)
common share ======== =========
Weighted average number of
common
shares outstanding - basic 3,670 6,162
and diluted ======== =========
See notes to unaudited pro forma combined condensed financial statements
</TABLE>
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<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 April
30, 2000 has been prepared as if the acquisitions of RTCI and IDC had been
consummated at April 30, 2000. The unaudited pro forma combined condensed
statements of operations for the year ended July 31, 1999 and the nine-month
period ended April 30, 2000 have been prepared as if the acquisitions of RTCI
and IDC had been consummated August 1, 1998.
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 April 30, 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, 1998, 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 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 194,731 shares of ICC's Class A Common Stock issued to
IDC shareholders by the fair market value of $16.78 per share. The
number of shares was determined by dividing $2,000,000 plus the IDC
portfolio market value of $1,267,220, as calculated based on the formula
set forth in the definitive merger agreement, divided by $16.78, 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 April 30, 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):
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<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Purchase Price:
Acquisition cost $ 3,267
Estimated transaction costs 125
--------
Total purchase price $ 3,392
========
Fair value of net assets acquired:
Fixed assets $ 124
Other assets 1,471
Liabilities assumed (415)
--------
Fair value of net assets acquired 1,180
--------
Cost in excess of net assets acquired $ 2,212
========
Payment of Purchase Price:
Common stock and additional paid-in capital $ 3,267
Other current liabilities - transaction costs 125
--------
$ 3,392
========
(B) The purchase price for ICC's pending acquisition of RTCI was determined
by the following formula:
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 $42,000,000 minus the cash at closing ($16,167 as of
April 30, 2000) by the market price ($15.89) 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 April 30, 2000). A total of 2,641,531 shares will be reduced by 305,271
shares reserved for assumption of the RTCI stock option plan and 38,812 shares
reserved for assumption of RTCI warrants, resulting in 2,279,448 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):
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<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
Purchase Price:
Acquisition cost (net of cash of $16 at
April 30, 2000) $ 39,361
Estimated transaction costs 1,360
--------
Total purchase price $ 40,721
========
Fair value of net assets acquired:
Fixed assets $ 1,128
Other assets 1,761
Identifiable intangible 9,996
Liabilities assumed (1,949)
--------
Fair value of net assets acquired 10,936
Excess of purchase price over fair value of net
assets acquired 32,408
Deferred tax effect of purchase accounting 3,998
--------
Cost in excess of net assets acquired $ 36,406
========
Payment of Purchase Price:
Common stock and additional paid-in capital $ 36,515
Fair value of options and warrants assumed 2,846
Other current liabilities - transaction costs 1,360
--------
$ 40,721
========
(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.
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<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Financial Statements
(F) Immediately prior to the IDC acquisition, the IDC building will be
distributed to another company at net book value to those shareholders
who were 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.
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.
46
<PAGE>
THE COMPANIES
Internet Commerce Corporation
805 Third Avenue, 9th Floor
New York, New York 10022
(212) 271-7640
Description of ICC's Business
Recent Developments
Intercoastal Data Corporation. On August 2, 2000, ICC entered into an Agreement
and Plan of Merger with IDC and the IDC shareholders (the "Sellers"), pursuant
to which IDC merged with and into ICC (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. ICC has agreed to register the
resale of these shares, and if the average market value of the shares for the
ten days ending four days prior to the effective date of the registration
statement covering the resale 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 fiscal year ending March 31, 2000, IDC had total revenues of $1,444,736 with
a net income of $50,140. IDC also owned a portfolio of marketable securities
having a value of approximately $1 million at the effective time of the IDC
Merger. IDC was formed in 1972 and is headquartered in Carrollton, Georgia.
Historical financial statements for IDC and pro forma financial statements for
ICC and IDC on a consolidated basis are incorporated into this Proxy Statement
by reference to ICC's Form 8-K filed on August 11, 2000.
ThyssenKrupp Information Services Group. ICC has announced a five-year agreement
with ThyssenKrupp Information Services Group ("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 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.
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
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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, also 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 developmental stage company.
As a result, we have only a limited operating history and there is no historical
information on which to evaluate our business and prospects.
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. We
expect our cost of revenue and operating expenses to increase significantly,
especially in the areas of marketing, customer installation and customer
service. 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.
Internet Commerce Corporation (referred to as we or ICC in this Proxy
Statement) completed the merger of our majority owned subsidiary ("ICCSUB" or
the "subsidiary") into ICC in September 1998.
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.")
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
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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
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, less than half of 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;
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;
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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 the fifteen largest
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.
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.
EDI to fax service. Traditional EDI users convert electronic documents into a
faxable format and fax the documents manually to their trading partners that can
not 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. We believe that our ICC.NET fax service will
result in lower fax costs for our customers as well as reduced human involvement
in the document delivery process and fewer errors. Recently, several other VANs
began offering similar EDI-fax services; however, we believe that these services
cost 3 to 5 times more per page and are currently only
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offered domestically. Our customers currently send documents using our ICC.NET
fax service to approximately 700 trading partners.
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.
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
intend to service these customers and pursue new international customers by
expanding our marketing and operation to Europe and other places outside the
United States.
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 or
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 hub 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,
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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.
Competition
Our principal competitors include: Harbinger Corporation, GE Information
Services, Inc., International Business Machines Corporation Global Services,
Sterling Commerce, Inc., AT&T Corp. and MCI Communications Corporation. 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
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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 i.e. a document or
software, 2) the attachment of an identifying serial number, 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.
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.
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.
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.
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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.
Additionally, 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 it may license in the future or
file itself, including any patent as to which a notice of allowance has issued,
will result in patents being issued, or that any rights granted thereunder will
provide competitive advantages to ICC. Although ICC believes that its 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 its products.
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 INFOSAFE, PROTECTED BY INFOSAFE, COMMERCESENSE,
COPYSAFE and DESIGN PALETTE have been registered with the United States Patent
and Trademark Office. The applications to register ICC.NET, 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 issue
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.
Marketing and Sales
We intend to 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. We
anticipate it will be necessary to retain channel partners or independent
contractors to train customers in the use of ICC.NET to achieve our business
plan.
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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. The Company 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 is the Cable & Wireless
(referred to as C&W in this Proxy Statement) relationship. C&W began selling our
services in May 2000 throughout the United States and will extend the programs
to Europe and the United Kingdom as early as the fall of 2000. C&W employs more
than 1,000 sales representatives in the United States and a like number
overseas. ICC's sales force currently consists of seven 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. These representatives are supported by technical personnel based in the
field. All field sales personnel report to the Executive Vice President of Sales
through one of two regional managers responsible for the eastern and western
parts of the United States. In addition, in an effort to further extend ICC's
ability to reach new prospects, a telesales department was established in April
2000. The telesales group uses industry and internal databases to create leads
for our ICC.NET service, and qualifies leads generated from tradeshows and
advertising. 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 will allow these smaller spoke companies to consider using our service
if requested to do so by their hub companies.
Seminars and Tradeshows. We plan to 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. Through
June to August of 2000, ICC is sponsoring a national seminar program with C&W
and Research Triangle Commerce, Inc. in 14 cities throughout the United States
in order to gain a broader coverage of potential prospects. The Company has
significantly expanded its participation in industry tradeshows and has begun
hiring personnel to focus solely on this area to establish brand recognition. 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. We rolled out a redesigned web site embodying a variety of
promotional features, including the ability for a trading partner to subscribe
to our ICC.NET service and begin the installation process for its own account
online, directly from our web site. Additionally, the Company 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.
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Technical Support
We provide technical support twenty-four hours a day, seven days a week.
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 twenty-four hours a day, seven days a week 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 near 100% of the time.
Customers
We currently provide our ICC.NET service to more than 260 customers,
including the following:
o Three large web-based online shopping services;
o A large book retailer;
o Several large publishers;
o Three major office supply companies;
o A software manufacturer;
o A freight company; o A large retail drug store chain; and o
Several automotive parts manufacturers.
We believe that no single customer will account for a material portion
of our revenues by the end of 2000.
Research and Development
Since 1997 we have focused entirely on our ICC.NET service. Product
development and enhancement costs are expected to remain a small percentage of
our overall operating expenses, until such time, if ever, we decide to develop
new products or services.
Employees
At May 31, 2000, ICC had 69 full-time employees, of which 25 performed
administrative, management and executive functions, 24 performed sales and
marketing functions and 20 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, 1999 and for the nine month periods ended April 30,
2000 and 1999, respectively, are presented below. ICC's selected balance sheet
data are presented below as of July 31, 1999, 1998, 1997, 1996 and 1995 and as
of April 30, 2000 and 1999, respectively. These financial statements have been
audited by Richard A. Eisner & Company, LLP. The financial statements as of July
31, 1999 and for each of the years in the two year period ended July 31, 1999
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>
9 months ended Year Ended July 31,
04/30/00 04/30/99 1999 1998 1997 1996 1995
(in thousands, except per-share data)
Statement of Operations Data
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Services and other $769 46 105 19 17 51 141
------- ------- ------- ------- ------- ------- --------
Costs and expenses:
Cost of services and other 1,584 17 452 11 54 69 110
General & administration 3,291 3,789 3,549 2,307 1,901 2,224 1,590
Sales and marketing(1) 2,267 420
Product development & 507 517 576 713 934 537
enhancement
Non-cash charge in
connection with
Options 3,311
Compensation and service 3,267
Write-down of assets 33 178 507 470
------- ------- ------- ------- ------- ------- --------
Total costs and expenses (10,960) (3,806) (8,238) (3,072) (3,175) (3,697) (2,237)
Operating income (loss) (10,191) (3,760) (8,133) (3,053) (3,158) (3,646) (2,096)
Interest income
Expense and (income) 373 (193) (1,490) 56 89 149 (533)
------- ------- ------- ------- ------- ------- --------
(Loss) from continuing (9,818) (5,69) (9,623) (2,997) (3,069) (3,497) (2,629)
operations before income
taxes
Other comprehensive income 34
------- ------- ------- ------- ------- ------- --------
(Loss) from continuing $(9,784) $(5,691) $(9,623) $(2,997) $(3,069) $(3,497) $(2,629)
operations
Dividends attributable to
preferred stock (191)
Dividends attributable to
preferred stock
resulting from discount
for beneficial
conversion feature (1,222)
------- ------- ------- ------- ------- ------- --------
Loss attributable to common $(9,784) $(5,691) $11,036 $(2,997) $(3,069) $(3,497) $(2,629)
shares ======= ======= ======= ======= ======= ======= ========
Net (loss) per share-basic
and diluted $(2.68) $ (4.01) $ (7.62) $ (2.79) $ (.72) $ (1.05) $ (1.15)
======= ======= ======= ======= ======= ======= ========
Weighted average shares used
in per share calculation -
basic and diluted 3,670 1,419 1,447 1,076 4,250 3,325 2,279
======= ======= ======= ======= ======= ======= ========
April 30 July 31,
----------------- -------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
------- ------- ------- ------- ------- ------- --------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $21,921 $6,369 $ 114 $ 178 $ 393 $ 50 $155
Working capital (deficit) 20,929 5,858 3,119 (915) 2,535 599 3,407
Total assets 24,826 8,283 6,540 1,535 3,492 2,025 5,551
Total debt 288 124 358 203 10 115
Stockholders' equity 22,992 7,361 5,055 132 2,960 1,523 4,627
</TABLE>
---------------------
(1) ICC did not have significant selling and marketing expenses from 1995 to
1998 and such expenses are included with general and administrative expeenses.
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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
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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 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
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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
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 December 31, 1999, RTCI had 104 full-time employees, including 57
billable professionals and 47 non-billable staff.
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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 three months ended March 31, 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 March
31, 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>
3 months ended Year Ended December 31,
03/31/00 03/31/99 1999 1998 1997 1996
(in thousands)
Statement of Operations
Data:
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Services $1,926 $ 1,423 $ 6,032 $ 4,434 $ 3,078 $ 1,916
Software sales 167 57 634 180 286 99
-------- --------- ---------- ------- -------- -------
Total revenues 2,093 1,480 6,666 4,614 3,364 2,015
Costs and expenses:
Services 1,489 1,028 5,093 2,506 1,531 1,098
Software 105 35 402 123 193 89
Selling, general &
administrative 1,120 752 4,115 1,827 1,481 764
-------- --------- ---------- ------- -------- -------
Total costs and expenses 2,714 1,815 9,610 4,456 3,205 1,951
Operating income (loss) (621) (335) (2,944) 158 159 64
Interest income (expense) (149) 3 (56) (78) (56) (31)
and other -------- --------- ---------- ------- -------- -------
Income (loss) before income (770) (332) (3,000) 80 103 33
taxes
Income tax expense (benefit) (37) 19 30 24
-------- --------- ---------- ------- -------- -------
Net income (loss) (770) (332) (2,963) 61 73 9
Accretion of mandatorily
redeemable
preferred stock (223) (114) (553)
-------- --------- ---------- ------- -------- -------
Net income (loss)
attributable to
common shareholders $(993) $ (446) $ (3,516) $ 61 $ 73 $ 9
======== ========= ========== ======= ======== =======
March 31, December 31,
2000 1999 1999 1998 1997 1996
-------- --------- ----------- ------- -------- -------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 30 711 $ 292 $ 8 $ 66 $ 31
Working capital (deficit) (1,718) 1,051 (944) (231) (119) (63)
Total assets 2,933 2,352 3,131 1,210 817 474
Total debt 2,767 56 2,268 637 431 213
Mandatorily redeemable
preferred stock 3,364 1,783 3,140
Stockholders' equity (4,090) (224) (3,097) 135 74 1
(deficit)
</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.
Quarter Ended March 31, 2000 Compared to Quarter Ended March 31, 1999
During the quarter ended March 31, 2000, RTCI's revenue increased
approximately 41% to $2.1 million from $1.5 million for the quarter ended March
31, 1999. This growth was primarily related to the expansion of business with
existing customers and the addition of new customers. Approximately $0.2 million
of the increased revenue related to professional services, $0.1 million to
mapping services, $0.1 million to software sales, and $0.2 million to education
services from an acquisition that was completed in June 1999.
RTCI expanded its capacity by increasing its average staff level to 104
for the March 31, 2000 quarter from an average of 60 for the prior year quarter
and moving into 27,000 square feet of new offices. Increased payroll and office
costs resulted in a loss from operations of $0.6 million for the quarter ended
March 31, 2000 compared to a loss from operations of $0.3 million for the
quarter ended March 31, 1999. During the quarter ended March 31, 2000, interest
expense (net) increased by $0.2 million from the quarter ended March 31, 1999,
primarily due to interest and amortization of debt discount related to the
issuance of $2.0 million of convertible debentures in December 1999.
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RTCI had a cash shortfall from operations of $0.6 million during the
quarter ended March 31, 2000. During this period, RTCI invested $0.1 million in
new equipment and software and generated approximately $0.4 million from
borrowings under its line of credit.
At March 31, 2000 RTCI had no cash on hand, approximately $0.2 million
in working capital (excluding convertible debentures that will convert to equity
in 2000), and a $2.0 million line of credit with First Union National Bank, of
which there was approximately $0.2 million outstanding.
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.
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, 1999;
o ICC's quarterly reports on Form 10-QSB for the quarters ended October
31, 1999, January 31, 2000 and April 30, 2000;
o ICC's proxy statement for the 2000 Annual Meeting of Stockholders;
o ICC's current reports on Form 8-K filed with the Securities and Exchange
Commission (the "SEC") on December 1, 1999, December 13, 1999, February
15, 2000 (as amended on Form 8-K/A filed with the SEC on February 15,
2000), March 28, 2000, April 26, 2000, May 4, 2000, May 18, 2000,
June 15, 2000 and August 11, 2000; and
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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.
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.
65
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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,
------------------------------
Dr. Geoffrey S. Carroll
President and
Chief Executive Officer
Dated: ____________, 2000
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<PAGE>
INTERNET COMMERCE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR SPECIAL MEETING TO BE HELD ON ____________, 2000.
The undersigned stockholder of Internet Commerce Corporation (the
"Company") acknowledges receipt of the Notice of Special Meeting of Stockholders
and the Proxy Statement each dated ___________, 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 __________, 2000 at [time], at
[address] 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. 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, 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>
<TABLE>
<CAPTION>
Research Triangle Commerce, Inc.
Balance Sheets
(in thousands, except share and per share data)
The accompanying notes are an integral part of these financial
statements.
December 31, March 31,
--------------------- -------------
1999 1998 2000
---------- --------- -------------
(unaudited)
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 292 $ 8 $ 30
Accounts receivable, net of allowance for doubtful
accounts of $73 and
$14 at December 31, 1999 and 1998, respectively
and of $84 at
March 31, 2000 (unaudited) 1,193 532 1,348
Other receivables 15 19 8
Income tax receivable 41 - 33
Inventories 171 162 166
Prepaid expenses 86 49 67
Deferred income taxes - 13 -
---------- --------- -------------
Total current assets 1,798 783 1,652
Property and equipment, net 1,171 293 1,155
Capitalized software costs, net 99 108 85
Other assets 63 26 41
---------- --------- -------------
Total assets $3,131 $ 1,210 $ 2,933
========== ========= =============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 218 $ 222 $ 333
Accrued expenses 592 180 425
Current portion of capital lease obligations 80 17 117
Deferred revenue 10 18 134
Convertible debenture 1,842 - 1,965
Amounts due to lenders - 577 396
---------- --------- -------------
Total current liabilities 2,742 1,014 3,370
Deferred income taxes - 18 -
Long term portion of capital lease obligations 346 43 289
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
March 31, 2000 (unaudited) (liquidation preference
of $3,069 as of March 31, 2000
(unaudited)) 3,140 - 3,364
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 March 31,
2000 (unaudited)
Retained earnings (accumulated deficit) (3,097) 135 (4,090)
---------- --------- -------------
Total stockholders' equity (deficit) (3,097) 135 (4,090)
---------- --------- -------------
Total liabilities and stockholders' equity $3,131 $ 1,210 $ 2,933
(deficit) ========== ========= =============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Research Triangle Commerce, Inc.
Statements Of Operations
(in thousands)
The accompanying notes are an integral part of these financial
statements.
Year ended Three months ended
December 31, March 31,
--------------------- ---------------------
1999 1998 2000 1999
---------- --------- --------- ---------
(unaudited)
Revenue:
<S> <C> <C> <C> <C>
Services $ 6,032 $ 4,434 $ 1,926 $ 1,423
Software sales 634 180 167 57
---------- --------- --------- ---------
Total revenue 6,666 4,614 2,093 1,480
---------- --------- --------- ---------
Costs and operating expenses:
Services 5,093 2,506 1,489 1,028
Software 402 123 105 35
Selling, general and administrative 4,115 1,827 1,120 752
---------- --------- --------- ---------
Total costs and operating expenses 9,610 4,456 2,714 1,815
---------- --------- --------- ---------
Income (loss) from operations (2,944) 158 (621) (335)
---------- --------- --------- ---------
Interest income (expense):
Interest income 26 1 2 7
Interest expense (82) (79) (151) (4)
---------- --------- --------- ---------
Interest expense, net (56) (78) (149) 3
---------- --------- --------- ---------
Income (loss) before income taxes (3,000) 80 (770) (332)
Provision (benefit) for income taxes (37) 19 - -
---------- --------- --------- ---------
Net income (loss) (2,963) 61 (770) (332)
Accretion of mandatorily redeemable preferred stock (553) - (223) (114)
---------- --------- --------- ---------
Net income (loss) available to common stockholders $ (3,516) $ 61 $ (993) $ (446)
========== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
Research Triangle Commerce, Inc.
Statements Of Cash Flows
(in thousands)
The accompanying notes are an integral part of these financial
statements.
Year ended Three months ended
December 31, March 31,
--------------------- ---------------------
1999 1998 2000 1999
(unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income (loss) $(2,963) $ 61 $ (770) $ (332)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 275 76 120 52
Deferred tax expense (5) 15 - (5)
Noncash interest expense 39 - 125 -
Loss on disposal of property and equipment 16 - - -
Bad debt expense 60 26 11 -
Changes in operating assets and liabilities:
Accounts receivable (721) (75) (166) (298)
Other receivables 4 - 7 4
Income tax receivable (41) - 8 (22)
Inventories (9) (147) 5 -
Prepaids (37) (62) 19 (16)
Other assets 26 - - -
Accounts payable (4) 73 115 84
Accrued expenses 412 35 (158) 136
Deferred revenue (8) - 113 97
---------- --------- --------- ---------
Net cash provided by (used in) operating activities (2,956) 2 (571) (300)
---------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (446) (189) (67) (172)
Purchase/development of software - (56) - -
Cash paid for acquisitions (274) - - -
Cash paid for noncompete agreements (113) - - -
---------- --------- --------- ---------
Net cash used in investing activities (833) (245) (67) (172)
---------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of mandatorily redeemable
preferred stock and
and warrants 2,673 - - 1,756
Proceeds from line of credit 3,615 3,335 1,395 204
Payments on line of credit (3,892) (3,320) (999) (481)
Proceeds from issuance of convertible debenture and 2,000 - - -
warrants
Payments on notes payable to related party - (115) - -
Proceeds from (payments on) term note (300) 300 - (300)
Payments on capital lease obligations (23) (15) (20) (4)
---------- --------- --------- ---------
Net cash provided by financing activities 4,073 185 376 1,175
---------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 284 (58) (262) 703
Cash and cash equivalents at beginning of year 8 66 292 8
---------- --------- --------- ---------
Cash and cash equivalents at end of year $ 292 $ 8 $ 30 $ 711
========== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, March 31,
--------------------- ---------------------
1999 1998 2000 1999
---------- --------- --------- ---------
(unaudited)
Supplemental cash flow disclosures:
<S> <C> <C> <C> <C>
Interest paid $ 25 $ 79 $ 18 $ 3
========== ========= ========= =========
Taxes paid $ 5 $ 14 - -
========== ========= ========= =========
Supplemental disclosure of noncash transactions:
Execution of capital lease agreements $ 389 $ 21 - -
========== ========= ========= =========
Accretion of mandatorily redeemable preferred stock $ 553 - $223 $114
========== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Research Triangle Commerce, Inc.
Notes to Financial Statements
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 - - 284 - 284
warrants
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 - - - (223) (223)
(unaudited)
Net loss (unaudited) - - - (770) (770)
------------- ----------- ------------ ------------- ------------
Balance at March 31, 2000 9,300,000 $ - $ - $(4,090) $(4,090)
(unaudited) ============= =========== ============ ============= ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 March 31, 1999 and
March 31, 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.
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 March 31, 2000, two customers accounted for 25% 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 three month period ended March 31, 2000, one customer
accounted for 20% of revenues (unaudited). For the three month period ended
March 31, 1999, two customers accounted for 14% and 12%, respectively, of
total 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.
F-9
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
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 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.
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.
F-10
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
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.
Computer equipment $113,000
Inventory - software 150,000
Other 1,000
-----------
Total $264,000
===========
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, March 31,
(Years) 1999 1998 2000
------------ ------------- --------------------
(unaudited)
<S> <C> <C> <C> <C>
Computer equipment and 3 - 5 $1,109,000 $ 412,000 $1,166,000
software
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 1,632,000
Less accumulated (391,000) (230,000) (477,000)
depreciation
------------ ----------- ---------------
Property and equipment, net $1,171,000 $ 293,000 $1,155,000
============ =========== ===============
</TABLE>
F-11
<PAGE>
6. Other Assets
Other assets are comprised of the following at December 31:
1999 1998
----------- -----------
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
=========== ===========
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, March 31,
-------------------------- ------------------
1999 1998 2000
------------ ----------- ------------------
(unaudited)
<S> <C> <C> <C>
Accrued salaries, benefits and related $321,000 $155,000 $351,000
costs
Professional fees 82,000 - -
Lease termination fees 66,000 - -
Other 123,000 25,000 74,000
------------ ----------- -------------
$592,000 $180,000 $425,000
============ =========== =============
</TABLE>
8. Due to Lenders
Amount due to lenders consisted of the following at December 31:
1999 1998
------- ---------
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 at prime plus 1% (8.75% at December 31,
1998) per annum; collateralized by all assets
of the Company - 277,000
-------- ----------
$ - $ 577,000
======== ==========
F-12
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
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.
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.
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.
F-13
<PAGE>
10. Income Taxes
The components of income tax expense (benefit) consist of the following at
December 31:
1999 1998
------------- -------------
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
============= =============
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 pervious two years.
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.
F-14
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
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 $(1,020,000) 34.0% $ 27,000 33.6%
rate
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 20,000 -0.7% - 0.0%
other 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>
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:
F-15
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
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.
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 $9,787,000 and $8,221,000 as of March
31, 2000 and 1999 (unaudited), respectively. 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 a charge
to additional paid-in capital and an increase to the recorded value of the
Series A Preferred Stock through December 2004, the redemption date. The
Company recorded charges to
F-16
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
stockholders' equity of $553,000 for accretion for the year ended December
31, 1999 and $223,000 and $114,000 for the three months ended March 31, 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.
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.
F-17
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
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>
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> <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:
F-18
<PAGE>
Research Triangle Commerce, Inc.
Notes to Financial Statements
Capital Operating
Leases Leases
-------------- ---------------
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
==============
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.
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 shall automatically convert into shares of the Company's common
stock.
F-19
<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
<PAGE>
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.
"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.
2
<PAGE>
"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 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.
3
<PAGE>
"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.
"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.
4
<PAGE>
"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.
5
<PAGE>
"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 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
6
<PAGE>
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.
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.
7
<PAGE>
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
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.
8
<PAGE>
(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 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.
9
<PAGE>
(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).
10
<PAGE>
(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 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
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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 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
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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.
(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
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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
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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 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.
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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 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
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"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 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.
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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.
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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;
(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.
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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;
(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;
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(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.
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.
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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
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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 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
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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.
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
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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.
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
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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.
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(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 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
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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 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
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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.
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.
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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.
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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.
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,
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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
(c) 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.
(a) 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 "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
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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 Information which is
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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:
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(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;
(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.
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6.5 COMMERCIALLY REASONABLE BEST EFFORTS TO SATISFY CONDITIONS
(d) 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.
(e) 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 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,
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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 and shall not take any action that could reasonably be
expected to prevent the vote or consent of stockholders in favor of such
approval.
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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.
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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.
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).
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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.
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.
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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 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.
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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
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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:
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
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(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.
(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
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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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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
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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.
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,
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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
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.
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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 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
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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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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>
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;
<PAGE>
(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.
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.
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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
3
