-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WenEzvPNT0XNVk7+iLvFRoMtPxDtbLNJYR/OLbUBZ8OlGSN5pf5TLyWoP84ye5pB SmxvF0nKxswQPWIw/8u+ew== 0000950109-99-004206.txt : 19991123 0000950109-99-004206.hdr.sgml : 19991123 ACCESSION NUMBER: 0000950109-99-004206 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991116 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19991122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNET CAPITAL GROUP INC CENTRAL INDEX KEY: 0001085621 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 232996071 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-26929 FILM NUMBER: 99762038 BUSINESS ADDRESS: STREET 1: 800 SAFEGUARD BUILDING STREET 2: 435 DEVON PARK DRIVE CITY: WAYNE STATE: PA ZIP: 19087 BUSINESS PHONE: 6109890111 MAIL ADDRESS: STREET 1: 800 SAGEGUARD BUILDING STREET 2: 435 DEVON PARK DRIVE CITY: WAYNE STATE: PA ZIP: 19087 8-K 1 FORM 8-K FOR INTERNET CAPITAL GROUP SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ Form 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of earliest event reported: November 16, 1999 ----------------- Internet Capital Group, Inc. ---------------------------- (Exact name of registrant as specified in its charter) Delaware 0-26929 23-2996071 - ---------------------- ------- ---------- State of Incorporation (Commission File Number) (IRS Employer Identification No.) 435 Devon Park Drive, Building 800, Wayne, PA 19087 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (610) 989-0111 -------------- (Registrant's telephone number) Item 2. Acquisition of Assets. --------------------- On November 16, 1999 Internet Capital Group, Inc. (the "Company") acquired an interest in eMerge Interactive, Inc., a Delaware corporation ("eMerge"), pursuant to the Securities Purchase Agreement (the "Purchase Agreement") dated as of October 27, 1999 by and among the Company, eMerge and J Technologies, LLC, a South Dakota limited liability company ("J Technologies"). eMerge is a diverse Internet-based provider of e-commerce, information services and technology solutions for the animal industry, primarily the cattle segment. Pursuant to the Purchase Agreement, the Company acquired from eMerge 4,555,556 shares of eMerge Series D Preferred Stock and a warrant to purchase 911,111 shares of eMerge Class B Common Stock. Pursuant to the Purchase Agreement, the Company also purchased 1,000,000 shares of eMerge Class A Common Stock from J Technologies. The aggregate purchase price for the stock and the warrant, which was established through arms-length negotiation, was $50,000,000, composed of $27,000,000 in cash and a promissory note for $23,000,000. The cash portion of the purchase price was funded from the Company's existing cash. The promissory note is non interest-bearing and is due and payable one year after issuance; provided, however, that in the event that eMerge does not consummate a public offering of its Common Stock by March 15, 2000, eMerge can require the Company to prepay up to $5,000,000 in principal on or after March 25, 2000. Each share of eMerge Series D Preferred Stock will convert into one share of eMerge Class B Common Stock upon the Company's election, completion of an initial public offering of eMerge's Common Stock or a specified vote of the holders of all Preferred Stock. Each of the Company's shares of Class B Common Stock will convert into one share of Class A Common Stock upon transfer to a non-affiliate of the Company. Each share of eMerge Series D Preferred Stock and each share of eMerge Class B Common Stock is entitled to two and one half votes. Each share of eMerge Class A Common Stock is entitled to one vote. The Company currently has beneficial ownership (assuming conversion of each share of Preferred Stock) of 30.7% of the eMerge Common Stock and has 45.9% of the voting power with respect to eMerge. The Company may exercise the warrant during the three-year period beginning upon the first to occur of an initial public offering of eMerge's Common Stock, the closing of new equity financing from private investors of at least $20,000,000 and the one-year anniversary of the issuance of the warrant. The exercise price will equal the purchase price per share to investors in the first to occur of the initial public offering or private equity financing described in the preceding sentence or, if the one-year anniversary of the issuance of the warrant occurs first, $9.00 per share. Douglas A. Alexander, one of the directors of eMerge, is an executive officer of the Company. E. Michael Forgash, one of the directors of eMerge, is also a member of the board of directors of the Company. Safeguard Scientifics, Inc., a Delaware corporation ("Safeguard"), may be considered a promoter of the Company. Safeguard and its related parties own approximately 14.3% of the outstanding shares of the Company, and approximately 47.5% of the outstanding shares of eMerge. Additionally, the Company and Safeguard entered into the Joint Venture Agreement dated as of October 27, 1999 (the "Joint Venture Agreement") Pages 2 of 28 Pages pursuant to which they agreed, among other things, to vote their shares of eMerge to elect two designees of the Company and two designees of Safeguard to the board of directors of eMerge and to attempt to agree on mutually beneficial courses of action. Additionally, the Joint Venture Agreement provides for rights of first refusal with respect to certain sales of eMerge securities. In connection with the consummation of the Purchase Agreement, the Company also entered into a Stockholder Agreement dated as of November 16, 1999 with eMerge and certain stockholders of eMerge, including Safeguard and certain of its affiliates (the "Stockholder Agreement"). The Stockholder Agreement provides for, among other things, restrictions on the transferability of securities and co-sale, drag-along and preemptive rights. The Stockholders Agreement terminates upon an initial public offering of eMerge's Common Stock. The Company and eMerge are also parties to a Registration Rights Agreement dated as of November 16, 1999 (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, eMerge granted the Company certain demand and piggyback registration rights. Pages 3 of 28 Pages Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. ------------------------------------------------------------------ (a) Financial Statements of Business Acquired Independent Auditors' Report To the Board of Directors of eMerge Interactive, Inc.: We have audited the accompanying consolidated balance sheets of eMerge Interactive, Inc. as of December 31, 1997 and 1998 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of eMerge Interactive, Inc. at December 31, 1997 and 1998 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998 in conformity with generally accepted accounting principles. KPMG LLP Orlando, Florida April 20, 1999 Pages 4 of 28 Pages EMERGE INTERACTIVE, INC. Consolidated Balance Sheets
(Unaudited) December 31, December 31, September 30, 1997 1998 1999 ------------ ------------ ------------- Assets Current assets: Cash................................. $ 400 $ 268 $ 1,650,134 Trade accounts receivable............ -- 368,421 2,790,427 Inventories (note 3)................. 635,963 706,557 655,129 Cattle deposits...................... -- -- 489,760 Prepaid expenses..................... 33,642 27,837 103,242 Net assets of discontinued operations (note 12)........................... 1,066,804 2,285,341 390,336 ----------- ------------ ------------ Total current assets................. 1,736,809 3,388,424 6,079,028 Property and equipment, net (note 4).. 428,140 513,837 1,711,404 Capitalized offering costs............ -- -- 341,967 Investment in Turnkey Computer Systems, Inc. (note 12).............. -- -- 1,831,133 Intangibles, net (note 5)............. -- 2,699,828 6,273,309 ----------- ------------ ------------ Total assets....................... $ 2,164,949 $ 6,602,089 $ 16,236,841 =========== ============ ============ Liabilities and Stockholders' Equity (Deficit) Current liabilities: Current installments of capital lease obligation with related party (note 9).................................. $ -- $ 79,852 $ 83,917 Note payable (note 12)............... -- -- 500,000 Accounts payable..................... 725,369 423,946 1,633,132 Accrued liabilities: Salaries and benefits................ 175,597 283,103 908,271 Other................................ 98,704 319,989 1,435,987 Advance payments from customers...... -- -- 619,270 Due to related parties (notes 9 and 12)............................. 8,040,304 5,187,334 13,405,957 ----------- ------------ ------------ Total current liabilities............ 9,039,974 6,294,224 18,586,534 Capital lease obligation with related party, excluding current installments (note 9)............................. -- 305,018 242,673 Note payable (note 12)................ -- -- 900,000 ----------- ------------ ------------ Total liabilities.................... 9,039,974 6,599,242 19,729,207 ----------- ------------ ------------ Commitments and contingencies (notes 11 and 12) Class A common stock subject to a put (note 12)............................ -- -- 400,000 ----------- ------------ ------------ Stockholders' equity (deficit) (notes 6, 8 and 12): Preferred stock, $.01 par value, authorized 15,000,000 shares: Series A preferred stock, (aggregate involuntary liquidation preference of $6,741,954 in 1997 and $7,386,314 in 1998), designated 6,500,000 shares, issued and outstanding 6,443,606 shares in 1997, 1998 and 1999................. 64,436 64,436 64,436 Series B junior preferred stock, (aggregate involuntary liquidation preference of $-0- in 1997 and $4,801,315 in 1998), designated 2,400,000 shares, issued and outstanding -0- shares in 1997 and 2,400,000 shares in 1998 and 1999... -- 24,000 24,000 Series C preferred stock, designated 1,300,000 shares, issued and outstanding -0- shares in 1997 and 1998 and 1,100,000 shares in 1999... -- -- 11,000 Series D preferred stock, designated 4,555,556 shares, no shares issued and outstanding in 1997, 1998 and 1999................................ -- -- -- Common stock, $.01 par value, authorized 100,000,000 shares: Class A common stock, designated 92,711,110 shares, issued and outstanding 2,606,500 shares in 1997, 4,676,500 shares in 1998 and 5,616,155 shares in 1999............ 26,065 46,765 55,662 Class B common stock, designated 7,288,890 shares; no shares issued and outstanding in 1997, 1998 and 1999................................ -- -- -- Additional paid-in capital........... 1,982,986 16,648,286 23,468,470 Accumulated deficit.................. (8,948,512) (16,780,640) (27,452,825) Unearned compensation................ -- -- (63,109) ----------- ------------ ------------ Total stockholders' equity (deficit)......................... (6,875,025) 2,847 (3,892,366) ----------- ------------ ------------ Total liabilities and stockholders' equity (deficit).................. $ 2,164,949 $ 6,602,089 $ 16,236,841 =========== ============ ============
See accompanying notes to consolidated financial statements. Pages 5 of 28 Pages EMERGE INTERACTIVE, INC. Consolidated Statements of Operations
(Unaudited) Nine Months Ended Years ended December 31, September 30, ------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ------------ Revenue (note 10)....... $ -- $ -- $ 1,792,471 $ 1,106,452 $ 18,338,645 Cost of revenue......... -- -- 2,623,447 1,628,757 18,282,330 ----------- ----------- ----------- ----------- ------------ Gross profit (loss)............. -- -- (830,976) (522,305) 56,315 ----------- ----------- ----------- ----------- ------------ Operating expenses: Selling, general and administrative (note 9)................... -- 627,606 3,659,810 2,427,944 7,539,689 Research and development.......... -- 727,753 1,109,382 759,434 2,756,262 ----------- ----------- ----------- ----------- ------------ Total operating expenses........... -- 1,355,359 4,769,192 3,187,378 10,295,951 ----------- ----------- ----------- ----------- ------------ Profit (loss) from continuing operations.. -- (1,355,359) (5,600,168) (3,709,683) (10,239,636) Interest expense (note 9)..................... -- (141,167) (331,594) (231,000) (458,624) Other income............ -- -- -- -- 15,655 ----------- ----------- ----------- ----------- ------------ Profit (loss) from continuing operations before income taxes....... -- (1,496,526) (5,931,762) (3,940,683) (10,682,605) Income tax expense (benefit) (note 7)..... -- -- -- -- -- ----------- ----------- ----------- ----------- ------------ Profit (loss) from continuing operations......... -- (1,496,526) (5,931,762) (3,940,683) (10,682,605) Discontinued operations (note 12): Income (loss) from operations of discontinued transportation segment (note 9)..... (1,719,492) (3,987,097) (1,808,951) (1,721,060) 10,420 Loss on disposal of transportation segment.............. -- -- (91,415) -- -- ----------- ----------- ----------- ----------- ------------ Net profit (loss)....... $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185) =========== =========== =========== =========== ============
See accompanying notes to consolidated financial statements. Pages 6 of 28 Pages EMERGE INTERACTIVE, INC. Consolidated Statements of Stockholders' Equity (Deficit)
Preferred Preferred Stock Preferred Stock Preferred Stock Stock Common Stock Common Stock Series A Series B Series C Series D Class A Class B ----------------- ----------------- ----------------- ------------- ----------------- ------------- Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount --------- ------- --------- ------- --------- ------- ------ ------ --------- ------- ------ ------ Balances at December 31, 1995............ -- $ -- -- $ -- -- $ -- -- $-- 1,000 $ 10 -- $-- Issuance of common stock to XL Vision, Inc., for cash at $.01 per share....... -- -- -- -- -- -- -- -- 199,000 1,990 -- -- Issuance of common stock for cash at $.01 per share........... -- -- -- -- -- -- -- -- 140,000 1,400 -- -- Exercise of stock options for cash at $.01 per share....... -- -- -- -- -- -- -- -- 20,000 200 -- -- Net profit (loss).......... -- -- -- -- -- -- -- -- -- -- -- -- --------- ------- --------- ------- --------- ------- --- --- --------- ------- --- --- Balances at December 31, 1996............ -- -- -- -- -- -- -- -- 360,000 3,600 -- -- Issuance of common stock to XL Vision, Inc., for cash at $.01 per share (note 9).............. -- -- -- -- -- -- -- -- 2,246,500 22,465 -- -- Sale of Series A preferred stock for cash at $1.00 per share (note 6)........ 6,443,606 64,436 -- -- -- -- -- -- -- -- -- -- Transfer of technology by XL Vision, Inc. (note 9)........ -- -- -- -- -- -- -- -- -- -- -- -- Net profit (loss).......... -- -- -- -- -- -- -- -- -- -- -- -- --------- ------- --------- ------- --------- ------- --- --- --------- ------- --- --- Balances at December 31, 1997............ 6,443,606 64,436 -- -- -- -- -- -- 2,606,500 26,065 -- -- Contribution of debt to equity by XL Vision, Inc. (note 9)... -- -- -- -- -- -- -- -- -- -- -- -- Issuance of Series B preferred stock in exchange for contribution of debt to equity by XL Vision, Inc. at $2.00 per share (notes 6 and 9)........ -- -- 2,400,000 24,000 -- -- -- -- -- -- -- -- Issuance of common stock in connection with Nutri-Charge transaction at $1.00 per share (note 5)........ -- -- -- -- -- -- -- -- 2,070,000 20,700 -- -- Contribution of put rights by XL Vision, Inc. (note 5)........ -- -- -- -- -- -- -- -- -- -- -- -- Net profit (loss).......... -- -- -- -- -- -- -- -- -- -- -- -- --------- ------- --------- ------- --------- ------- --- --- --------- ------- --- --- Balances at December 31, 1998............ 6,443,606 64,436 2,400,000 24,000 -- -- -- -- 4,676,500 46,765 -- -- Exercise of stock options for cash at $1.00 per share (unaudited)..... -- -- -- -- -- -- -- -- 87,280 873 -- -- Issuance of common stock in connection with CIN transaction at $1.20 per share (note 12) (unaudited)..... -- -- -- -- -- -- -- -- 600,000 6,000 -- -- Issuance of common stock in connection with Cyberstockyard transaction at $2.25 per share (note 12) (unaudited)..... -- -- -- -- -- -- -- -- 200,000 2,000 -- -- Issuance of Series C preferred stock at $5.00 per share (note 12) (unaudited)..... -- -- -- -- 1,100,000 11,000 -- -- -- -- -- -- Exercise of stock options for cash at $1.00 per share (unaudited)..... -- -- -- -- -- -- -- -- 2,375 24 -- -- Issuance of common stock in connection with Turnkey Computer Systems, Inc at $8.00 per share (note 12) (unaudited)..... -- -- -- -- -- -- -- -- 50,000 500 -- -- Reclassification of common stock subject to a put (note 12) (unaudited)..... -- -- -- -- -- -- -- -- -- (500) -- -- Put on Class A common stock issued in connection with Turnkey Computer Systems, Inc. (note 12) (unaudited)..... -- -- -- -- -- -- -- -- -- -- -- -- Net profit (loss) (unaudited)..... -- -- -- -- -- -- -- -- -- -- -- -- Unearned compensation (note 8) (unaudited)..... -- -- -- -- -- -- -- -- -- -- -- -- Amortization of unearned compensation (note 8) (unaudited)..... -- -- -- -- -- -- -- -- -- -- -- -- --------- ------- --------- ------- --------- ------- --- --- --------- ------- --- --- Balances at September 30, 1999 (unaudited)..... 6,443,606 $64,436 2,400,000 $24,000 1,100,000 $11,000 -- $-- 5,616,155 $55,662 -- $-- ========= ======= ========= ======= ========= ======= === === ========= ======= === === Additional Paid-in Accumulated Unearned Capital Deficit Compensation Total ------------ ------------- ------------ ------------ Balances at December 31, 1995............ $ 3,816 $ (1,745,397) $ -- $(1,741,571) Issuance of common stock to XL Vision, Inc., for cash at $.01 per share....... -- -- -- 1,990 Issuance of common stock for cash at $.01 per share........... -- -- -- 1,400 Exercise of stock options for cash at $.01 per share....... -- -- -- 200 Net profit (loss).......... -- (1,719,492) -- (1,719,492) ------------ ------------- ------------ ------------ Balances at December 31, 1996............ 3,816 (3,464,889) -- (3,457,473) Issuance of common stock to XL Vision, Inc., for cash at $.01 per share (note 9).............. -- -- -- 22,465 Sale of Series A preferred stock for cash at $1.00 per share (note 6)........ 6,379,170 -- -- 6,443,606 Transfer of technology by XL Vision, Inc. (note 9)........ (4,400,000) -- -- (4,400,000) Net profit (loss).......... -- (5,483,623) -- (5,483,623) ------------ ------------- ------------ ------------ Balances at December 31, 1997............ 1,982,986 (8,948,512) -- (6,875,025) Contribution of debt to equity by XL Vision, Inc. (note 9)... 7,500,000 -- -- 7,500,000 Issuance of Series B preferred stock in exchange for contribution of debt to equity by XL Vision, Inc. at $2.00 per share (notes 6 and 9)........ 4,776,000 -- -- 4,800,000 Issuance of common stock in connection with Nutri-Charge transaction at $1.00 per share (note 5)........ 2,049,300 -- -- 2,070,000 Contribution of put rights by XL Vision, Inc. (note 5)........ 340,000 -- -- 340,000 Net profit (loss).......... -- (7,832,128) -- (7,832,128) ------------ ------------- ------------ ------------ Balances at December 31, 1998............ 16,648,286 (16,780,640) -- 2,847 Exercise of stock options for cash at $1.00 per share (unaudited)..... 86,407 -- -- 87,280 Issuance of common stock in connection with CIN transaction at $1.20 per share (note 12) (unaudited)..... 714,000 -- -- 720,000 Issuance of common stock in connection with Cyberstockyard transaction at $2.25 per share (note 12) (unaudited)..... 448,000 -- -- 450,000 Issuance of Series C preferred stock at $5.00 per share (note 12) (unaudited)..... 5,489,000 -- -- 5,500,000 Exercise of stock options for cash at $1.00 per share (unaudited)..... 2,351 -- -- 2,375 Issuance of common stock in connection with Turnkey Computer Systems, Inc at $8.00 per share (note 12) (unaudited)..... 399,500 -- -- 400,000 Reclassification of common stock subject to a put (note 12) (unaudited)..... (399,500) -- -- (400,000) Put on Class A common stock issued in connection with Turnkey Computer Systems, Inc. (note 12) (unaudited)..... 8,300 -- -- 8,300 Net profit (loss) (unaudited)..... -- (10,672,185) -- (10,672,185) Unearned compensation (note 8) (unaudited)..... 72,126 -- (72,126) -- Amortization of unearned compensation (note 8) (unaudited)..... -- -- 9,017 9,017 ------------ ------------- ------------ ------------ Balances at September 30, 1999 (unaudited)..... $23,468,470 $(27,452,825) $(63,109) $(3,892,366) ============ ============= ============ ============
See accompanying notes to consolidated financial statements. Pages 7 of 28 Pages EMERGE INTERACTIVE, INC. Consolidated Statements of Cash Flows
(Unaudited) Nine Months Ended Years ended December 31, September 30, ------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ----------- ----------- ----------- ------------ Cash flows from operating activities: Net profit (loss)....... $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185) Adjustments to reconcile net profit (loss) to net cash used in operating activities: Depreciation and amortization.......... 1,503 122,486 438,576 230,964 1,380,940 Amortization of unearned compensation.......... -- -- -- -- 9,017 Changes in operating assets and liabilities: Trade accounts receivable, net....... -- -- (368,421) (138,705) (2,733,765) Inventories............ -- (635,963) (70,594) (30,741) 51,428 Cattle deposits........ -- -- -- -- (489,760) Prepaid expenses and other assets.......... (1,304) (32,338) 5,805 (77,079) (75,405) Net assets of discontinued operations............ (96,209) (853,501) (1,140,425) (1,477,150) 2,137,166 Accounts payable....... 5,675 719,694 (301,423) (32,037) 1,209,186 Accrued liabilities.... 75,542 198,759 328,791 151,016 1,741,166 Advance payments from customers............. -- -- -- -- 619,270 ----------- ----------- ----------- ----------- ------------ Net cash used by operating activities........... (1,734,285) (5,964,486) (8,939,819) (7,035,475) (6,822,942) ----------- ----------- ----------- ----------- ------------ Cash flows from investing activities: Purchases of property and equipment.......... (56,861) (506,540) (460,290) (269,831) (1,767,093) Purchase of intangibles............ (100,000) -- (431,923) (431,923) (3,145,297) Investment in Turnkey Computer Systems, Inc.................... -- -- -- -- (22,833) ----------- ----------- ----------- ----------- ------------ Net cash used by investing activities........... (156,861) (506,540) (892,213) (701,754) (4,935,223) ----------- ----------- ----------- ----------- ------------ Cash flows from financing activities: Net borrowings from related parties........ 1,889,101 3,810 9,447,030 7,737,227 8,218,623 Proceeds from capital lease financing with related party.......... -- -- 440,832 -- -- Payments on capital lease obligations...... -- -- (55,962) -- (58,280) Offering costs.......... -- -- -- -- (341,967) Sale of preferred stock.................. -- 6,443,606 -- -- 5,500,000 Sale of common stock.... 3,590 22,465 -- -- 89,655 ----------- ----------- ----------- ----------- ------------ Net cash provided by financing activities........... 1,892,691 6,469,881 9,831,900 7,737,227 13,408,031 ----------- ----------- ----------- ----------- ------------ Net increase (decrease) in cash... 1,545 (1,145) (132) (2) 1,649,866 Cash--beginning of period................. -- 1,545 400 400 268 ----------- ----------- ----------- ----------- ------------ Cash--end of period..... $ 1,545 $ 400 $ 268 $ 398 $ 1,650,134 =========== =========== =========== =========== ============ Supplemental disclosures: Cash paid for interest.. $ -- $ -- $ 23,594 $ 13,517 $ 20,628 Non-cash investing and financing activities: Transfer of technology by XL Vision, Inc. (note 9).............. -- 4,400,000 -- -- -- Contribution of debt to equity by XL Vision, Inc. (note 9)......... -- -- 7,500,000 -- -- Issuance of preferred stock in exchange for contribution of debt to equity by XL Vision, Inc. (note 9).................... -- -- 4,800,000 -- -- Non-cash issuance of Class A common stock in connection with Nutri-Charge transaction (note 5).. -- -- 2,070,000 2,070,000 -- Contribution of put rights by XL Vision, Inc. (note 5)......... -- -- 340,000 340,000 -- Issuance of Class A common stock in connection with CIN transaction (note 12)................... -- -- -- -- 720,000 Issuance of Class A common stock with Cyberstockyard transaction (note 12)................... -- -- -- -- 450,000 Issuance of Class A common stock with Turnkey Computer Systems, Inc. transaction (note 12)................... -- -- -- -- 400,000 Put on Class A common stock issued in connection with Turnkey Computer Systems, Inc. transaction (note 12)................... -- -- -- -- 8,300 Issuance of note payable to Turnkey Computer Systems, Inc. (note 12)............. -- -- -- -- 1,400,000
See accompanying notes to consolidated financial statements. Pages 8 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements (Information insofar as it relates to September 30, 1999 or the nine months ended September 30, 1998 and 1999 is unaudited) (1) Organization (a) Overview eMerge Interactive, Inc. (the "Company") is a Delaware corporation that was incorporated on September 12, 1994 as Enhanced Vision Systems, a wholly owned subsidiary of XL Vision, Inc. ("XL Vision"). The Company's name was changed to eMerge Vision Systems, Inc. on July 16, 1997 and to eMerge Interactive, Inc. on June 11, 1999. The Company was incorporated to develop and commercialize infrared technology focused on the transportation segment. In 1997, the Company entered a new business segment, animal sciences, by developing an infrared camera system for use primarily by veterinarians. The Company further expanded its operations in 1998 by licensing NutriCharge and infrared technology (see note 5) for commercialization. In December 1998, the Company's Board of Directors decided to dispose of the transportation segment. The Company's AMIRIS thermal imaging system, which was the sole product sold by the transportation segment, was sold on January 15, 1999. (b) Basis of Presentation The consolidated financial statements as of December 31, 1998 include the accounts of eMerge Interactive, Inc. and its wholly-owned subsidiary, STS Agriventures, Ltd. ("STS"), a Canadian corporation. The consolidated financial statements as of September 30, 1999 also include another wholly-owned subsidiary, Cyberstockyard, Inc. ("Cyberstockyard"). All significant intercompany balances and transactions have been eliminated upon consolidation. (c) Management's Plans As of September 30, 1999, the Company had a working capital deficiency of $12,507,506 and stockholders' deficit of $3,892,366. Management expects additional working capital requirements as the Company continues its marketing and development efforts for its products. Subsequent to September 30, 1999, the Company obtained additional equity financing (see note 12). The Company anticipates that net proceeds from its planned IPO of common stock will be sufficient to satisfy its operating cash needs for at least eighteen months following the IPO. Although management believes that its IPO will be successful, there can be no assurances that it will be achieved or that the Company will be successful in raising other financing. If the Company is unable to obtain sufficient additional funds, the Company may have to delay, scale back or eliminate some or all of its marketing and development activities. (2) Summary of Significant Accounting Policies (a) Revenue Recognition The Company recognizes revenue in accordance with the terms of the sale or contract, generally as products are shipped or services are provided. The Company bears inventory risk until the sales of their products and credit risk until full payment is received from its customers. In cattle sales transactions, the Pages 9 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) Company purchases cattle from the seller, takes title at shipment and records the cattle as inventory until delivered to and accepted by the buyer, typically a 24 to 48 hour period. In both cattle auction and resale transactions, the Company acts as a principal in purchasing cattle from suppliers and sales to customers so that the Company recognizes revenue equal to the amount paid by customers for the cattle. (b) Inventories Inventories are stated at standard cost which approximates the lower of first-in, first-out cost or market. (c) Property and Equipment Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method over the estimated useful lives of the assets. Amortization of equipment under capital lease is computed over the shorter of the lease term or the estimated useful life of the related assets. (d) Intangibles Intangibles are stated at amortized cost. Amortization is computed using the straight-line method over the estimated useful lives of the assets. (e) Income Taxes The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (f) Stock-Based Compensation Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion No. 25") and provide pro forma net income and pro forma earnings per share disclosures for employee stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123. (g) Use of Estimates The preparation of the Company's consolidated financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent Assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Pages 10 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) (h) Estimated Fair Value of Financial Instruments The carrying value of cash, trade accounts receivable, accounts payable, accrued liabilities and amounts due to related parties reflected in the consolidated financial statements approximates fair value due to the short-term maturity of these instruments. (i) Interim Financial Information The consolidated financial statements as of September 30, 1999, and for the periods ended September 30, 1998 and 1999, are unaudited but reflect adjustments which are, in the opinion of management, necessary for the fair presentation of financial position and results of operations. Operating results for the nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the full year. (3) Inventories Inventories consist of:
December 31, (Unaudited) ----------------- September 30, 1997 1998 1999 -------- -------- ------------- Raw materials............................. $346,335 $424,130 $594,337 Work-in-process........................... 289,628 282,427 60,792 -------- -------- -------- $635,963 $706,557 $655,129 ======== ======== ========
(4) Property and Equipment Property and equipment consists of:
December 31, ----------------- Estimated 1997 1998 useful lives -------- -------- ------------ Engineering and manufacturing equipment.. $258,082 $366,150 5 years Office and computer equipment............ 179,315 259,462 3 years Furniture and fixtures................... 67,282 104,706 7 years Leasehold improvements................... 46,865 46,865 7 years Automobiles.............................. -- -- 5 years -------- -------- 551,544 777,183 Less accumulated depreciation and amortization............................ 123,404 263,346 -------- -------- Property and equipment, net.............. $428,140 $513,837 ======== ========
Assets under capital lease amounted to $-0- and $440,832 and as of December 31, 1997 and 1998, respectively. Accumulated amortization for assets under capital lease totaled approximately $-0- and $152,300 as of December 31, 1997 and 1998, respectively. Pages 11 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) (5) Intangibles Intangibles consists of:
December 31, --------------- Estimated 1997 1998 useful life ---- ---------- ----------- NutriCharge license........................... $ -- $2,273,538 10 years Infrared technology license................... -- 568,385 5 years ---- ---------- -- 2,841,923 Less accumulated amortization................. -- 142,095 ---- ---------- Intangibles, net.............................. $ -- $2,699,828 ==== ==========
On July 29, 1998, the Company acquired licenses for NutriCharge and infrared technology. The purchase price of $2,841,923 (consisting of $300,000 in cash, 2,070,000 of the Company's Class A common shares valued at $1 per share, $131,923 in acquisition costs and the estimated fair value of put rights granted by XL Vision) was allocated to the acquired NutriCharge and infrared technology licenses based on estimated fair values determined by estimated cash flows from the underlying licensed product. In connection with the transaction, XL Vision granted a put right that allows the sellers to require XL Vision to purchase up to 1,000,000 shares of the Company's Class A common stock at $3.00 per share in the event certain operating targets related to the licensed product are not met by years four through seven after the transaction. The put expires at the end of year seven after the transaction. The fair value of the put was estimated to be $340,000 and was credited to additional paid-in capital. (6) Equity Common Stock As of December 31, 1998, the Company had authorized the issuance of 100,000,000 shares of common stock. Class A--In 1999, the Company designated 92,711,110 as Class A common stock. Class B--In 1999, the Company designated 7,288,890 shares as Class B common stock. Holders of Class B common stock are entitled to two and one-half votes for each share. The shares of Class A and Class B are identical in all other respects. Preferred Stock As of December 31, 1998, the Company had authorized the issuance of 10,000,000 shares of preferred stock and had designated 6,500,000 as Series A shares, and 2,400,000 as Series B shares. Each share of preferred stock is convertible into one share of Class A common stock at the option of the holder or upon the vote of holders of two-thirds of the respective preferred stock class outstanding except for Series D shares which is convertible at the offering price into Class B common stock. Preferred stock is automatically converted into common stock upon a qualified IPO of at least $10 million with a Company valuation of at least $30 million or upon a public rights offering of the Company to shareholders of Safeguard Scientifics, Inc. In 1999, the Company increased the authorized preferred stock to 15,000,000 shares. Pages 12 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) Series A--The Series A shares are entitled to a liquidation preference before any distribution to common stockholders equal to the greater of (a) $1.00 per share plus an additional $.10 per year (pro rated for partial years) from July 16, 1997 or (b) the amount which would be distributed if all of the preferred stock of the Company were converted to Class A common stock prior to liquidation. The holders of Series A preferred stock are entitled to vote as a separate class to elect two directors to the Board of Directors of the Company. Series B--Series B shares are entitled to a liquidation preference before any distribution to common stockholders equal to the greater of (a) $2.00 per share plus an additional $.20 for each year (pro rated for partial years) from December 31, 1998 or until the date of distribution of available assets or (b) the amount which would be distributed if all of the preferred stock of the Company were converted to Class A common stock prior to liquidation. Series B shares are junior to Series A, C and D shares. Series C--On April 15, 1999, the Company designated 1,300,000 as Series C shares. Series C shares are entitled to a liquidation preference before any distribution to common stockholders equal to the greater of (a) $5.00 per share plus an additional $.50 for each year (pro rated for partial years) from April 15, 1999 or until the date of distribution of available assets or (b) the amount which would be distributed if all of the preferred stock of the Company were converted to Class A common stock prior to liquidation. Series C shares are on parity with Series A and D shares except as to voting rights. Series D (Unaudited)--On October 26, 1999, the Company designated 4,555,556 shares as Series D shares. Series D shares are entitled to a liquidation preference before any distribution to common stockholders equal to the greater of (a) $10.00 per share plus an additional $1.00 for each year (pro rated for partial years) from August 24, 1999 or until the date of distribution of available assets or (b) the amount which would be distributed if all the preferred stock of the Company were converted to Class B common stock prior to liquidation. Series D shares are on parity with Series A and C shares except as to voting rights. Series D stockholders are entitled to two and one-half votes per share. (7) Income Taxes Deferred income taxes reflect the net tax effects of temporary difference between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company's deferred income tax assets and liability are as follows:
December 31, ---------------------- 1997 1998 ---------- ---------- Deferred tax assets: Net operating loss carryforwards............... $3,237,000 $5,967,000 Amortization of acquired technology from XL Vision (note 9)............................... 1,829,000 1,704,000 Research and experimentation tax credits....... 294,000 448,000 Other.......................................... 125,000 596,000 ---------- ---------- 5,485,000 8,715,000 Less valuation allowance....................... 5,370,000 8,715,000 ---------- ---------- Net deferred tax assets...................... 115,000 -- Deferred tax liability: Imputed interest............................... (115,000) -- ---------- ---------- Net deferred tax assets (liability).......... $ -- $ -- ========== ==========
Pages 13 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) The Company has available at December 31, 1998, unused net operating loss carryforwards of approximately $15,000,000 which may be applied against future taxable income and expires in years beginning in 2010. The Company also has approximately $448,000 in research and experimentation credits carryforwards. The research and experimentation credits, which begin to expire in 2010, can also be used to offset future regular tax liabilities. A valuation allowance for deferred tax assets is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. The difference between the "expected" tax benefit (computed by applying the federal corporate income tax rate of 34% to the loss before income taxes) and the actual tax benefit is primarily due to the effect of the valuation allowance. (8) Stock Plan In January 1996, the Company adopted an equity compensation plan (the "1996 Plan") pursuant to which the Company's Board of Directors may grant shares of common stock or options to acquire common stock to certain directors, advisors and employees. The Plan authorizes grants of shares or options to purchase up to 1,735,000 shares of authorized but unissued common stock. Stock options granted have a maximum term of ten years and have vesting schedules which are at the discretion of the Compensation Committee of the Board of Directors and determined on the effective date of the grant. A summary of option transactions follows:
Weighted Range of average exercise Weighted remaining price per average contractual Shares share exercise price life (in years) --------- ---------- -------------- --------------- Balance outstanding, December 31, 1996...... 2,500 $ 1.00 $1.00 4.85 ==== Granted................ 268,000 1.00 1.00 --------- ---------- ----- Balance outstanding, December 31, 1997....... 270,500 1.00 1.00 9.64 ==== Granted................ 1,354,000 1.00-2.00 1.05 Canceled............... (318,500) 1.00 1.00 --------- ---------- ----- Balance outstanding December 31, 1998....... 1,306,000 $1.00-2.00 $1.05 9.48 ========= ========== ===== ====
At December 31, 1997 and 1998, there were 61,375 and 331,500 shares exercisable, respectively, at weighted average exercise prices of $1.00 and $1.02, respectively. At December 31, 1997 and 1998, 79,500 and 409,000 shares available for grant, respectively. Pages 14 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) The per share weighted-average fair value of stock options granted was $0 in 1996, $0 in 1997 and $0.10 in 1998 on the date of grant using the Black Scholes option-pricing model with the following weighted-average assumptions:
1996 1997 1998 ---- ---- ---- Volatility.............................................. 0% 0% 0% Dividend paid........................................... 0% 0% 0% Risk-free interest rate................................. 6.35% 6.11% 4.73% Expected life in years.................................. 5.77 6.75 5.57
No volatility was assumed due to the use of the Minimum Value Method of computation for options issued by the Company as a private entity as prescribed by SFAS No. 123. All stock options granted, except as noted in the paragraph below, have been granted to directors or employees with an exercise price equal to the fair value of the common stock at the date of grant. The Company applies APB Opinion No. 25 for issuances to directors and employees in accounting for its Plan and, accordingly, no compensation cost has been recognized in the consolidated financial statements through December 31, 1998. On March 19, 1999, the Company granted 288,500 stock options with an exercise price of $2.00 and a fair value of $2.25. The Company recorded $72,126 of unearned compensation at the date of grant and is amortizing the unearned compensation over the vesting period. Compensation expense amounted to $9,017 for the nine months ended September 30, 1999. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net loss would have increased to the pro forma amounts indicated below:
1996 1997 1998 ----------- ----------- ----------- Net loss as reported............... $(1,719,492) $(5,483,623) $(7,832,128) =========== =========== =========== Pro forma net loss................. $(1,719,492) $(5,483,623) $(7,964,078) =========== =========== ===========
(9) Related Party Transactions Direct Charge Fee Prior to April 1, 1997 personnel, and other services were provided by XL Vision and the costs were allocated to the Company. Effective April 1, 1997, the Company entered into a direct charge fee agreement with XL Vision which allows for cost-based charges based upon actual hours incurred. Costs allocated to or service fees charged by XL Vision were approximately $468,000 in 1996, $720,000 in 1997 and $460,000 in 1998. A portion of the fees in 1998 and all of the costs and fees in 1996 and 1997 were allocated to the discontinued transportation segment. Administrative Services Fee Effective December 15, 1997, the Company entered into an agreement which requires accrual of an administrative services fee based upon a percentage of gross revenues. The fee for administrative support Pages 15 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) services, including management consultation, investor relations, legal services and tax planning, is payable monthly to XL Vision and Safeguard Scientifics, Inc., the largest shareholder of XL Vision, based upon an aggregate of 1.5% of gross revenues with such service fees to be not more than $300,000 annually. Effective August 17, 1999, the agreement was amended such that the administrative services fee is applied to net contribution margin on cattle sales and gross revenue for all other sales. The fee is accrued monthly but is only payable in months during which the Company has achieved positive cash flow from operations. The agreement extends through December 31, 2002 and continues thereafter unless terminated by any party. Administrative service fees were approximately $10,300 in 1997 and $37,200 in 1998. Technology Fee On July 15, 1997, the Company entered into an agreement with XL Vision for the transfer of certain technology that is used by the Company in the sale of its products for a $4,400,000 note payable. The transfer was accounted for as a distribution to XL Vision as it represented amounts paid for an asset to an entity under common control in excess of the cost of such asset. The note payable bears interest at 7% per annum. Interest expense was $141,167 in 1997 and $308,000 in 1998. Lease The Company leases equipment under a capital lease, effective April 20, 1998, with an affiliated entity, XL Realty, Inc. Future minimum lease payments, including imputed interest at 7.53%, are $79,852 in 1999, $85,765 in 2000, $92,684 in 2001, $100,154 in 2002 and $26,415 in 2003. Interest expense was $23,594 in 1998. The Company has a verbal lease with XL Vision for its facilities. Rent expense varies based on space occupied by the Company and includes charges for base rent, repairs and maintenance, telephone and networking expenses, real estate taxes and insurance. Rent expense was $68,000 in 1996, $354,000 in 1997, and $1,129,000 in 1998. Amounts Due to XL Vision, Inc. Amounts due to XL Vision consists of: Balance as of December 31, 1996................................... $ 3,636,494 Allocation of costs and funding of working capital to the Company........................................................ 6,318,405 Technology transfer fee......................................... 4,400,000 Interest charges on technology transferred...................... 141,167 Proceeds from Series A Preferred Stock.......................... (6,443,606) Issuance of Class A common stock................................ (22,465) ----------- Balance as of December 31, 1997................................... 8,029,995 Allocation of costs and funding of working capital to the Company........................................................ 9,120,441 Interest charges on technology transferred...................... 308,000 Contribution of debt to equity.................................. (7,500,000) Contribution of debt to equity in exchange for Series B Preferred Stock................................................ (4,800,000) ----------- Balance as of December 31, 1998................................... $ 5,158,436 ===========
The average outstanding balance due to XL Vision was approximately $2,690,900 in 1996, $6,239,600 in 1997 and $12,782,400 in 1998. Pages 16 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) Amounts Due to Safeguard Scientifics, Inc. As of December 31, 1997 and December 31, 1998, the Company owed Safeguard Scientifics, Inc. $10,309 and $28,898. (10) Segment Information In 1998, the Company adopted SFAS No. 131, which requires the reporting of segment information using the "management approach" versus the "industry approach" previously required. The management approach requires the Company to report certain financial information related to continuing operations that is provided to the Company's chief operating decision-maker. The Company's chief operating decision-maker receives revenue and contribution margin (revenue less direct costs and excluding overhead) by source, and all other statement of operations data and balance sheet data on a consolidated basis. The Company's reportable segments consist of cattle sales and animal sciences products and services. While the Company operates entirely in the animal science marketplace, the contribution margin associated with cattle sales and the related prospects for this portion of the Company's business differ from the rest of the Company's product offerings. The following summarizes revenue and contribution margin information related to the Company's two operating segments:
Nine months Nine months Year ended ended ended December 31, September 30, September 30, 1998 1998 1999 ------------ ------------- ------------- (Unaudited) (Unaudited) Revenue: Cattle............................... $ -- $ -- $ 17,022,862 Animal sciences...................... 1,792,471 1,106,452 1,315,783 ---------- ----------- ------------ Total................................ $1,792,471 $ 1,106,452 $ 18,338,645 ========== =========== ============ Direct costs: Cattle............................... $ -- $ -- $ 16,860,452 Animal sciences...................... 900,824 603,410 492,115 ---------- ----------- ------------ $ 900,824 $ 603,410 $ 17,352,567 ========== =========== ============ Contribution margin: Cattle............................... $ -- $ -- $ 162,410 Animal sciences...................... 891,647 503,042 823,668 ---------- ----------- ------------ Total................................ $ 891,647 $ 503,042 $ 986,078 ========== =========== ============
The Company's assets, and other statement of operations data are not allocated to a segment. (11) Commitments and Contingencies Voluntary Employee Savings 401(k) Plan The Company established a voluntary employee savings 401(k) plan in 1997 which is available to all full time employees 21 years or older. The plan provides for a matching by the Company of the employee's contribution to the plan for 50% of the first 6% of the employee's annual compensation. The Company's matching contributions were $6,300 in 1996, $38,195 in 1997 and $62,108 in 1998. Pages 17 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) Royalties In connection with the NutriCharge license, the Company is obligated to a royalty of 5% of gross revenues from the sale of NutriCharge products and infrared technology related to the Company's Canadian license agreement. The Company is also obligated to a royalty of 6% of net revenues from product or services related to technology patented by Iowa State University. (12) Subsequent Events On January 1, 1999, the Company signed a revolving promissory note with XL Vision for up to $3,000,000. The revolving promissory note bears interest at the prime rate plus 1% and is due in full when the Company completes an IPO or sells all of its assets or stock. The note is included in current liabilities in the accompanying September 30, 1999 consolidated balance sheet. Discontinued Operations In December 1998, the Company's Board of Directors decided to dispose of its transportation segment. The Company's AMIRIS thermal imaging system, which was the sole product sold in the transportation segment, was sold on January 15, 1999 to Sperry Marine, Inc. for approximately $1,900,000. The Company received $200,000 of cash at closing and will receive the balance upon receipt of the inventory by Sperry Marine, Inc. The Company is entitled to a royalty of 8% of net AMIRIS system sales, up to a maximum royalty of $4.3 million over a four year period or up to a maximum royalty of $5.0 million, if $4.3 million is not received within four years. Net assets of the discontinued transportation segment consist of:
December 31, ---------------------- 1997 1998 ---------- ---------- Accounts receivable.............................. $ 145,500 $ 381,435 Inventory, net................................... 1,076,043 2,020,625 Property and equipment, net...................... 22,650 134,098 Intangibles, net................................. 94,444 61,108 Accounts payable................................. (271,833) (80,510) Accrued liabilities including provision for operating loss during phase out period of $72,667 in 1998................................. -- (231,415) ---------- ---------- Net assets................................... $1,066,804 $2,285,341 ========== ==========
Note Payable to XL Vision, Inc. License In February 1999, the Company signed a license agreement with XL Vision, granting XL Vision a license to use Company software for the limited purpose of evaluating whether the software could provide the basis for a new company that would operate in the agricultural industry. The license agreement terminates on November 30, 1999. If XL Vision forms a new company, the Company will negotiate a long-term license Pages 18 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) agreement. In addition, XL Vision is obligated to give the Company at least a 25% interest in the new company. The Company is obligated to transfer all amounts up to 25% of the new company to Lost Pelican, L.L.C. Acquisitions (Unaudited after April 20, 1999) On February 24, 1999, the Company acquired substantially all of the tangible and intangible assets of CIN, LLC d/b/a/ Cattlemen's Information Network ("CIN"). Immediately after the closing, CIN changed its name to Lost Pelican, L.L.C. The purchase price for the assets consisted of 600,000 shares of the Company's Class A common stock valued at $720,000, the assumption of up to $600,000 of liabilities, a cash payment due in October 1999 of $383,000, and an agreement to pay the first $350,000 from Internet sales of third party products over the Company's Web site. In addition, the Company agreed to assume $177,000 in liabilities related to employee bonuses and an outstanding grant obligation. CIN is in the business of selling access to its cattle feedlot performance measurements database. On March 29, 1999, the Company acquired 100% of the stock of Cyberstockyard, Inc. The purchase price consisted of 200,000 shares of the Company's Class A common stock valued at $450,000. Cyberstockyard, Inc. is in the business of selling cattle through its proprietary auction software over the Internet. On May 19, 1999, the Company acquired substantially all of the tangible and intangible assets of PCC, LLC d/b/a Professional Cattle Consultants, L.L.C. ("PCC") for a cash payment of $1,800,000 and an assumption of approximately $30,000 of liabilities. PCC is in the business of providing comparative analysis and market information for the feedlot industry. The aggregate purchase price of the above acquisitions was approximately $4,606,600, which included related acquisition costs of approximately $97,000, and was allocated as follows: Goodwill..................................................... $4,015,300 Non-compete agreements....................................... 300,000 Equipment.................................................... 358,000 Current assets............................................... 28,300 Current liabilities.......................................... (95,000) ---------- $4,606,600 ==========
Goodwill is amortized on a straight-line basis over a period of three to five years. Unaudited pro forma information for the Company as if the acquisitions above had been consummated as of January 1, 1998 and 1999 follows:
Nine months ended September 30, ------------------------ 1998 1999 ----------- ----------- Revenue......................................... $ 1,687,077 18,560,565 =========== =========== Net profit (loss)............................... $(4,987,862) (11,097,329) =========== ===========
Pages 19 of 28 Pages EMERGE INTERACTIVE, INC. Notes to Consolidated Financial Statements--(Continued) Sale of Series C Preferred Stock (Unaudited) On May 4, 1999, the Company issued 1,100,000 shares of Series C preferred stock for $5.00 per share. Stock Plan (Unaudited) On May 10, 1999, the Company's stockholders approved the 1999 Equity Compensation Plan (the "1999 Plan"). Under the 1999 Plan, an additional 1,000,000 shares of authorized, unissued shares of common stock of the Company are reserved for issuance to employees, advisors and for non-employee members of the Board of Directors. Option terms under the 1999 Plan may not exceed 10 years. Note Payable to Safeguard Delaware, Inc. - a Related Party (Unaudited) On July 21, 1999, the Company obtained a $3,000,000 revolving note payable from Safeguard Delaware, Inc. ("Safeguard"). The revolving note payable, as amended in October 1999, bears interest payable monthly at the prime rate plus 1% and is due November 30, 1999. In August, September and October 1999, the Company signed demand notes with interest payable monthly at the prime rate plus 1% with Safeguard for $2,500,000, $2,000,000 and $2,500,000, respectively. These notes were cancelled in October 1999, in exchange for a $7,050,000 note due in full on October 25, 2000, the repayment of a promissory note issued concurrently with the sale of Series D preferred stock or an IPO, whichever is earlier. Investment in Turnkey Computer Systems, Inc. (Unaudited) On August 16, 1999, the Company acquired 19% of the common stock of Turnkey Computer Systems, Inc. ("Turnkey") for 50,000 shares of the Company's Class A common stock valued at $400,000 and $1,400,000 in cash payable upon the earlier of the completion of the Company's IPO or $500,000 at December 31, 1999, $500,000 at December 31, 2000 and $400,000 at December 31, 2001. In addition, the common stock purchase agreement with Turnkey contains a put right which allows Turnkey to have a one time right to put to the Company its 50,000 common shares with a fixed purchase price of $500,000. The put right can only be exercised upon a change in control or after December 31, 2001, if the Company has not completed an IPO. The fair value of the put was estimated to be $8,300 and was credited to additional paid-in capital. Sale of Series D Preferred Stock (Unaudited) On October 26, 1999, the Company agreed to issue 4,555,556 shares of Series D preferred stock and a warrant to acquire 911,000 shares of Class B common stock for $38,815,000. Series D preferred shares convert into Class B common stock at the offering price. The warrants are exercisable at the Company's IPO price and are valued at $3,325,555. The Company will receive $18,000,000 in cash in November 1999 and a non-interest bearing, promissory note in the amount of $23,000,000 due on October 26, 2000. Imputed interest at 9.5% amounts to $2,185,000 over the life of the note. Registration Statement (Unaudited) On October 27, 1999, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission to register shares of its common stock. Pages 20 of 28 Pages (b) Pro Forma Financial Information INTERNET CAPITAL GROUP, INC. Pro Forma Condensed Combined Financial Statements Basis of Presentation (Unaudited) During 1998 and 1999, the Company acquired significant minority ownership interests in 27 Partner Companies accounted for under the equity method of accounting. In October 1999, the Company acquired a majority ownership interest in Purchasing Solutions, Inc. In October 1999, Purchasing Solutions, Inc. acquired all of the assets of Purchasing Group, Inc. and Integrated Sourcing, LLC, two related businesses. In November 1999, the Company acquired a significant minority ownership interest in eMerge Interactive, Inc. for total purchase consideration of $48.2 million. All acquisitions have been accounted for using the purchase method of accounting. In addition, the Company deconsolidated VerticalNet, Inc. subsequent to December 31, 1998 and Breakaway Solutions, Inc. subsequent to September 30, 1999 due to the decrease in the Company's voting ownership percentage in each company from above to below 50%. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 1998 gives effect to the acquisition of a significant minority ownership interest in eMerge Interactive, Inc., the acquisitions of Purchasing Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC, the deconsolidation of VerticalNet, Inc, the 1998 and 1999 acquisitions of significant minority ownership interests in 27 equity method Partner Companies, and the acquisition of the Company's ownership interest in Breakaway Solutions, Inc. as a company accounted for under the equity method as if the transactions had occurred on January 1, 1998. As Breakaway Solutions, Inc. was initially acquired in the first quarter of 1999, no pro forma adjustments to the 1998 financial statements are necessary to reflect its deconsolidation subsequent to September 30, 1999. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 1999 gives effect to the acquisition of a significant minority ownership interest in eMerge Interactive, Inc., the acquisitions of Purchasing Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC, the 1999 acquisitions of significant minority ownership interests in 19 equity method Partner Companies, and the acquisition of the Company's ownership interest in Breakaway Solutions, Inc. as a company accounted for under the equity method as if the transactions had occurred on January 1, 1998. As VerticalNet, Inc. was deconsolidated in the first quarter of 1999, no pro forma adjustments to the consolidated statement of operations for the nine months ended September 30, 1999 are necessary to reflect its deconsolidation. The unaudited pro forma condensed combined balance sheet as of September 30, 1999 gives effect to the acquisition of a significant minority ownership interest in eMerge Interactive, Inc., the acquisitions of Purchasing Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC, the deconsolidation of Breakaway Solutions, Inc., and the acquisitions during the period from October 1, 1999 through November 18, 1999 of significant minority ownership interests in five new and six existing equity method Partner Companies as if the transactions had occurred on September 30, 1999. The unaudited pro forma condensed combined financial statements have been prepared by the management of the Company and should be read in conjunction with the Company's historical consolidated financial statements contained elsewhere herein, and the historical consolidated financial statements of eMerge Interactive, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC which are included elsewhere herein. Since the unaudited pro forma financial statements which follow are based upon the financial condition and operating results of eMerge Interactive, Inc., Purchasing Solutions, Inc., Purchasing Group, Inc., Integrated Sourcing, LLC and the equity method Partner Companies acquired during periods when they were not under the control or management of the Company, the information presented may not be indicative of the results which would have actually been obtained had the acquisitions been completed on the pro forma dates reflected nor are they indicative of future financial or operating results. The unaudited pro forma financial information does not give effect to any synergies that may occur due to the integration of the Company with Purchasing Solutions, Inc., Purchasing Group, Inc., Integrated Sourcing, LLC, eMerge Interactive, Inc. and the other equity method Partner Companies. Pages 21 of 28 Pages INTERNET CAPITAL GROUP, INC. Unaudited Pro Forma Condensed Combined Balance Sheet September 30, 1999
Internet Capital Breakaway Pro Forma Sub- e-Merge Pro Forma Group, Inc. Deconsolidation Adjustments Total Acquisition Combined ------------ --------------- ------------ ------------ ------------ ------------ Assets Current Assets Cash and cash equivalents........... $186,137,151 $ (7,747,165) $(65,612,408)b $106,523,328 $(27,000,000)a $ 79,523,328 (7,699,800)c 1,445,550 c Short-term investments........... 22,845,079 -- -- 22,845,079 -- 22,845,079 Accounts receivable, less allowance for doubtful accounts..... 8,531,879 (8,531,879) 2,136,623 c 2,136,623 -- 2,136,623 Prepaid expenses and other current assets.. 7,024,086 (5,077,192) 4,000,000 c 5,946,894 -- 5,946,894 ------------ ------------ ------------ ------------ ------------ ------------ Total current assets... 224,538,195 (21,356,236) (65,730,035) 137,451,924 (27,000,000) 110,451,924 Fixed assets, net...... 6,169,802 (4,465,033) 55,626 c 1,760,395 -- 1,760,395 Ownership interests in and advances to Partner Companies..... 168,690,379 -- 65,612,408 b 245,691,816 48,160,000 a 293,851,816 11,389,029 d Available-for-sale securities............ 19,233,805 -- -- 19,233,805 -- 19,233,805 Intangible assets, net................... 22,854,350 (13,731,600) 15,041,425 c 17,302,757 -- 17,302,757 (6,861,418)d Deferred taxes......... 18,845,639 -- -- 18,845,639 -- 18,845,639 Other.................. 9,895,199 (274,641) -- 9,620,558 -- 9,620,558 ------------ ------------ ------------ ------------ ------------ ------------ Total Assets............ $470,227,369 $(39,827,510) $ 19,507,035 $449,906,894 $ 21,160,000 $471,066,894 ============ ============ ============ ============ ============ ============ Liabilities and Shareholders' Equity Current Liabilities Current maturities of long-term debt........ $ 735,885 $ (735,885) $ 4,141,625 c $ 4,141,625 -- $ 4,141,625 Accounts payable....... 4,478,916 (3,720,060) 3,837,799 c 4,596,655 -- 4,596,655 Accrued expenses....... 10,336,185 (6,113,895) -- 4,222,290 -- 4,222,290 Notes payable to Partner Company....... -- -- -- -- $ 21,160,000 a 21,160,000 Deferred revenue....... 117,523 (117,523) -- -- -- -- Convertible note....... 8,499,942 -- -- 8,499,942 -- 8,499,942 ------------ ------------ ------------ ------------ ------------ ------------ Total current liabilities........... 24,168,451 (10,687,363) 7,979,424 21,460,512 21,160,000 42,620,512 -- Long-term debt......... 1,633,360 (1,633,360) 3,000,000 c 3,000,000 -- 3,000,000 Minority interest...... 25,908,961 -- 4,000,000 c 6,929,785 -- 6,929,785 (22,979,176)d Shareholders' Equity Total shareholders' equity................ 418,516,597 (27,506,787) 27,506,787 d 418,516,597 -- 418,516,597 ------------ ------------ ------------ ------------ ------------ ------------ Total Liabilities and Shareholders' Equity... $470,227,369 $(39,827,510) $ 19,507,035 $449,906,894 $ 21,160,000 $471,066,894 ============ ============ ============ ============ ============ ============
See notes to unaudited pro forma condensed combined financial statements Pages 22 of 28 Pages INTERNET CAPITAL GROUP, INC. Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 1998
Internet Capital VerticalNet Pro Forma eMerge Pro Forma Group, Inc. Deconsolidation Adjustments Sub-Total Acquisition Combined ------------ --------------- ------------ ------------ ------------ ------------ Revenue $ 3,134,769 $ (3,134,769) 6,455,747 f $ 6,455,747 -- $ 6,455,747 ------------ ------------ ------------ ------------ ------------ ------------ Operating Expenses Cost of revenue........ 4,642,528 (4,642,528) -- -- -- -- Selling, general and administrative........ 15,513,831 (12,001,245) 7,853,901 f 11,366,487 -- 11,366,487 ------------ ------------ ------------ ------------ ------------ ------------ Total operating expenses.............. 20,156,359 (16,643,773) 7,853,901 11,366,487 -- 11,366,487 ------------ ------------ ------------ ------------ ------------ ------------ (17,021,590) 13,509,004 (1,398,154) (4,910,740) -- (4,910,740) Other income, net....... 30,483,177 -- -- 30,483,177 -- 30,483,177 Interest income......... 1,305,787 (212,130) 16,506 f 1,110,163 -- 1,110,163 Interest expense........ (381,199) 297,401 -- (83,798) (1,840,000)e (1,923,798) ------------ ------------ ------------ ------------ ------------ ------------ Income (Loss) Before Income Taxes, Minority Interest and Equity Income (Loss).......... 14,386,175 13,594,275 (1,381,648) 26,598,802 (1,840,000) 24,758,802 Income taxes............ -- -- -- h -- -- h -- Minority interest....... 5,381,640 -- (4,828,981)f,j 552,659 -- 552,659 Equity income (loss).... (5,868,887) -- (58,817,710)g (64,686,597) (14,309,948)e (78,996,545) ------------ ------------ ------------ ------------ ------------ ------------ Net Income (Loss)....... $ 13,898,928 $ 13,594,275 $(65,028,339) $(37,535,136) $(16,149,948) $(53,685,084) ============ ============ ============ ============ ============ ============ Net Income (Loss) Per Share Basic.................. $ 0.12 $ (0.48) Diluted................ $ 0.12 $ (0.48) Weighted Average Shares Outstanding Basic.................. 112,204,578 112,204,578 Diluted................ 112,298,578 112,204,578
Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 1999
Internet Capital Breakaway Pro Forma eMerge Pro Forma Group, Inc. Deconsolidation Adjustments Sub-Total Acquisition Combined ------------ --------------- ------------ ------------ ------------ ------------ Revenue $ 14,783,096 $(14,743,431) 7,146,689 f 7,186,354 -- $ 7,186,354 ------------ ------------ ------------ ------------ ------------ ------------ Operating Expenses Cost of revenue........ 7,424,594 (7,038,070) -- 386,524 -- 386,524 Selling, general and administrative........ 31,002,518 (14,722,352) 5,002,096 f,j 21,282,262 -- 21,282,262 ------------ ------------ ------------ ------------ ------------ ------------ Total operating expenses.............. 38,427,112 (21,760,422) 5,002,096 21,668,786 -- 21,668,786 ------------ ------------ ------------ ------------ ------------ ------------ (23,644,016) 7,016,991 2,144,593 (14,482,432) -- (14,482,432) Other income, net....... 47,001,191 (27,607) 15,348 f 46,988,932 -- 46,988,932 Interest income......... 4,176,770 (59,510) -- 4,117,260 -- 4,117,260 Interest expense........ (1,770,324) 53,969 -- (1,716,355) -- (1,716,355) ------------ ------------ ------------ ------------ ------------ ------------ Income (Loss) Before Income Taxes, Minority Interest and Equity Income (Loss).......... 25,763,621 6,983,843 2,159,941 34,907,405 -- 34,907,405 Income taxes............ 12,840,423 -- 10,963,208 f,i 23,803,631 4,269,730 e 28,073,361 Minority interest....... 4,133,057 -- (3,412,725)f,j 720,332 -- 720,332 Equity income (loss).... (49,141,961) -- (33,483,392)g,j (82,625,353) (12,199,229)e (94,824,582) ------------ ------------ ------------ ------------ ------------ ------------ Net Income (Loss)....... $ (6,404,860) $ 6,983,843 $(23,772,968) $(23,193,985) $ (7,929,499) $(31,123,484) ============ ============ ============ ============ ============ ============ Net Income Per Share Basic.................. $ (0.03) $ (0.17) Diluted................ $ (0.03) $ (0.17) Weighted Average Shares Outstanding Basic.................. 185,103,758 185,103,758 Diluted................ 185,103,758 185,103,758
See notes to unaudited pro forma condensed combined financial statements. Pages 23 of 28 Pages INTERNET CAPITAL GROUP, INC. Notes to Pro Forma Condensed Combined Financial Statements (Unaudited) 1 . Basis of presentation The unaudited pro forma condensed combined balance sheet as of September 30, 1999 gives effect to the acquisitions of Purchasing Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC, the acquisition of a significant minority ownership interest in eMerge Interactive, Inc. in November 1999, the deconsolidation of Breakaway Solutions, Inc., and the acquisition of significant minority ownership interests in five new and six existing equity method Partner Companies as if the transactions had occurred on September 30, 1999. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 1998 gives effect to the acquisitions of Purchasing Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC, the acquisition of a significant minority ownership interest in eMerge Interactive, Inc., the deconsolidation of VerticalNet, Inc., the 1998 and 1999 acquisitions of significant minority ownership interests in 27 equity method Partner Companies, and the acquisition of the Company's ownership interest in Breakaway Solutions, Inc. as a company accounted for under the equity method as if the transactions had occurred on January 1, 1998. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 1999 gives effect to the acquisitions of Purchasing Solutions, Inc., Purchasing Group, Inc. and Integrated Sourcing, LLC, the acquisition of a significant minority ownership interest in eMerge Interactive, Inc., the deconsolidation of Breakaway Solutions, Inc., the 1999 acquisitions of significant minority ownership interests in 19 equity method Partner Companies and the acquisition of the Company's ownership interest in Breakaway Solutions, Inc. as a company accounted for under the equity method, as if the transactions had occurred on January 1, 1998. The effects of the acquisitions have been presented using the purchase method of accounting and accordingly, the purchase price was allocated to the assets and liabilities assumed based upon management's best preliminary estimate of fair value with any excess purchase price being allocated to goodwill or other indentifiable intangibles. The preliminary allocation of the purchase price will be subject to further adjustments, which are not anticipated to be material, as the Company and Purchasing Solutions, Inc. finalize their allocations of purchase price in accordance with generally accepted accounting principles. 2. Pro Forma Balance Sheet Adjustments The pro forma balance sheet adjustments as of September 30, 1999 reflect: (a) The acquisition in November 1999 of a significant minority ownership interest in eMerge Interactive, Inc. for $48.2 million consisting of $27.0 million in cash and a $21.2 million note payable due in one year, net of imputed interest discount of $1.8 million. (b) The acquisition during the period from October 1, 1999 through November 18, 1999 of new and additional significant minority ownership interests in equity method Partner Companies for aggregate cash consideration of $65.6 million. (c) The acquisition of Purchasing Group, Inc. and Integrated Sourcing, LLC for $7.7 million in cash, $6.0 million in a note payable, $1.1 million in other debt, $0.2 million of assumed net liabilities and $0.2 million in common stock of Purchasing Solutions, Inc. The total purchase price of approximately $15.2 million was allocated as follows: cash--$1.4 million, net receivables--$2.1 million, fixed and other assets--$0.1 million, accounts payables and accruals--$3.8 million and goodwill and intangibles--$15.0 million. Additionally, approximately $4.0 million is due from another investor and is reflected as both an other asset and minority interest. (d) The elimination of $27.5 million for the equity accounts of Breakaway Solutions, Inc. and the reclassification of the Company's carrying value of its ownership interest of $11.4 million in Breakaway Solutions, Inc. to the equity method of accounting from consolidation. Pages 24 of 28 Pages INTERNET CAPITAL GROUP, INC. Notes to Pro Forma Condensed Combined Financial Statements--(Continued) (Unaudited) 3. Pro Forma Statements of Operations Adjustments The pro forma statements of operations adjustments for the year ended December 31, 1998 and the nine months ended September 30, 1999 consist of: (e) Equity income (loss) has been adjusted to reflect the Company's acquisition of a significant minority ownership interest in eMerge Interactive, Inc. and the related interest in the income (loss) and amortization of the difference in the Company's carrying value and ownership interest in the underlying net equity of eMerge Interactive, Inc. over an estimated useful life of three years. For the year ended December 31, 1998 and the nine months ended September 30, 1999, equity income (loss) of $14.3 million and $12.2 million includes $2.4 million and $3.3 million, respectively, of equity income (loss), and $11.9 million and $8.9 million, respectively, in amortization of the difference between cost and equity in net assets. For the nine months ended September 30, 1999, income tax benefit has been adjusted $4.3 million to reflect the tax effect of the eMerge Interactive, Inc. pro forma adjustments. Additionally, $1.8 million of interest expense is reflected during the year ended December 31, 1998 relating to the imputed interest discount on the $23.0 million non-interest bearing note. No interest expense is reflected in 1999 as the note is payable in one year (assumed from January 1, 1998). (f) Reflects additional revenue of $6.5 million and $7.1 million, general and administrative expenses of $7.9 million and $7.3 million (net of excess executive compensation of approximately $3.0 million and $3.5 million for the year ended December 31, 1998 and the nine months ended September 30, 1999, respectively), other income of $16,506 and $15,348, income tax of $0 and $(34,998), and minority interest of $(552,659) and $(25,998) related to the acquisitions of Purchasing Group, Inc. and Integrated Sourcing, LLC. Included in general and administrative expenses is approximately $5.0 million and $3.8 million of goodwill amortization during the year ended December 31, 1998 and the nine months ended September 30, 1999, respectively, relating to these acquisitions. (g) Equity income (loss) has been adjusted by $58.8 million and $31.2 million to reflect the Company's ownership interests in the income (loss) of the equity method Partner Companies and the amortization of the difference in the Company's carrying value in the Partner Companies and the Company's ownership interest in the underlying net equity of the Partner Companies over an estimated useful life of three years. For the year ended December 31, 1998 and the nine months ended September 30, 1999, equity income (loss) includes $23.8 million and $12.1 million, respectively, of equity income (loss) and $35.0 million and $19.1 million, respectively, in amortization of the difference between cost and equity in net assets. (h) No income tax provision is required in 1998 due to the Company's tax status as an LLC. (i) Income tax benefit has been adjusted $10.9 million for the nine months ended September 30, 1999 to reflect the tax effect of the pro forma adjustments. (j) Reflects elimination of $5.4 million and $3.4 million for the year ended December 31, 1998 and the nine months ended September 30, 1999, respectively, related to VerticalNet, Inc. and Breakaway Solutions, Inc. upon their deconsolidation, and the reclass of $2.3 million of amortization of goodwill related to the Company's acquisition of Breakaway Solutions, Inc. from selling, general and administrative expense to equity income (loss) upon its deconsolidation. Pages 25 of 28 Pages (c) Exhibits 2.1 - Securities Purchase Agreement dated as of October 27, 1999 among eMerge Interactive, Inc., Internet Capital Group, Inc. and J Technologies, LLC. This exhibit contains a list of schedules to the exhibit, all of which have been omitted. Upon request of the Securities and Exchange Commission, the Company will furnish a copy to it supplementally. 23.1 - Consent of Independent Public Accountants Pages 26 of 28 Pages SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNET CAPITAL GROUP, INC. Dated: November 22, 1999 By:/s/ David D. Gathman --------------------------- David D. Gathman Chief Financial Officer Pages 27 of 28 Pages EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 2.1 Securities Purchase Agreement dated as of October 27, 1999 among eMerge Interactive, Inc., Internet Capital Group, Inc. and J Technologies, LLC 23.1 Consent of Independent Public Accountants Pages 28 of 28 Pages EX-2.1 2 SECURITIES PURCHASE AGREEMENT DATED 10/27/99 Exhibit 2.1 eMerge Interactive, Inc. Securities Purchase Agreement October 27, 1999 Table of Contents -----------------
Page ---- SECTION 1. Purchase and Sale of Securities.............................. 1 1.1 Sale and Issuance of Securities.............................. 1 1.2 Closing...................................................... 2 SECTION 2. Representations and Warranties of the Company to Investor.... 2 2.1 Organization and Standing; Certificate and Bylaws............ 3 2.2 Power and Authority.......................................... 3 2.3 Subsidiaries................................................. 3 2.4 Capitalization............................................... 3 2.5 Authorization; Enforceability................................ 4 2.6 Valid Issuance of Securities................................. 4 2.7 Offering..................................................... 5 2.8 Title to Properties; Liens and Encumbrances.................. 5 2.9 Intellectual Property........................................ 5 2.10 Material Contracts and Other Commitments..................... 6 2.11 Litigation................................................... 6 2.12 Taxes........................................................ 7 2.13 Insurance.................................................... 7 2.14 Employee Benefit Plans....................................... 7 2.15 Proprietary Information Agreements........................... 7 2.16 Registration Rights and Voting............................... 8 2.17 Consents..................................................... 8 2.18 Environmental and Safety Laws................................ 8 2.19 Related Party Transactions................................... 8 2.20 Broker's and Finders' Fees................................... 9 2.21 Compliance with Other Instruments............................ 9 2.22 Financial Statements......................................... 9 2.23 Permits...................................................... 9 2.24 Year 2000 Compliance......................................... 9 2.25 Employees.................................................... 10 2.26 Changes...................................................... 10 2.27 Undisclosed Liabilities...................................... 11 2.28 Certain Indebtedness......................................... 11 2.29 Corporate Documents.......................................... 12 2.30 Disclosure................................................... 12 SECTION 3. Representations and Warranties of JTL to Investor............ 12 3.1 Power and Authority.......................................... 12 3.2 Capitalization............................................... 12 3.3 Authorization; Enforceability................................ 12
-i- 3.4 Accuracy of Representations and Warranties................. 12 3.5 Broker's and Finders' Fees................................. 13 3.6 Organization and Standing.................................. 13 SECTION 4. Representations and Warranties of Investor................. 13 4.1 Investment Experience...................................... 13 4.2 Investment................................................. 13 4.3 Rule 144................................................... 13 4.4 Access to Information...................................... 13 4.5 Authorization; Enforceability.............................. 13 4.6 Broker's and Finders' Fees................................. 14 4.7 Non-Limitation............................................. 14 4.8 Legends.................................................... 14 4.9 Residence.................................................. 14 SECTION 5. Conditions of Investor's Obligations at Closing............ 14 5.1 Opinion of the Company's Counsel........................... 14 5.2 Registration Rights Agreement.............................. 14 5.3 Stockholder Agreement...................................... 15 5.4 HSR Approvals.............................................. 15 5.5 Opinion of JTL's Counsel................................... 15 SECTION 6. Conditions of Sellers' Obligations at Closing.............. 15 6.1 Note....................................................... 15 6.2 Pledge Agreement........................................... 15 6.3 HSR Approvals.............................................. 15 6.4 Registration Rights Agreement.............................. 15 6.5 Stockholder Agreement...................................... 15 6.6 Opinion of Investor's Counsel ............................. 15 SECTION 7. Certain Covenants.......................................... 16 7.1 Conduct Pending Closing.................................... 16 7.2 Approvals.................................................. 16 7.3 Registration of Securities................................. 16 7.4 Indemnification By Sellers................................. 17 7.5 Indemnification by Investor................................ 17 7.6 Securities Laws Compliance................................. 17 7.7 Proprietary Information Agreements......................... 17 7.8 Reservation of Shares...................................... 17 7.9 Books and Records.......................................... 18 7.10 Use of Proceeds............................................ 18 7.11 Investor Rights............................................ 18 7.12 Reports.................................................... 18 7.13 Certificate of the Company................................. 19 7.14 Certificate of JTL......................................... 19 7.15 Certificate of Investor.................................... 19
-ii- SECTION 8. Miscellaneous.............................................. 19 8.1 Termination................................................ 19 8.2 Entire Agreement; Successors and Assigns................... 20 8.3 Governing Law.............................................. 20 8.4 Counterparts............................................... 20 8.5 Headings................................................... 20 8.6 Notices.................................................... 20 8.7 Survival of Representations and Warranties................. 20 8.8 Amendment of Agreement..................................... 20 8.9 Expenses................................................... 20 8.10 Further Assurances......................................... 21
-iii- EXHIBITS -------- Exhibit A - Certificate of Incorporation Exhibit B - Warrant Exhibit C - Note Exhibit D - Registration Statement Exhibit E - Schedule of Exceptions Exhibit F - Bylaws Exhibit G - Registration Rights Agreement Exhibit H - Stockholder Agreement Exhibit I - Pledge Agreement Exhibit J - Post-Closing Capitalization Table Exhibit K - Opinion Letter of Counsel to the Company Exhibit L - Opinion Letter of Counsel to JTL Exhibit M - Opinion Letter of Counsel to Investor -iv- SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as of October 27, 1999, by and among eMerge Interactive, Inc., a Delaware corporation (the "Company"), J Technologies, LLC, a South Dakota limited liability company ("JTL"), and Internet Capital Group, Inc., a Delaware corporation (the "Investor"). Each of JTL and the Company is referred to herein as a "Seller" and, collectively, as "Sellers." Background ---------- A. The Board of Directors and stockholders of the Company have adopted and filed with the Secretary of State of the State of Delaware the Second Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit ------- A, which, among other matters, establishes the rights, preferences and - - privileges of the Company's Series D Preferred Stock, par value $0.01 (the "Series D Preferred"), the Company's Class A Common Stock, par value $0.01 (the "Class A Common Stock") and the Company's Class B Common Stock, par value $0.01 (the "Class B Common Stock"). B. The Company desires to sell a common stock purchase warrant and shares of Series D Preferred to Investor, and Investor desires to purchase a common stock purchase warrant and shares of Series D Preferred from the Company, on the terms and subject to the conditions set forth in this Agreement. C. JTL desires to sell shares of Class A Common Stock to Investor and Investor desires to purchase shares of Class A Common Stock from JTL, on the terms and subject to the conditions set forth in this Agreement. Terms ----- In consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties hereto agree as follows: SECTION 1. Purchase and Sale of Securities. ------------------------------- 1.1 Sale and Issuance of Securities. At the Closing the Company shall ------------------------------- issue to Investor and Investor shall purchase from the Company an aggregate of 4,555,556 shares of Series D Preferred (the "Company Shares") and a warrant in the form attached hereto as Exhibit B (the "Warrant") to purchase 911,111 shares --------- of such class of the Company's Common Stock, par value $0.01 (the "Common Stock") as is specified in the Warrant. The aggregate purchase price for the Company Shares and the Warrant shall be forty-one million dollars ($41,000,000) (the "Company Purchase Price"). At the Closing JTL shall sell to Investor and Investor shall purchase from JTL an aggregate of 1,000,000 shares of Class A Common Stock (the "JTL Shares" and together with the Company Shares, the "Shares") free and clear of all liens and encumbrances for an aggregate purchase price of nine million dollars ($9,000,000) (the "JTL Purchase Price" and, together with the Company Purchase Price, the "Purchase Price"). 1.2 Closing. ------- (a) The closing under this Agreement (the "Closing") will take place at 10:00 a.m., local time, on the second business day after all of the conditions to closing identified in Sections 5 and 6 have been satisfied or waived, at the offices of Dechert Price & Rhoads, 1717 Arch Street, 4000 Bell Atlantic Tower, Philadelphia, PA 19103. (b) At the Closing, each Seller shall deliver to Investor a certificate evidencing the Shares that Investor is purchasing from such Seller, accompanied by stock powers duly executed in blank or duly executed instruments of transfer, if appropriate, and any other documents that are necessary to transfer to Investor good title to the Shares, free and clear of all liens and encumbrances. At the Closing the Company shall issue and deliver the Warrant to Investor. (c) At the Closing, Investor shall deliver the Purchase Price as follows: (i) delivery of nine million dollars ($9,000,000) to JTL by wire transfer of immediately available funds to an account designated not less than two business days before the Closing in writing by JTL; (ii) delivery of eighteen million dollars ($18,000,000) to the Company by wire transfer of immediately available funds to an account designated not less than two days before the Closing in writing by the Company (the "Cash Payment"), the Cash Payment and the Note delivered in accordance with clause (iii) below shall be allocated equally among all the Company Shares and the Warrant as payment of the Company Purchase Price; and (iii) delivery of a non-negotiable promissory note of Investor in favor of the Company in the aggregate principal amount of twenty-three million dollars ($23,000,000) in the form attached hereto as Exhibit C (the --------- "Note"). (d) At the Closing, the closing certificates and other documents required to be delivered pursuant to this Agreement shall be exchanged. SECTION 2. Representations and Warranties of the Company to Investor. --------------------------------------------------------- Except (i) as described in the draft Company registration statement on Form S-1 dated October 27, 1999 attached hereto as Exhibit D (the "Registration --------- Statement"), or (ii) as set forth on 2 the Schedule of Exceptions attached hereto as Exhibit E specifically identifying --------- the subparagraph of this Section 2 to which each such exception relates, the Company hereby represents and warrants to Investor as of the date hereof as follows: 2.1 Organization and Standing; Certificate and Bylaws. The Company is a ------------------------------------------------- corporation duly organized, validly existing under, and by virtue of, the laws of the State of Delaware, and is in good standing under such laws. The Company has all requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as currently conducted and as proposed to be conducted. The Company is duly qualified and authorized to transact business and is in good standing as a foreign corporation in each jurisdiction in which the failure so to qualify would have a material adverse effect on the Company. The Company has furnished Investor with copies of its Certificate and Bylaws, as amended (attached hereto as Exhibit A and Exhibit F, --------- --------- respectively). Such copies are true, correct and complete and contain all amendments as of the date hereof. 2.2 Power and Authority. The Company has all requisite legal and ------------------- corporate power and authority to execute and deliver this Agreement, the Registration Rights Agreement attached hereto as Exhibit G (the "Registration --------- Rights Agreement"), the Stockholder Agreement attached hereto as Exhibit H (the --------- "Stockholder Agreement"), the Warrant, the Note and the Pledge Agreement attached hereto as Exhibit I (the "Pledge Agreement and, collectively with the --------- Stockholder Agreement, the Registration Rights Agreement, the Warrant and the Note, the "Related Agreements"), to sell and issue the Company Shares hereunder, to issue the Class A Common Stock and Class B Common Stock issuable upon exercise of the Warrant (the "Underlying Warrant Stock"), to issue the Class B Common Stock issuable upon conversion of the Company Shares (the "Underlying Common Stock"), to issue the Class A Common Stock issuable upon conversion of the Class B Common Stock underlying the Warrant and the Company Shares (the "Conversion Stock") and to carry out and perform its obligations under the terms of this Agreement and the Related Agreements and the transactions contemplated hereby and thereby. 2.3 Subsidiaries. The Company has no Subsidiaries or affiliated companies ------------ and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. As used herein, the term "Subsidiary" shall mean any corporation or other entity more than 50% of the stock or other ownership interest of which (measured by virtue of voting rights) in the aggregate is owned by the Company. 2.4 Capitalization. The authorized capital stock of the Company consists -------------- of 100,000,000 shares of Common Stock, 92,711,110 of which have been designated as shares of Class A Common Stock, of which 5,616,155 shares are issued and outstanding, and 7,288,890 of which have been designated as shares of Class B Common Stock, none of which are issued and outstanding, and 15,000,000 shares of Preferred Stock, $0.01 par value, 6,500,000, of which have been designated Series A Preferred, and 6,443,606 of which are issued and outstanding, 2,400,000 of which have been designated Series B Preferred, and 2,400,000 of which are issued and outstanding, 1,300,000 of which have been designated Series C Preferred, and 1,100,000 of which are issued and outstanding and 4,555,556 of which have been designated Series D Preferred, and none of which are issued and 3 outstanding. All such issued and outstanding shares, including the JTL Shares, have been duly authorized and validly issued, are fully paid and nonassessable and have been issued in compliance with federal and state securities law. The Company has reserved 6,500,000 shares of Class A Common Stock for issuance upon conversion of the Series A Preferred, 2,400,000 shares of Class A Common Stock for issuance upon conversion of the Series B Preferred, 1,300,000 shares of Class A Common Stock for issuance upon conversion of the Series C Preferred, 4,555,556 shares of Class B Common Stock for issuance upon conversion of the Series D Preferred and 911,111 shares of Class A Common Stock and Class B Common Stock for issuance upon exercise of the Warrant. The Company has reserved 1,588,595 shares of its Common Stock for issuance pursuant to exercise of options granted under its 1996 Stock Option Plan (the "1996 Plan"), and 2,000,000 shares of its Class A Common Stock, 1,000,000 of which is subject to Stockholder approval, for issuance pursuant to exercise of options granted under its 1999 Stock Option Plan (the "1999 Plan" and, together with the 1996 Plan, the "Plans"), which are the only stock option, stock purchase or similar incentive or benefit plans currently in effect with respect to the Company. To date, the Company has granted options for an aggregate of 2,478,200 shares of its Class A Common Stock under the Plans, 466,030 of which have expired or been terminated and 113,780 of which have been exercised by the holders thereof to date. The Shares shall have the rights, preferences, privileges and restrictions set forth in the Certificate. Except as contemplated herein, there are no outstanding options, warrants, conversion rights, preemptive rights, rights of first refusal, or similar rights currently outstanding to purchase or otherwise acquire from the Company any securities of the Company, nor are there any agreements or understandings with respect thereto. Schedule 2.4(a) sets forth the holders of the Company's outstanding shares of capital stock and options or other rights to purchase stock of the Company and the number of outstanding shares of each class or series of capital stock, options or other rights to purchase stock of the Company held by each such holder. With the exception of the Stockholder Agreement, the Company is not a party or otherwise subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or understanding between any persons or entities, which affects or relates to the voting or giving of written consents either by a director of the Company or with respect to any capital stock of the Company. Immediately after the Closing, the fully-diluted capitalization of the Company will be as set forth in Exhibit J. --------- 2.5 Authorization; Enforceability. All corporate action on the part of ----------------------------- the Company, its officers, directors and stockholders necessary for the authorization, execution, delivery and performance of this Agreement and the Related Agreements by the Company, the authorization, sale, issuance (or reservation for issuance) and delivery of the Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock, and the Conversion Stock and the performance of all of the Company's obligations hereunder and under the Related Agreements has been taken or will be taken prior to Closing. This Agreement constitutes and as of the Closing the Related Agreements will constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms. 2.6 Valid Issuance of Securities. The Company Shares, when issued, sold ---------------------------- and delivered in compliance with the provisions of this Agreement, will be duly and validly issued, fully paid and nonassessable and issued in compliance with applicable federal and state securities laws. The 4 Warrant, when issued, sold and delivered in compliance with the provisions of this Agreement, will constitute a valid and legally binding obligation of the Company, enforceable in accordance with its terms. The Underlying Common Stock, the Underlying Warrant Stock and the Conversion Stock have been duly and validly reserved and, when issued in compliance with the provisions of the Certificate, will be duly and validly issued and will be fully paid and nonassessable and issued in compliance with applicable federal and state securities laws. The Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock and the Conversion Stock will be free and clear of any liens or encumbrances; provided, however, that the Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock and the Conversion Stock may be subject to restrictions on transfer under state and/or federal securities laws. Except as set forth in the Related Agreements, the Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock and the Conversion Stock are convertible are not subject to any preemptive rights, rights of first refusal or restrictions on transfer. 2.7 Offering. Subject in part to the accuracy of Investor's -------- representations in Section 4, the offer, sale and issuance of the Shares in conformity with the terms of this Agreement (and the issuance of the Warrant, the Underlying Warrant Stock, the Underlying Common Stock and the Conversion Stock) constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act"), and from all applicable state securities or Blue Sky laws. 2.8 Title to Properties; Liens and Encumbrances. The Company has good and ------------------------------------------- valid title to all of its properties and assets, and is in compliance with the lease of all properties leased by it, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than the lien of current taxes not yet due and payable. The Company is not in default under or in breach of any provision of its leases, and the Company holds valid leasehold interests in the properties which it leases. The Company's properties and assets are in good condition and repair. 2.9 Intellectual Property. The Company owns or possesses sufficient legal --------------------- rights to all patents, patent applications, trademarks, service marks, trade names, copyrights, trade secrets, licenses, know-how, concepts, computer programs, technical data, proprietary rights, proprietary processes and other information necessary for or used in its business as now conducted and as proposed to be conducted (each such item "Company Intellectual Property") without any conflict with or, to the Company's knowledge, infringement of the rights of others. The Company has not received any communications alleging, nor does the Company have reason to believe, that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, or other proprietary rights or processes of any other person or entity, and to the Company's knowledge, there is no reasonable basis therefor. To the Company's knowledge, none of its employees, agents, consultants or contractors is obligated under any contract (including licenses, covenants, or commitments of any nature) or other agreement, or subject to any judgment, decree, or order of any court or administrative agency, that would interfere with the use of such person's or entity's best efforts to promote the interests of the Company, or that would conflict with the Company's business as proposed to be conducted. To the Company's knowledge, there has been no violation or 5 infringement by a third party of any of the Company Intellectual Property. Neither the execution nor the delivery of this Agreement or the Related Agreements, nor the carrying on of the Company's business by the employees, agents, consultants or contractors of the Company, nor the conduct of the Company's business as currently proposed, will conflict with or result in a material breach of the terms, conditions, or provisions of, or constitute a default under, any contract, covenant, or instrument under which the Company or any of such employees, agents, consultants or contractors is now obligated. The Company has no plan to utilize, and does not believe it is or will be necessary to utilize, any inventions of any of its employees (or people it currently intends to hire) made prior to their employment or engagement by the Company. 2.10 Material Contracts and Other Commitments. ---------------------------------------- (a) Except for the Related Agreements, there are no material agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. (b) Except for agreements explicitly contemplated by this Agreement or the Related Agreements, there are no agreements, understandings, instruments, contracts or proposed transactions to which the Company or any of its Subsidiaries is a party or by which it is bound that involve (i) obligations (contingent or otherwise) of or payments to the Company or any of its Subsidiaries in excess of $100,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any of its Subsidiaries, or (iii) the grant of rights to manufacture, produce, assemble, license, market, or sell its products or services to any other person or affect the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its products or services. (c) The Company has not since December 31, 1998 (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities in excess of $100,000, (iii) made any loans or advances to any person, other than ordinary advances to employees for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the nonexclusive license of software to end-users in the ordinary course of business. (d) All the material contracts, agreements and instruments to which the Company is a party are listed on the exhibit index to the Registration Statement and such contracts, agreements and instruments are valid, binding and in full force and effect in all material respects, and are valid, binding and enforceable by the Company in accordance with their respective terms. The Company is not in material default under any contract, and, to the Company's knowledge, no other party to any such contract is in material default. 2.11 Litigation. There are (i) no actions, suits, proceedings, or ---------- investigations pending or, to the Company's knowledge, threatened against the Company or its properties before any court or governmental agency (nor is there any basis therefor) which are reasonably likely to have a material adverse effect on the Company, and (ii) no actions, suits, proceedings or investigations are pending 6 or, to the Company's knowledge, threatened against it or its employees that may relate to their employment with or conduct on behalf of the Company, or that question the validity of this Agreement, the Related Agreements or any action taken or to be taken in connection herewith or therewith. The foregoing includes, without limitation, any action, suit, proceeding, or investigation pending or currently threatened involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, their obligations under any agreements with prior employers, or negotiations by the Company with potential backers of, or investors in, the Company or its proposed business. The Company is not a party or subject to any writ, order, decree, injunction or judgment of any court, governmental agency, or instrumentality (nor, to the Company's knowledge, is there any reasonable basis therefor). There is no action, suit, proceeding or investigation by the Company currently pending or that the Company currently intends to initiate. 2.12 Taxes. The Company has timely filed all tax returns and reports ----- (federal, state and local) as required by law, and such returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due. There are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment of any tax or deficiency against the Company, and there are no actions, suits, proceedings, investigations or claims now pending against the Company with respect to any tax or assessment or any matters under discussion with any federal, state, local or foreign authority relating to any taxes or assessments, or any claims for additional taxes or assessments asserted by any such authority, and there is no basis for the assertion of any additional taxes as assessments against the Company. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"), to be treated as an S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation, or amortization) that would have a material effect on the business, properties, prospects, or financial condition of the Company. The Company has never had any tax deficiency proposed or assessed against it. The Company has never been audited by governmental authorities. The Company has withheld or collected from each payment made by it to each of its employees the amount of all taxes, including, but not limited to, income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositaries. 2.13 Insurance. The Company has in full force and effect fire, casualty --------- and liability insurance policies with recognized insurers. The Company believes that this insurance is sufficient in amount as of the Closing Date, subject to reasonable deductibles, relative to other companies of similar size in similar industries. 2.14 Employee Benefit Plans. The Company does not have any Employee ---------------------- Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.15 Proprietary Information Agreements. Each current and former employee, ---------------------------------- officer and director of the Company has executed an agreement with the Company regarding confidentiality and 7 proprietary information. To the Company's knowledge, none of its current or former employees, officers or directors is in violation of such agreement. Each current or former consultant to or material vendor of the Company that has had access to the Company's confidential information has executed a written agreement under which, among other things, each such consultant or material vendor is obligated to maintain the confidentiality of the Company's confidential information. To the Company's knowledge, none of its consultants or material vendors are in violation of such agreement. 2.16 Registration Rights and Voting. Except as provided in the Registration ------------------------------ Rights Agreement, the Company is not under any obligation and has not granted any rights to register under the Securities Act any of its currently outstanding securities or any of its securities that may subsequently be issued. To the Company's knowledge, except as contemplated in the Stockholder Agreement, no stockholder of the Company has entered into any agreement with respect to the voting of the Company's securities. 2.17 Consents. No consent, approval, qualification or authorization of, or -------- registration, designation, declaration or filing with any person, including, any local, state or federal governmental authority, on the part of the Company is required in connection with the valid execution, delivery or performance of this Agreement or the Related Agreements, or the offer, sale or issuance of the Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock and the Conversion Stock, or the consummation of any transaction contemplated hereby, except (i) such filings as have been made prior to the date hereof, (ii) filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and (iii) such additional post-closing filings as may be required to comply with applicable state and federal securities laws, and with applicable general corporation laws of the various states, each of which will be filed with the proper authority by the Company in a timely manner. 2.18 Environmental and Safety Laws. The Company is not in material ----------------------------- violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and no material expenditures are or will be required in order to comply with any such existing statute, law, or regulation. 2.19 Related Party Transactions. No employee, officer, stockholder or -------------------------- director of the Company or member of his or her immediate family is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them, other than (i) for payment of salary for services previously rendered, (ii) as reimbursement for reasonable expenses incurred on behalf of the Company, or (iii) for other standard employee benefits made generally available to all employees (not including stock option agreements outstanding under any stock option plan approved by the Board of Directors of the Company). To the Company's knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers or directors of the Company and members of their immediate families may own stock representing less than 1% equity ownership in publicly traded companies that may compete with the 8 Company. To the Company's knowledge, no officer, director, or stockholder or any member of their immediate families is, directly or indirectly, interested in any material contract with the Company (other than such contracts as relate to any such person's ownership of capital stock or other securities of the Company). 2.20 Broker's and Finders' Fees. The Company has not incurred, and will -------------------------- not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 2.21 Compliance with Other Instruments. The Company is not in violation or --------------------------------- default of any provisions of its Certificate or Bylaws, or of any mortgage, indenture, agreement, instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or any provision of any federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of and compliance with this Agreement and the Related Agreements, and the consummation of the transactions contemplated hereby and thereby, will not result in any such material violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any of the properties or assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business, operations, properties or assets. 2.22 Financial Statements. The books of account and related records of the -------------------- Company fairly reflect in reasonable detail its assets, liabilities and transactions. The following financial statements (collectively, the "Financial Statements") are included in the Registration Statement: (i) audited statements of income, cash flows and stockholders' equity of the Company for the fiscal years ended December 31, 1996 through 1998, inclusive, and balance sheets of the Company as at each of such dates (it being understood that the balance sheet of the Company as at December 31, 1998 is hereinafter referred to as the "Balance Sheet") and (ii) unaudited statements of income, cash flows and stockholders' equity of the Company for the six-month period ended June 30, 1999 and a balance sheet of the Company as at such date. The Financial Statements: (a) fairly present in all material respects the financial condition, assets and liabilities of the Company as at their respective dates and the results of operations and cash flows for the periods covered thereby and (b) have been prepared in accordance with generally accepted accounting principles, consistently applied, subject in the case of the unaudited Financial Statements to normal year-end audit adjustments and the absence of related notes. 2.23 Permits. The Company has all material franchises, permits, licenses, ------- and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects or financial condition of the Company, and believes it can obtain, without undue burden or expense, any necessary authority for the conduct of its business as currently planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority. 9 2.24 Year 2000 Compliance. The Company's computer systems and software are -------------------- and will be, and the products developed, manufactured, sold or licensed by the Company are and will be, able accurately to: (i) process any date rollover, (ii) process calculations or computations regardless of the dates used in such calculations whether before, on or after January 1, 2000, (iii) accept and respond to two digit year date input in a manner that resolves any ambiguities as to the century to which such two digit year date input relates in an appropriate manner and (iv) store and display date data in a manner that is unambiguous as to the century to which such two digit year date input relates. Based upon a reasonable investigation made by the Company, none of the above- referenced systems, software or products are reasonably expected to malfunction, cease to function, generate incorrect data or provide incorrect results when providing and/or receiving data in connection with any valid date, whether occurring before, on or after January 1, 2000. 2.25 Employees. There is no strike, labor dispute or union organization --------- activity pending or, to the Company's knowledge, threatened between the Company and its employees. None of the Company's employees belongs to any union or collective bargaining unit. The Company has complied in all material respects with all applicable state and federal equal opportunity and other laws related to employment. To the Company's knowledge, none of its employees is currently in violation of any judgment, decree, order, or agreement relating to the relationship of any such employee with the Company or any other party, due to either (i) the nature of the Company's business as conducted currently or proposed to be conducted, or (ii) the use by the employee of his or her best efforts with respect to the conduct of such business. The Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement that covers executive officers and directors of the Company. To the Company's knowledge, no officer or key employee intends to terminate his or her employment with the Company, nor does the Company have a present intention to terminate the employment of any officer or key employee. Subject to general principles related to wrongful termination of employees, the employment of each officer and employee of the Company is terminable at the will of the Company, with or without cause. 2.26 Changes. Since June 30, 1999, other than immaterial and nonadverse ------- changes in the ordinary course of business, there has not been: (a) any change in the assets, liabilities, financial condition, or operating results of the Company; (b) any damage, destruction or loss, whether or not covered by insurance, affecting the business, properties, prospects, or financial condition of the Company (as such business is currently conducted and as it is currently proposed to be conducted); (c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it; (d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company affecting the business, properties, prospects, or financial condition of 10 the Company (as such business is currently conducted and as it is currently proposed to be conducted); (e) any entering into or change in the terms of any material contract or arrangement by which the Company or any of its assets or properties is bound or to which the Company or any of such assets or properties is subject; (f) any change in any compensation arrangement or agreement with any employee, officer, director or stockholder; (g) any sale, assignment, or transfer of any Company Intellectual Property; (h) any resignation or termination of employment of any director, officer or key employee of the Company, nor does the Company have any knowledge of the impending resignation or termination of employment of any such person; (i) any receipt of notice by the Company that there has been a loss of, or material order cancellation by, any customer of the Company; (j) any mortgage, pledge, transfer of a security interest in, or lien created by the Company with respect to any of its material properties or assets, except liens for taxes not yet due or payable; (k) any loans or guarantees made by the Company to or for the benefit of its employees, stockholders, officers, or directors, or any members of their immediate families, other than customary travel advances and other advances made in the ordinary course of its business; (l) any declaration, setting aside, or payment of any dividend or other distribution of the Company's assets in respect of any of the Company's capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company; (m) to the Company's knowledge after reasonable investigation, any other event or condition of any character that might affect the business, properties, prospects, or financial condition of the Company (as such business is currently conducted and as it is currently proposed to be conducted); or (n) any agreement or commitment by the Company to do any of the things described in this Section 2.26. 2.27 Undisclosed Liabilities. The Company does not have any material ----------------------- liabilities or obligations of any nature, whether known or unknown, absolute, accrued, contingent or otherwise and whether due or to become due except as and to the extent set forth on the most recent balance sheet included in the Registration Statement and the notes thereto. 11 2.28 Certain Indebtedness. As of the date hereof, other than interest -------------------- accrued after September 30, 1999, the aggregate amount of debt owed to Safeguard by the Company is $10,147,979 and the aggregate amount of debt owed to XL Vision by the Company is $5,757,978. 2.29 Corporate Documents. The Certificate and Bylaws of the Company are in ------------------- the forms attached hereto as Exhibits A and F, respectively. The copy of the ---------- - minute books of the Company provided to counsel to Investor contains minutes of all meetings of the Board of Directors and stockholders and all actions by written consent without a meeting by the Board of Directors and stockholders since the date of the Company's incorporation, and accurately reflects all actions by the Board of Directors (and any committee thereof) and stockholders with respect to all transactions referred to in such minutes in all material respects. Neither the stockholders nor the Board of Directors of the Company have taken any action relating to the merger, consolidation, sale of assets or business, liquidation, dissolution or any other reorganization of the Company. 2.30 Disclosure. The Company has provided Investor with all access to of ---------- the information which Investor has requested in connection with the execution of this Agreement and the purchase of the Shares and the Warrant. No representation or warranty of the Company contained in this Agreement, the Related Agreements or any certificate or document furnished or to be furnished to Investor prior to or at the Closing contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein not misleading. The Registration Statement does not contain any untrue statement of a material fact and does not omit to state a material fact necessary in order to make the statements contained therein not misleading. SECTION 3. Representations and Warranties of JTL to Investor. ------------------------------------------------- JTL hereby represents and warrants to Investor as of the date hereof as follows: 3.1 Power and Authority. JTL has all requisite legal power and authority ------------------- to execute and deliver this Agreement, to sell the JTL Shares and to carry out and perform its obligations under the terms of this Agreement and the transactions contemplated hereby. 3.2 Capitalization. JTL is the sole record and beneficial owner of the -------------- shares of Class A Common Stock set forth opposite its name on Schedule 2.4, free and clear of any lien, security interest, restriction, encumbrance or claim. 3.3 Authorization; Enforceability. All action on the part of JTL and its ----------------------------- officers and members necessary for the authorization, execution, delivery and performance of this Agreement by JTL, the sale and delivery of the JTL Shares by JTL and the performance of all of JTL's obligations hereunder has been taken. This Agreement constitutes the valid and legally binding obligation of JTL, enforceable in accordance with its terms. 12 3.4 Accuracy of Representations and Warranties. To JTL's actual ------------------------------------------ knowledge, which need not be based on any inquiry, the representations and warranties of the Company contained in this Agreement are true and accurate in all respects. 3.5 Broker's and Finders' Fees. No broker, investment banker or other -------------------------- person is entitled to any brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby based on arrangements made by JTL. 3.6 Organization and Standing. JTL is a limited liability company duly ------------------------- organized, validly existing under, and by virtue of, the laws of the State of South Dakota, and is in good standing under such laws. The Company has all requisite power and authority to own and operate its properties and assets, and to carry on its business as currently conducted and as proposed to be conducted. SECTION 4. Representations and Warranties of Investor. ------------------------------------------ Investor represents and warrants to Sellers as follows: 4.1 Investment Experience. Investor has substantial experience in --------------------- evaluating and investing in private placement transactions of securities in companies similar to the Company such that Investor is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests. Investor is an "Accredited Investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act. 4.2 Investment. Investor is acquiring the Shares and the Warrant for ---------- investment for Investor's own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. 4.3 Rule 144. Investor acknowledges that the Shares, the Warrant, the -------- Underlying Warrant Stock, the Underlying Common Stock and the Conversion Stock must be held indefinitely unless registered under the Securities Act or unless an exemption from such registration is available. Investor is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations. 4.4 Access to Information. Investor's officers and agents have had an --------------------- opportunity to discuss the Company's management, prospects, business plan and financial condition with the Company's management. 13 4.5 Authorization; Enforceability. Investor has all requisite legal and ----------------------------- corporate power and authority to execute and deliver this Agreement and the Related Agreements and to carry out and perform its obligations under the terms of this Agreement and the Related Agreements and the transactions contemplated hereby and thereby. This Agreement constitutes and as of the Closing each of the Related Agreements will constitute a valid and legally binding obligation of such Investor, enforceable in accordance with its terms. 4.6 Broker's and Finders' Fees. No broker, investment banker or other -------------------------- person is entitled to any brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby based on arrangements made by Investor. 4.7 Non-Limitation. The foregoing representations and warranties, -------------- however, do not limit or modify the representations and warranties in Section 2 or Section 3 of this Agreement or the right of Investor to rely thereon. 4.8 Legends. It is understood that each certificate representing the ------- Shares, the Warrant, the Underlying Warrant Stock, the Underlying Common Stock and the Conversion Stock shall bear the following legend or a substantially similar legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS HAVING BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A STOCKHOLDER AGREEMENT ENTERED INTO BY THE HOLDER OF THESE SHARES AND THE COMPANY. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. 4.9 Residence. The office of Investor in which its investment decision --------- was made is located at the address set forth on the signature page to this Agreement. SECTION 5. Conditions of Investor's Obligations at Closing. ----------------------------------------------- The obligations of Investor under Section 1 of this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions, any of which may be waived in writing by Investor: 14 5.1 Opinion of the Company's Counsel. There shall have been delivered to -------------------------------- Investor an opinion of Morgan Lewis & Bockius, counsel to the Company, in substantially the form attached hereto as Exhibit K. --------- 5.2 Registration Rights Agreement. The Company shall have executed and ----------------------------- delivered the Registration Rights Agreement. 5.3 Stockholder Agreement. The Company shall have executed and delivered --------------------- the Stockholder Agreement. 5.4 HSR Approvals. Any applicable waiting period (and any extension ------------- thereof) applicable to the consummation of the transactions contemplated hereby under the HSR Act shall have expired or been terminated. 5.5 Opinion of JTL's Counsel. There shall have been delivered to Investor ------------------------ an opinion of Morris & Titus, counsel to JTL, in substantially the form attached hereto as Exhibit L. --------- SECTION 6. Conditions of Sellers' Obligations at Closing. --------------------------------------------- The obligations of the Company under Section 1 of this Agreement are subject to the fulfillment at or before Closing of each of the following conditions, any of which may be waived in writing by the Company. The obligations of JTL under Section 1 of this Agreement are subject to the fulfillment at or before Closing of the condition set forth in Section 6.3, which may be waived in writing by JTL. 6.1 Note. Investor shall have executed and delivered the Note. ---- 6.2 Pledge Agreement. Investor shall have executed and delivered the ---------------- Pledge Agreement. 6.3 HSR Approvals. Any applicable waiting period (and any extension ------------- thereof) applicable to the consummation of the transactions contemplated hereby under the HSR Act shall have expired or been terminated. 6.4 Registration Rights Agreement. Investor shall have executed and ----------------------------- delivered the Registration Rights Agreement. 6.5 Stockholder Agreement. Investor shall have executed and delivered --------------------- the Stockholder Agreement. 15 6.6 Opinion of Investor's Counsel. There shall have been delivered to ------------------------------ the Company an opinion of Dechert Price & Rhoads, in substantially the form attached hereto as Exhibit M. --------- SECTION 7. Certain Covenants. ------------------ 7.1 Conduct Pending Closing. Each of the parties shall use its respective ----------------------- best efforts to cause all of the conditions to its obligation to close to be satisfied on or prior to the Closing. The Company shall use its best efforts to conduct the business of the Company in the ordinary course consistent with past practice and in such a manner that at the Closing the representations and warranties of the Company contained in this Agreement shall be true and correct as though such representations and warranties were made on, as of, and with reference to such date. Each Seller will promptly notify Investor in writing of any event or fact which represents or is likely to cause a breach of any of its representations, warranties, covenants or agreements. The Company shall promptly advise Investor in writing of the occurrence of any condition or development of a nature that is or may be materially adverse to the business, properties, operations, prospects, condition (financial or otherwise), assets or liabilities of its business. 7.2 Approvals. --------- (a) Promptly after the execution of this Agreement, each of the parties hereto shall prepare and make or cause to be made any required filings, submissions and notifications under the laws of any domestic or foreign jurisdiction, including under the HSR Act, to the extent that such filings are necessary to consummate the transactions contemplated hereby and will use its best efforts to take all other actions necessary to consummate the transactions contemplated hereby in a manner consistent with applicable law. Each of the parties hereto will furnish to the other parties such necessary information and reasonable assistance as such other parties may reasonably request in connection with the foregoing. (b) Each party hereto shall promptly inform the other of any material communication from the Federal Trade Commission, the Antitrust Division of the United States Department of Justice or any other governmental body regarding any of the transactions contemplated hereby. If any party hereto or any affiliate thereof receives a request for additional information or documentary material from any such governmental body with respect to the transactions contemplated hereby, then such party shall endeavor in good faith to make, or cause to be made, as soon as reasonably practicable and after consultation with the other party, an appropriate response in compliance with such request. 7.3 Registration of Securities. The Company intends to file the -------------------------- Registration Statement with the Securities and Exchange Commission and to effect an underwritten public offering of its Class A Common Stock as soon as practicable after the date hereof; provided, however, that the Company will not proceed with such public offering in the event that its Board of Directors (in its sole discretion) determines that existing market conditions make such offer inadvisable. The Company shall promptly provide Investor with a true and complete copy of the registration 16 statement on Form S-1 filed with the Securities and Exchange Commission and all supplements and amendments thereto. 7.4 Indemnification By Sellers. Each Seller hereby agrees to indemnify, -------------------------- defend and hold harmless Investor from and against any loss, liability, claim, obligation, damage, deficiency, costs and expenses, fines or penalties (including without limitation reasonable attorney fees and other defense costs or other response actions) of or to Investor (a) arising out of or resulting from any misrepresentation or breach of representation or warranty of such Seller contained in this Agreement or in any agreement or statement or certificate furnished or to be furnished to Investor pursuant hereto or in connection with the transactions contemplated hereby and (b) arising out of or resulting from any breach or nonfulfillment of any covenant or agreement of such Seller contained in this Agreement or in any agreement or statement or certificate furnished or to be furnished to Investor pursuant hereto or in connection with the transactions contemplated hereby. 7.5 Indemnification by Investor. Investor hereby agrees to indemnify and --------------------------- hold harmless Sellers from and against any loss, liability, claim, obligation, damage, deficiency, costs and expenses, fines or penalties (including without limitation reasonable attorney fees and other defense costs or other response actions) of or to Sellers (a) arising out of or resulting from any misrepresentation or breach of representation or warranty of Investor contained in this Agreement or in any agreement or statement or certificate furnished or to be furnished to Sellers pursuant hereto or in connection with the transactions contemplated hereby and (b) arising out of or resulting from any breach or nonfulfillment of any covenant or agreement of Investor contained in this Agreement or in any agreement or statement or certificate furnished or to be furnished to Sellers pursuant hereto or in connection with the transactions contemplated hereby. 7.6 Securities Laws Compliance. The Company shall make in a timely manner -------------------------- any filings required by applicable federal or state securities or Blue Sky laws, or those of any other applicable jurisdiction. 7.7 Proprietary Information Agreements. The Company shall require all ---------------------------------- future officers, directors, employees and consultants of the Company and its Subsidiaries to execute and deliver an agreement which provides protection from misappropriation or assignment of the Company Intellectual Property. 7.8 Reservation of Shares. For so long as Investor shall have any right --------------------- to receive the Underlying Common Stock upon conversion of the Company Shares, the Company shall reserve and keep available out of its authorized but unissued Class B Common Stock the full number of shares of Underlying Common Stock deliverable upon conversion of all the then outstanding Company Shares and shall, at its own expense, take all such actions and obtain such permits and orders as may be necessary to enable the Company lawfully to issue such Underlying Common Stock upon conversion of the Company Shares. For so long as the Warrant is outstanding, the Company shall reserve and keep available out of its authorized but unissued Class A Common Stock and Series B Common Stock the full number of shares of Underlying Warrant Stock deliverable upon execution of the Warrant and shall, at its own expense, take all such actions and obtain such permits and orders as may be necessary to enable the Company lawfully to issue such Underlying Warrant Stock upon 17 exercise of the Warrant. For so long as any of the Underlying Common Stock, the Warrant and the Underlying Warrant Stock is outstanding, the Company shall reserve and keep available out of its authorized but unissued Class A Common Stock the full number of shares of Class A Common Stock deliverable upon conversion of all shares of Underlying Common Stock and Underlying Warrant Stock and shall, at its own expense, take all such actions and obtain such permits and orders as may be necessary to enable the Company lawfully to issue such Class A Common Stock upon conversion of Underlying Common Stock and the Underlying Warrant Stock. 7.9 Books and Records. The Company shall maintain complete and accurate ----------------- records and books of account in which entries shall be made in accordance with generally accepted accounting principles consistently applied, reflecting all transactions of the Company and its Subsidiaries, if any. 7.10 Use of Proceeds. The Company agrees that, prior to a Public Offering, --------------- it will not reduce its outstanding indebtedness by more than $4,500,000 and it will not make any payments in excess of $1,000,000 in the aggregate with respect to indebtedness incurred after the date hereof. 7.11 Investor Rights. Until the consummation of a Public Offering, the --------------- Company shall permit Investor at Investor's expense to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by Investor; provided, however, that the Company shall not be obligated pursuant to this section to provide access to any information that it reasonably considers to be a trade secret or similar confidential information. For purposes of this Agreement, the term "Public Offering" means the effectiveness of a registration statement filed by the Company pursuant to the Securities Act (other than on Form S-4 or S-8 on any successor forms thereto) covering the offer and sale of Class A Common Stock in an underwritten public offering on a firm commitment basis in which the gross proceeds of the offering will equal or exceed $10,000,000 (calculated before deducting underwriters' discounts and commissions and other offering expenses), and in which the public offering price per share of Class A Common Stock (calculated before deducting underwriters' discounts and commissions) results in a valuation of the total number of outstanding shares of capital stock of the Company immediately prior to the closing of the public offering of at least $30,000,000. 7.12 Reports. Until the consummation of a Public Offering, the Company ------- will provide Investor the following reports: (a) Annual Reports. As soon as practicable after the end of each -------------- fiscal year, and in any event within seventy-five (75) days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as of the end of such fiscal year, and consolidated statements of income, stockholders' equity and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and audited (without qualification as to scope) by independent auditors of national standing selected by the Company. 18 (b) Monthly and Quarterly Reports. As soon as practicable after the ----------------------------- end of each month and fiscal quarter, and in any event within thirty (30) days thereafter, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such period, consolidated statements of income, consolidated statements of changes in financial condition, a consolidated statement of cash flow of the Company and its subsidiaries and a statement of stockholders' equity for such period and for the current fiscal year to date, and setting forth in each case in comparative form the figures for corresponding periods in the previous fiscal year, and setting forth in comparative form the budgeted figures, prepared in accordance with generally accepted accounting principles (other than for accompanying notes), subject to changes resulting from year-end audit adjustments, all in reasonable detail and signed by the principal financial or accounting officer of the Company. (c) Annual Budget. As soon as practicable, but in any event thirty ------------- (30) days prior to the end of each fiscal year, a projected operating budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company. 7.13 Certificate of the Company. At the Closing, the Company shall deliver -------------------------- to Investor a certificate dated as of the date of the Closing, stating that (a) the representations and warranties of the Company contained in Section 2 are true on and as of the Closing with the same effect as if made on and as of the Closing and (b) the Company has performed or fulfilled all agreements, obligations and conditions contained in this Agreement required to be performed or fulfilled by the Company before Closing. 7.14 Certificate of JTL. At the Closing, JTL shall deliver to Investor, ------------------ which delivery may be by facsimile, a certificate dated as of the date of the Closing, stating that (a) the representations and warranties of JTL contained in Section 3 are true on and as of the Closing with the same effect as if made on and as of the Closing and (b) JTL has performed or fulfilled all agreements, obligations and conditions contained in this Agreement required to be performed or fulfilled by JTL before Closing. 7.15 Certificate of Investor. At the Closing, Investor shall deliver to ----------------------- Sellers a certificate dated as of the date of the Closing, stating that (a) the representations and warranties of Investor contained in Section 4 are true on and as of the Closing with the same effect as if made on and as of the Closing and (b) Investor has performed or fulfilled all agreements, obligations and conditions contained in this Agreement required to be performed or fulfilled by Investor before Closing. SECTION 8. Miscellaneous. ------------- 8.1 Termination. This Agreement may be terminated at any time prior to ----------- Closing: (a) by mutual consent of Sellers and Investor and (b) by Investor or the Company if the Closing shall not have occurred prior to December 31, 1999; provided, that Investor or the Company may terminate - -------- 19 this Agreement pursuant to this clause (b) only if the Closing shall not have occurred by such date for a reason other than a failure by such party to satisfy the conditions to Closing of the other party set forth herein. In the event of termination of this Agreement by either Investor or the Company, as provided above, this Agreement shall forthwith terminate and there shall be no liability on the part of either Sellers or Investor, other than the obligation to indemnify the other party pursuant to the terms of this Agreement for liabilities arising from a breach of this Agreement prior to such termination. 8.2 Entire Agreement; Successors and Assigns. This Agreement and the ---------------------------------------- exhibits hereto constitute the entire agreement between Sellers and Investor relative to the subject matter hereof. Any previous agreement between Investor and Sellers is superseded by this Agreement. Subject to the exceptions specifically set forth in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective executors, administrators, heirs, successors and assigns of the parties. 8.3 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the laws of the Commonwealth of Pennsylvania applicable to contracts entered into and wholly to be performed within the Commonwealth of Pennsylvania by Pennsylvania residents. 8.4 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument. 8.5 Headings. The headings of the Sections of this Agreement are for -------- convenience and shall not by themselves determine the interpretation of this Agreement. 8.6 Notices. Any notice required or permitted hereunder shall be given in ------- writing and shall be conclusively deemed effectively given upon personal delivery, or delivery by overnight courier, or five days after deposit in the United States mail, by registered or certified mail, postage prepaid, addressed (i) if to the Company, as set forth below the Company's name on the signature page of this Agreement, (ii) if to JTL, as set forth below JTL's name on the signature page of this Agreement, and (iii) if to Investor, as set forth below Investor's name on the signature page of this Agreement, or at such other address as the Company, JTL or Investor may designate by ten (10) days' advance written notice to the other parties. 8.7 Survival of Representations and Warranties. The representations and ------------------------------------------ warranties of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing. Sellers acknowledge that their representations and warranties in this Agreement shall not be affected or mitigated by any investigation conducted by Investor or its representatives prior to Closing or any knowledge of Investor. 8.8 Amendment of Agreement. No provision of this Agreement may be amended ---------------------- except by a written instrument signed by the parties. 8.9 Expenses. Each party will pay its own costs and expenses incurred in -------- connection with this Agreement and the transactions contemplated hereby; provided, however, that all filing fees under the HSR Act shall be divided equally between the Company and Investor. 20 8.10 Further Assurances. Each party shall cooperate and take such action ------------------ as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. 21 IN WITNESS WHEREOF, the parties hereto have executed this Securities Purchase Agreement as of the day and year first above written. EMERGE INTERACTIVE, INC. a Delaware corporation By: /s/ Charles L. Abraham -------------------------- Name: Charles L. Abraham ------------------------ Title: CEO ----------------------- Address: 10315 102/nd/ Terrace Sebastian, FL 32958 J TECHNOLOGIES, LLC By: /s/ John R. Johanns Jr. -------------------------- Name: John R. Johanns Jr. ------------------------ Title: Authorized Member ----------------------- Address: 940 Quail Hollow Dakota Dunes, SD 57049 INTERNET CAPITAL GROUP, INC. a Delaware corporation By: /s/ Henry N. Nassau ------------------------- Name: Henry N. Nassau ----------------------- Title: Managing Director ---------------------- Address: 800 The Safeguard Building 435 Devon Park Drive Wayne, PA 19087 22 EX-23.1 3 CONSENT OF KPMG EXHIBIT 23.1 ------------ The Board of Directors eMerge Interactive, Inc.: We consent to the inclusion of our report dated April 20, 1999, with respect to the consolidated balance sheets of eMerge Interactive, Inc. and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1998, which report appears in the Form 8-K of Internet Capital Group, Inc. dated November 22, 1999. /s/ KPMG LLP Orlando, Florida November 22, 1999 -----END PRIVACY-ENHANCED MESSAGE-----