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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1999 0-28462
WEBB INTERACTIVE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1293864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 Glenarm Place, Suite 700, Denver, CO 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 296-9200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained herein, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [__].
Registrant's revenues for fiscal year ended December 31, 1999: $1,944,283
Aggregate market value of voting stock held by non-affiliates of registrant
as of March 17, 2000: Approximately $356,122,556.
Number of shares outstanding as of March 17, 2000: 8,995,371 shares of common
stock, no par value.
Documents incorporated by reference: Definitive Proxy Statement for 2000
Annual Meeting of Shareholders for Part III.
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PART I
Item 1. DESCRIPTION OF BUSINESS.
General
Webb Interactive Services, Inc. ("Webb") provides innovative advanced
online commerce and communication solutions for small businesses, with a
particular emphasis on local commerce interaction. Our AccelX(TM) product line
of XML-based commerce and buyer-seller interaction services provide businesses
with powerful web site development and communication tools to attract customers,
generate leads, increase buyer-seller interaction and strengthen customer
relationship management. The AccelX services are divided into two categories:
Customer Relationship Management (CRM) services and Marketplace Services.
We license our services on a private-label basis to high-volume
distribution partners such as yellow page directory publishers, newspapers, city
guides, vertical market portals and other aggregators of local businesses. Our
products are designed to be delivered on an application service provider (ASP)
business model whereby we host the software on our servers and deliver and
manage the service on behalf of our distribution partners. Generally, these
services are provided on a revenue-share basis providing us with recurring
revenues as our distribution partners sell these services to their small
business customers. This distribution model is designed to provide us with a
growing base of businesses using one or more of our services who are ideal
customers for additional AccelX services.
Prior to the third quarter of 1997, our focus generally was on three
markets: general web site development, maintenance and hosting; rural or small
market Internet service providers (ISPs); and healthcare information services
and continuing medical education. Each of these activities involved, to varying
degrees, the building of online communities and the development of tools and
services to allow for the building of strategic and customized web sites. As an
outgrowth of these activities, since mid 1997, our business has evolved to the
development of online communities. Most recently, we have combined our
community-building and communications expertise with acquired expertise in local
commerce to develop applications for small businesses.
The combining of community communications and e-commerce for the unique
needs of small businesses and local commerce interaction represents Webb's
primary business focus. We also provide e-banking services for financial
institutions and have recently initiated an effort to commercialize the
Jabber.org instant messaging technology.
Our strategy is to grow our local commerce business by:
o Delivering first-to-market execution and expert technical solutions that
capitalize on our expertise in commerce, community building and
communication;
o Securing additional distribution partnerships to rapidly expand the
deployment of our services;
o Expanding our value-added services to enhance buyer-seller interaction; and
o Developing strategic alliances in order to more rapidly gain market share.
AccelX services utilize instant messaging to enhance the interactive
communications between buyers and sellers. In 1999, we became the initial
sponsor of the open-source XML-based instant messaging software development
initiative known as Jabber.org. as we believed it provided the best instant
messaging platform for our application services. We believe that instant
messaging will evolve from its primary use today by personal computer users for
instant chat communications to provide a foundation for an entire new class of
programs, with applications such as voice over the Internet, mobile
communications, enterprise communications and collaboration, real-time online
auctioning and customer relationship management. For this reason, we have
formed a subsidiary, Jabber, Inc., in order to commercialize this business
opportunity separately from our local commerce business.
We were incorporated under the laws of the State of Colorado on March 22,
1994. Our executive offices are located at 1800 Glenarm Place, Suite 700,
Denver, Colorado 80202, telephone number (303) 296-9200.
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Investment Considerations
Investors should consider all of the information contained in this report
including the factors discussed under "Item 1 - Description of Business -
General, Competition and Factors That May Affect Future Results," and "Item 6 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Item 7 - Financial Statements" before making an investment
decision with regard to our securities.
Some of the statements made in this report in the sections above and
elsewhere in this report constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to the safe harbor provisions of the reform act. Forward-
looking statements may be identified by the use of the terminology such as may,
will, expect, anticipate, intend, believe, estimate, should, or continue or the
negatives of these terms or other variations on these words or comparable
terminology. To the extent that this report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of Webb, you should be aware that our actual financial condition,
operating results and business performance may differ materially from that
projected or estimated by us in the forward-looking statements. We have
attempted to identify, in context, some of the factors that we currently believe
may cause actual future experience and results to differ from their current
expectations. These differences may be caused by a variety of factors, including
but not limited to adverse economic conditions, intense competition, including
entry of new competitors, ability to obtain sufficient financing to support our
operations, progress in research and development activities, variations in costs
that are beyond our control, adverse federal, state and local government
regulation, unexpected costs, lower sales and net income, or higher net losses
than forecasted, price increases for equipment, inability to raise prices,
failure to obtain new customers, the possible fluctuation and volatility of our
operating results and financial condition, inability to carry out marketing and
sales plans, loss of key executives, and other specific risks that may be
alluded to in this report.
The Market
The Internet is a global web of computer networks. Developed over 25 years
ago, this "network of networks" allows any computer attached to the Internet to
talk to any other using Internet protocols. Increased Internet use and the
availability of powerful new tools for the development and distribution of
Internet content have led to a broad and substantial proliferation of Internet
based services. In what by historical standards is a remarkably short period of
time, the Internet has become an important mass medium for information
collection and distribution, communication, commerce, entertainment and other
forms of communication.
Internet Data Corporation estimates that the number of Internet users
worldwide will grow from approximately 69 million users in 1997 to 320 million
users in 2002. The commercial potential for the Internet has given rise to web
sites through which businesses, communities, media companies, news services,
affinity-based groups and individuals can inform, entertain, communicate and
conduct business with each other worldwide. Market Facts, an Internet research
company, reports that approximately 88% of Internet users go online to seek
additional information, 31% to communicate and 18% to shop. Forrester Research,
Inc. has estimated that local online sales will rise from $680 million in 1998
to more than $6 billion by 2003 and that online advertising to support these
sales will increase from $135 million to $1.7 billion during this same period.
This compares to expenditures reported to exceed $85 billion per year by local
businesses for traditional media for locally-focused advertising and business
promotion.
The success of early e-commerce pioneers such as Amazon.com is in large
part due to their ability to aggregate retail content and enable simplified
comparison shopping. In "national" consumer goods markets, this is relatively
straightforward, since many of the catalog databases underlying this approach
already existed and could be easily web-enabled. In the "local market", however,
the challenge is radically different. Unlike the national market that is made up
primarily of catalog-oriented merchandisers, the local market is dominated by
service companies and retailers who have a relatively limited ability to manage
information technology. The content underlying local e-commerce, representing
millions of individual merchants and service companies, exists in a far less
structured form than for national markets. In business-to-business markets, the
use of CRM and Marketplace Exchange Services has
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demonstrated significant growth opportunities. However, for small businesses,
their online activities have largely been limited to the creation of an initial
web site presence, as they have had few alternatives for active online promotion
of their businesses and interaction with online customers.
In a recent study, the Kelsey Group (Local Commerce Monitor, May 1999)
interviewed 1,400 small and medium-sized businesses that met the "local market
focus" criterion of receiving more than 75% of their business from customers
located within 50 miles of their establishment. The survey found that:
o The number of local businesses with a Web presence is projected to grow
20% per year for the next five years, reaching in excess of 5 million by
2004.
o Currently 1.9 million businesses have a web site and another 1.3 million
plan to have one by the end of 2000.
o Those 1.9 million web sites cost $2.8 billion per year, including
access, design and hosting, and it is projected to exceed $7 billion by
2004.
o E-commerce transaction capability exists on only 10% of today's local
web sites while over 26% of the study participants stated that it was
essential to be able to sell their products over the Web.
In separate releases, the Kelsey Group has indicated that local businesses drive
$3 trillion in local revenues each year and that e-service business will capture
$3.4 billion in revenues by 2004. According to the Kelsey Group, small
businesses are looking for online services that will allow them to:
o Contact suppliers and vendors - 73%.
o Distribute information to customers - 66%
o Advertise or promote their business - 65%
o Provide customer service and support - 41%
o Qualify leads - 36%
o Send promotional messages to customers - 36%
Webb's Strategy
Webb is developing easy-to-use online services specifically designed for
the needs of small businesses, with special emphasis on local market
interaction. Our AccelX services are focused on bringing the essential value of
CRM and Marketplace Exchange services to small businesses, by providing our
distribution partners with application services that package new methods of
promotion, lead management and buyer-seller interaction. Our products and
services are offered on an application services provider (ASP) basis, enabling
local businesses to use one or more of our services on a cost-effective basis
and to easily expand the services they use as their needs evolve and grow.
We license our products and services on a private-label basis to high-
volume distribution companies such as yellow page directory publications,
newspapers, city guides, vertical market portals and other aggregators of small
businesses. Our business model is designed to create a strong distribution
network selling our application services to a large number of small businesses
without incurring the high cost of marketing our services to end users. This
distribution network is intended to provide Webb with a growing base of
businesses using one or more of our services who are ideal customers for
additional AccelX services.
Our strategy is to grow our business by:
o Developing first-to-market execution and expert technical solutions that
capitalize on our expertise in commerce, community design and communication.
Our products are based on XML (Extensible Mark-up Language) technologies
which constitutes a significant improvement from the current HTML (Hypertext
Mark-up Language) generally used on the Internet. The use of XML technologies
enables us to create a flexible structure for the content of web pages,
simplifying web site development and design and making searching more
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meaningful; to separate the content of a web site from its presentation, for
example, content such as a special offer can be dynamically presented in a
variety of forms, such as a web page, a searchable database of specials, a
banner ad or incorporated into an e-mail newsletter targeted to a particular
zip code.
We are also developing advanced communications services that incorporate
instant messaging as a key application for commerce-oriented dialogs between
businesses and consumers. We were the initial sponsor of the Jabber.org
instant messaging system. The Jabber instant messaging system is open source,
simple, fast, highly modularized and platform independent. It is designed for
compatibility and interoperability with other proprietary messaging systems.
Jabber was the first instant messaging system to integrate XML technologies.
o Securing additional distribution partners to rapidly expand the development
of our technologies. Our distribution strategy is focused on large
aggregators of small businesses rather than on end users. We believe that
this will enable us to reach large numbers of end users much more rapidly
than we would be able to do by marketing directly to end users and to avoid
the high costs associated with attracting, servicing and supporting
potentially millions of consumers and businesses. As of the date of this
report, we have established distribution partnerships with CBS Switchboard,
Inc., Bell Actimedia, Inc., SmallOffice.com, Corel Corporation and RE/MAX
International, Inc. These distributors pay us a fee based on a transactional,
membership or per application basis.
o Expanding our value-added services to enhance buyer-seller interaction. We
are currently marketing our AccelX Site Builder and Notify products and our
e-banking services for small to medium-sized financial institutions. During
2000 we intend to increase our AccelX product line to include a suite of
offer management services and an exchange service for local businesses and to
create a marketplace solution which will enable our distributors to create
Internet marketplaces for their small-business customers. We also plan to
introduce a version of our Notify product for our e-banking services.
o Developing strategic alliances in order to more rapidly gain market share. In
order to increase the value of our e-banking services business with minimal
impact on our primary market focus, we are seeking a strategic alliance with
a financial service business. We have also recently announced the formation
of a subsidiary, Jabber, Inc., to pursue the commercialization of our instant
messaging business separately from our local commerce business. We seek to
acquire new technologies or capabilities through the acquisition of other
businesses. On June 30, 1999, we acquired Durand Communications, Inc. in
order to expand our Internet communications and community building
capabilities. During June 1999 we also acquired NetIgnite, Inc., a recently-
formed company emphasizing the early deployment of XML-based technologies.
During January 2000, we acquired the business of Update Systems, Inc., a
leading customer relationship management solutions company for small
businesses. See Notes 9 and 16 of the Notes to Financial Statements.
Products and Services
Webb is primarily focused on its core AccelX businesses. In addition, we
have a business unit focused on e-banking and another on instant messaging. In
the local commerce segment, we target distribution of application services for
small and medium-sized local businesses with our AccelX product line supporting
XML-based commerce and buyer-seller interaction. Our e-banking business targets
credit unions, community banks and savings and loan institutions with a full
line of e-banking transaction processing account management services. Jabber,
Inc., a new subsidiary, was recently formed to commercialize the Jabber.org open
source instant messaging system.
AccelX
The AccelX product platform centralizes the management of online
interaction with a suite of integrated advanced communication technologies. The
platform combines messaging applications and community-building tools with
powerful storage technology. With a foundation based on XML technologies and
open communications, the platform is designed for growth and the integration of
future communications-based commerce modules. Features include:
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o Commerce communications are stored in a Message Warehouse for Message Mining,
allowing buyer-seller interaction to be tracked, analyzed and reported.
o Forms can be created interactively for data collection and display, enabling
small businesses and aggregators to quickly customize solutions for their
markets.
o Unified messaging will allow communications to be delivered between the
devices of choice, whether a pager, fax machine, e-mail or instant messager.
o Integrated community and communication components.
The AccelX product design is based on the fact that most local businesses
are either service-based businesses or have limited information technology
infrastructures. Our solutions enable these businesses to leverage the web to
attract, retain, and manage customer relationships by applying the web to better
match their products and services to meet customer demand. AccelX products and
services are divided into two categories: Customer Relationship Management (CRM)
Services; and Marketplace Services.
CRM Services. The AccelX CRM solution is an integrated suite of services
designed to allow local businesses to better manage their customer life-cycle,
from lead generation to customer acquisition and retention. Fashioned as a
powerful but very intuitive suite of services for local businesses, AccelX CRM
provides businesses with a simple means of leveraging the power of online
promotion and e-mail to attract and retain customers as well as to help create
new online-relationships with their customers. AccelX CRM modules include: Site
Builder; Notify; Request; and Promote. We are currently offering the Site
Builder and Notify modules and expect to begin offering the Request and Promote
modules in the second half of 2000.
Site Builder. Site Builder is a template driven web site publishing
service. The service is easy to use, permitting the computerized creation of
XML-enabled web sites. Features include:
o Use of professional graphics design rules, allowing high-quality sites
to be generated following simple questionnaires that can be completed in
minutes.
o Use of an XML database of all content, permitting this content to be
leveraged for enhanced shopping, promotion and marketplace services.
o Ability to be used in our distribution partners' telephone sales
operations.
o Easy to expand to allow local businesses to interact and communicate
with their customers utilizing other AccelX CRM services.
AccelX Notify. Notify is an email and instant messaging notification
system that enables local businesses to strengthen their customer relationships
and to expand their cross-selling capabilities to their existing customer base.
Features include:
o Opt-in Email - an easy to use service for delivering thousands of
individually targeted email messages.
o Profile - a self-populating and subscriber-edited form for collecting a
database of subscribers based on their needs and interests.
o Preferences - easy to use administrative functions to design sign-up
pages.
AccelX Request. Request is an interactive communication service that
enables local businesses to more efficiently qualify leads, process customer
inquiries and maintain high qualify customer service. Features include:
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o Request for Information - services to automate customer requests for
information such as price, order status, inventory availability and
appointments
o Unified Messaging - delivery of leads and information via fax, e-mail,
pager, instant messaging or chat
o Real-time Interaction - communication tools for buyer-seller interaction
including instant messaging and chat
AccelX Promote. Promote offers management services that enable local
businesses to have greater control over their promotional offers. It also
provides alternative online delivery channels for targeting local buyers.
Features include:
o Offer Creation and Delivery - a template-driven service for creating and
delivering banner ads, coupons, business specials/sales and emails
o Prospect Database - an online database for maintaining a current list of
prospects and relevant profile information
o Enhanced Directory Listing - ability to expand a business' current
online listing to include additional data such as hours and product or
services offered.
Marketplace Services - The AccelX Marketplace Services will allow
businesses that aggregate local buyers and sellers to create more dynamic and
interactive marketplaces. These services are intended to package common requests
between buyers and sellers that can be published for simplified buyer-seller
interaction and can be the foundation for advanced community-centric commerce.
Solutions that are planned to be offered late in 2000 include:
o Group Buying - buying services that will provide limited-time buying
opportunities during which consumers can directly influence pricing.
o Buying and Pricing Services - will enable customers to fill out online
forms detailing the service or product they are looking for. The form
will then be sent to multiple local businesses that can fulfill their
request. Customers would no longer have to browse multiple web sites or
make multiple telephone calls with the same request. Sellers can gain
qualified leads from customers who are looking for their product or
service, and who are ready to buy.
o Direct Marketing - will provide consumers with an opt-in notification
service. Consumers could then sign up to be emailed with relevant
promotions and offers in their local market. Businesses will get a
highly targeted channel for reaching local buyers.
o Sales Calendars - will provide consumers with an online calendar that
will organize and display all of the aggregated local sales, discounts
and specials of interest to a customer. Local businesses will get a new
channel for promoting their business.
o Local Communities - will provide online forums for local groups of
consumers to share and exchange information and opinions. Businesses
will also be given the ability to target local consumer groups.
E-Banking Services
We have developed an online banking solution specifically targeted at
smaller financial institutions having less than $500 million in assets. Our
financial services solution is based on transactional foundation software from
Edify Corporation. The Edify software has been chosen by many corporations and
financial institutions and is the foundation of the web-banking systems of some
of the nation's largest banks.
We have taken a service bureau approach to e-banking, which enables us to
provide smaller community banks and credit unions with many of the capabilities
and services available to the larger banks without the cost associated with the
development of bank-specific systems. Our e-banking system includes access to
account activity, history and current account balance information 24 hours a
day, seven days a week, the ability to obtain electronic statements and transfer
funds between accounts, pay bills, make loan applications and download
transactions into personal financial software such as Quicken or Microsoft
Money. We are currently providing online banking services for the Rockwell
Federal Credit Union and the Hewlett Packard Rocky Mountain Credit Union.
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During February 1999, we entered into an agreement with CU Cooperative
Systems, Inc., a national co-operative association representing over 600 credit
unions, pursuant to which we are developing an Internet e-banking solution for
the co-op's members with applications customized for the needs of the co-op and
its members. Under terms of the agreement, we are receiving income for system
development and will receive fees from individual credit unions who belong to
the co-op and who elect to use our e-banking services and ongoing fees based on
these credit unions' members' use of the system.
Our primary focus is on the development of online commerce and
communication solutions for small businesses. For this reason, we are seeking a
strategic partner to help us accelerate the development and marketing of our e-
banking business.
Instant Messaging
Our AccelX product line incorporates instant messaging as a key application
for commerce-oriented dialogs between businesses and consumers. In 1999 we were
the initial sponsor of the Jabber.org instant messaging system, an XML-based
open-source initiative, as we believed it provided the best instant messaging
platform for our application services. As an open source movement, Jabber.org is
able to leverage a large development community, with over 800 registered
developers and nearly 300 active developers working on Jabber instant messaging
software. The Jabber system is designed for compatibility and interoperability
with other proprietary messaging systems and is the first to integrate XML
technologies.
We believe that instant messaging will evolve from its primary use today by
personal computer users for instant chat communications to provide a foundation
for an entirely new class of programs, with applications such as voice over the
Internet, global communications, enterprise communications and collaboration,
real-time online auctioning and customer relationship management. For this
reason, we believe that the potential market for the Jabber instant messaging
system is much greater than just for use in connection with our services. We
have, therefore, formed a subsidiary, Jabber, Inc., in order to commercialize
this business opportunity separately from our local commerce business.
We have formed an advisory board of industry experts to assist us in
developing this business. Current members, in addition to Perry Evans, President
and CEO of Webb, include Doc Searls, senior editor of Linux Journal, co-author
of "The Clue Train Manifesto," and organizer for the "Linux for Suits" events
and web sites; and Eric Raymond, renowned open-source movement advocate, board
member of VA Linux, Inc., author of "The Cathedral and the Bazaar" and founder
of the Open Source Initiative.
Marketing
Our distribution strategy is focused on high-volume distributors of
products and services to local business, such as yellow page directory
publishers, newspapers, city guides, vertical market portals and other
aggregators of local businesses. This focus enables us to avoid the high costs
associated with attracting, serving and supporting a large number of end users.
Typically, we license our applications on a private-label basis to distribution
partners who pay us recurring fees calculated on a transactional, membership or
per application basis. For example, we will receive from CBS Switchboard.com
during the three-year term of the agreement a fee of from $3 to $5 per month per
web site created utilizing our AccelX Site Builder service. CBS Switchboard.com
also may maintain limited exclusivity for the Site Builder service in a segment
of the United States market by paying us minimum quarterly payments, initially
$250,000 and increasing to $312,500 in the third year of the agreement.
By distributing our services through multiple distribution partners, we
believe that we will be able to more rapidly develop a large base of small
businesses who are ideal candidates for use of additional AccelX services as
these services are developed and as the end user's online needs evolve and grow.
The AccelX platform is designed to permit additional services to be added
without requiring our customers to make expensive investments in new software or
equipment.
We employ an executive-level direct marketing and sales model to sell our
products and services. During 1999, we limited our marketing and sales efforts
as our primary focus was on the development of the AccelX
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platform. In 2000, we are increasing significantly our marketing and sales
activities. Our marketing activities include advertising in trade publications,
developing public relations programs featuring us and our products and services
and attendance at key industry trade shows.
A substantial portion of our sales have historically been derived from a
limited number of customers. During 1999 and 1998, four customers accounted for
67% and 71%, respectively, of our sales for the period. During 1999,
Switchboard, Inc., Rockwell Federal Credit Union, and CU Cooperative Systems,
Inc. accounted for 26%, 19%, and 17%, respectively, of our sales for the period.
During 1998, Starstream, Inc., American Telecasting, Inc., Rockwell Federal
Credit Union, and Intermedia Partners accounted for 28%, 14%, 14% and 12%,
respectively, of our sales for the period. While major customers in one fiscal
period are not necessarily anticipated to be major customers in future fiscal
periods, the loss of a major customer could have an adverse effect on our
business.
Trademarks and Proprietary Protection
We rely primarily on a combination of copyright, trade secret, trademark
laws, and nondisclosure and other contractual provisions to protect our
proprietary rights. As a part of our confidentiality procedures, we generally
enter into written nondisclosure and nonsolicitation agreements with our
officers and employees which restrict the use and disclosure of proprietary
information and the solicitation of customers for the purpose of selling
competing products or services. We generally have not entered into
noncompetition agreements with our officers, directors or employees. Because the
policing of proprietary rights may be difficult and the ideas and other aspects
underlying our products and services may not in all cases be protectable under
intellectual property laws, there can be no assurance that we could prevent
competitors from marketing the same or similar products and services. In
addition, competitors may independently develop products and services that
compete with our products and services.
Competition
Our current and prospective competitors include many companies that have
substantially greater financial, technical, marketing, and other resources than
we do. We attempt to distinguish our products primarily on the basis of:
o Focus on needs of small businesses;
o Use of XML-based technologies;
o Integration of instant messaging and community-building technologies;
o Breadth and depth of communications capabilities;
o Customizability;
o Ease of use; and
o Distribution of our products through business aggregators on a private-
label basis.
We believe that competition will intensify in the future. Increased
competition could result in price reductions and increased spending on marketing
and product development. Any of these events could have a material adverse
effect on our financial condition and operating results. There is no assurance
that we will be able to compete successfully against current and future
competitors or that competitive pressures faced by us will not materially
adversely affect our business, financial condition and results of operations.
We believe that the primary factors that will impact competition are technical
expertise and development, price, sales and marketing abilities, customer
support, reliability and security.
For web site publishing, we compete with net Objects/Sitematic Corporation
and Nextron Communications, Inc., two companies that provide web site publishing
and hosting services for local merchant service providers. Their distribution
strategies are similar to ours, although neither of these companies is believed
to have significant capabilities with XML technologies. As we move to customer
relationship management and enhanced shopping and promotional services, we
anticipate that we may encounter competition from a larger number of companies,
including online advertisers such as Microsoft Corporation's Link Exchange and
DoubleClick, Inc., and infrastructure companies such as Inktomi Corporation and
Commerce One, Inc. There are also a large number of software development
companies that are selling software that performs particular functions of
individual modules of
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our AccelX services. We also expect to compete with in-house development
efforts by some of our targeted customers.
There are several online banking services that offer financial services
similar to those we offer to small to medium-sized financial institutions.
These companies generally are serving many more financial institutions than
those we are currently servicing.
The Jabber.org instant messaging system competes with systems offered by
companies such as America Online, Inc., which currently has substantially more
instant messaging users than any other company providing instant messaging
services. There are no competing open source instant messaging systems. We
believe that the Jabber.org system can be distinguished from that offered by
America Online, Inc. and others based on Jabber.org's use of open-source
development and XML technologies and Jabber.org's more flexible platform for
instant messaging applications.
Government Regulation
Our products and services pertaining to web site content and development
are not currently subject to direct regulation by the Federal Communications
Commission or any other federal or state agency, other than regulations
applicable to businesses generally. Changes in the regulatory environment
relating to the Internet could have a material adverse effect on our business.
We cannot predict the impact, if any, that future regulation or regulatory
changes may have on our business.
Employees
At February 25, 2000, we employed 85 full time employees, which included 20
in management and administration, 5 in sales and marketing, and 55 in
development. In addition to these company personnel, we contract with other
creative and production resources, as required for peak load situations. Our
employees are not represented by a labor union, and we consider our employee
relations to be good.
Management
The officers of Webb are as follows:
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Name Age Position
- ------------------------------ ------- ----------------------------------------------------
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Perry Evans................... 40 President and Chief Executive Officer
William Cullen................ 58 Chief Financial Officer
Lindley Branson............... 57 Vice President and General Counsel
Gwenael Hagan................. 39 Vice President, Corporate Development
Andre Durand.................. 32 General Manager, JabberIM Commercialization
Simon Greenman................ 30 General Manager, AccelX Commerce Services
Chris Fanjoy.................. 34 Chief Technology Officer
Mike Murphy................... 48 General Manager, Electronic Banking
Deborah Gerard................ 46 Vice President, Business Development and Sales
Gwen Nail..................... 38 Vice President, Marketing
Kevin Schaff.................. 26 Vice President, AccelX Development
Fred Puls..................... 39 Vice President, Technology
</TABLE>
Perry Evans, has served as President of Webb since June 24, 1999 and
Chief Executive Officer since February 1, 2000. Mr. Evans founded NetIgnite in
1998, which was acquired by Webb in 1999. Mr. Evans was founder of and served
as President of the MapQuest Publishing Group, a widely licensed Internet
locator application service from December 1995 to October 1997. Prior to
MapQuest, Mr. Evans managed the new media development group within RR Donnelley
that was responsible for interactive yellow pages, travel and real estate
products from December 1993 to December 1995.
10
<PAGE>
William Cullen, has served as Chief Financial Officer of Webb since
April 1999 and a director since March 1998. From March 1998 to April 1999, Mr.
Cullen served as Chief Operating Officer of Webb. From May 1997 to March 1998,
Mr. Cullen worked as a consultant to businesses in the cable industry. From
April 1994 to May 1997, Mr. Cullen was Chairman and CEO of Access Television
Network, Inc., a privately held company specializing in providing paid
programming to local cable systems. From January 1992 to March 1994, Mr. Cullen
was President and CEO of California News Channel, a programming project of Cox
Cable Communications. From July 1984 to December 1991, Mr. Cullen was employed
by United Artist Cable Corporation (and its predecessor United Cable Television
Corporation) as Vice President of Operations and President of its subsidiary,
United Cable of Los Angeles, Inc., and as its Senior Vice President of the
Southwest Division. Prior to joining United Artist Cable Corporation, Mr.
Cullen was President of Tribune Company Cable of California, Inc. and CEO of its
United-Tribune Cable of Sacramento joint venture, served as a top financial
officer of three companies and worked in banking.
Lindley Branson, joined Webb as Vice President and General Counsel in
May 1999. Mr. Branson has been a senior partner with the Minneapolis law firm of
Gray, Plant, Mooty, Mooty and Bennett, PA for more than twenty years,
specializing in corporate finance, mergers and acquisitions and general
corporate law.
Gwenael Hagan, has served as Vice President, Corporate Development
of Webb since November 23, 1999. Mr. Hagan joined Webb in January 1998. From
June 1996 to January 1998, Mr. Hagan served as Vice President of New Business
Development with International Channel, a cable television network, where he was
responsible for new revenue opportunities, both domestically and
internationally, and developing and implementing strategies to increase revenue
and position International Channel for growth via evolving digital cable and
satellite platforms. From December 1994 to June 1996, Mr. Hagan served as the
Internet Marketing Manager for Microsoft's western region. Mr. Hagan's work
with Microsoft encompassed competitive strategy development, sales resource
allocation, presentations and public relations.
Andre Durand, has served as General Manager, JabberIM
Commercialization since November 23, 1999. Mr. Durand joined Webb in November
1998. Mr. Durand was the founder of and served as President and Chief Executive
Officer of Durand Communications, Inc. from January 1993 to June 1999. Mr.
Durand is a regular guest speaker at computer fairs, conferences and
expositions, and regularly contributes articles to trade publications discussing
Internet technologies, trends and predictions. From January 1991 to January
1993, Mr. Durand was an auditor with KPMG Peat Marwick in Los Angeles,
California.
Simon Greenman, has served as General Manager, AccelX Commerce
Services since November 23, 1999. Mr. Greenman joined Webb in August 1999 after
graduating from Harvard with an MBA in May 1999. Previously, Mr. Greenman was
Vice President of Internet Engineering at MapQuest.com, an Internet locator
application service, from January 1994 to December 1997, where he oversaw
MapQuest's technical development. While at Harvard, Mr. Greenman consulted on
strategy and marketing for Expedia and Network Computers and was named by
Internet Standard magazine as its "Number 1 MBA draft choice" in the technical
sector for 1999.
Chris Fanjoy, has served as the Chief Technology Officer of Webb since
June 1999. Mr. Fanjoy co-founded and served as the Vice President of
Engineering of NetIgnite, before the company was acquired by Webb in 1999.
Prior to NetIgnite, Mr. Fanjoy was the director of engineering and lead
architect for MapQuest.com, an Internet locator application service, from August
1995 to January 1998, and a senior technology director for MCI Systemhouse, a
geographic information solutions provider company, from January 1998 to April
1999. Mr. Fanjoy has more than 12 years experience with complex database driven
enterprise and web applications.
Mike Murphy, has served as General Manager, Electronic Banking since
1997. Prior to that, Mr. Murphy founded and was Vice President of Operations at
Requisite Technology, Inc, an early e-commerce company from May 1994 until
December 1996. Leading up to that, Mr. Murphy was with Ball Aerospace where he
was an operations general manager from July 1987 to November 1992, and then
director of strategic business development from December 1992 to May 1994.
Before that, Mr. Murphy was an operations manager with Verac, Inc., a high-tech
software company, from July 1979 to July 1987. Mr. Murphy's technical
background is a system engineer and functional architect, and Mr. Murphy holds a
Ph.D. in Electrical Engineering.
11
<PAGE>
Deborah Gerard, has served as Vice President, Business Development and
Sales of Webb since January 2000. Ms. Gerard served as the Rocky Mountain
Regional Sales Manager (15 states) with Genesys Telecommunications Labs from
April 1999 to January 2000. Prior to that, Ms. Gerard worked as a strategic
planning consultant with SELCOR, Inc. from January 1998 to April 1999. Ms.
Gerard worked as a Rocky Mountain Territory Manger with XcelleNet, Inc. from
January 1997 to December 1997. From January 1994 to December 1996, Ms. Gerard
worked at Oracle Corporation in the capacity as practice manager to a business
development manager. In 1996, Ms. Gerard was promoted to Partner Applications
Sales Manager and then promoted to National NT sales manager in the same year.
Gwen Nail, has served as Vice President, Marketing of Webb since March
2000. Ms. Nail is responsible for all product marketing and marketing
communications for AccelX small business and local commerce solutions. Prior to
joining Webb, Ms. Nail was Director of New Products and Ventures with US West
Dex overseeing all of US West Dex.com activities from November 1997 to March
2000. From October 1995 to November 1997, she was the Internet Marketing
Manager with US West Dex.com where she developed US West Dex.com. Ms. Nail was
Product Manager for non-traditional US West directory products from August 1994
to September 1995. Previous experience includes brand marketing with the Coca
Cola bottling company.
Kevin Schaff has served as Vice President of Business Development of
Webb since January 2000. Mr. Schaff is responsible for developing and managing
strategic business relationships, bringing to bear leading industry expertise in
ecommunication strategies for small businesses. Prior to joining Webb, Mr.
Schaff was President of Update Systems, a leader in Customer Relationship
Management and communication solutions for the small and medium sized business
from May 1999 to January 2000. From December 1994 to April 1999 Mr. Schaff was
President and CEO of Wind River Visual Communication, Inc where he oversaw
annual growth of 100% with prestigious clients such as US West, Motorola,
Coopers and Lybrand and Macys. Mr. Schaff holds a degree in Communications from
the University of Wyoming.
Fred Puls, has served as Vice President, Technology of Webb since
January 2000. Mr. Puls is responsible for the development of new Local Commerce
applications that are part of the AccelX product line. Prior to joining Webb,
Mr. Puls was Vice President, R&D, Update Systems from September 1999 to January
2000 and a Director from June 1999 to September 1999. At Update, Mr. Puls was
responsible for all design, development and research activities resulting in the
launch of its ISP Server product and design of the Enterprise Server. From
September 1998 to June 1999, Mr. Puls was Founder and Owner of Sharpkids.com, a
browser based children's educational software and resources company. From July
1996 to September 1998, Mr. Puls was a district manager for AT&T Bell Labs and
from June 1994 to July 1996 a manager with AT&T Bell Labs.
Factors That May Affect Future Results
Factors that may affect our future results include, but are not limited to,
the following items as well as the information in "Item 1 -Description of
Business - General and Competition" and "Item 6 - Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Our limited operating history could affect our business. We were founded in
March 1994 and commenced sales in February 1995. Accordingly, we have a limited
operating history upon which you may evaluate us. Our business is subject to the
risks, expenses and difficulties frequently encountered by companies with a
limited operating history including:
o Limited ability to respond to competitive developments;
o Exaggerated effect of unfavorable changes in general economic and market
conditions;
o Ability to attract qualified personnel; and
o Ability to develop and introduce new product and service offerings.
There is no assurance we will be successful in addressing these risks. If we
are unable to successfully address these risks our business could be
significantly affected.
12
<PAGE>
We have accumulated losses since inception and we anticipate that we
will continue to accumulate losses for the foreseeable future. We have incurred
net losses since inception totaling approximately $42.6 million through December
31, 1999. In addition, we expect to incur additional substantial operating and
net losses in 2000 and for one or more years thereafter. We expect to incur
these additional losses because:
o We currently intend to increase our capital expenditures and operating
expenses to expand the functionality and performance of our products and
services; and
o We recorded goodwill and other intangible assets totalling approximately
$24 million in connection with the acquisitions of three businesses
which will be amortized over their estimated useful lives of
approximately three years.
The accumulated deficit at December 31, 1999, included approximately $17.6
million of non-cash expenses related to the issuance of preferred stock and
warrants in financing transactions, stock and stock options issued for services,
warrants issued to four customers and interest expense on a 10% convertible note
payable. We will be required to record significant additional non-cash
charges of approximately $12.5 million in the first quarter of 2000 in
connection with the issuance of the series B preferred stock and warrants in
January 2000. The current competitive business environment may result in our
issuance of similar securities in future financing transactions or to other
companies as an inducement for them to enter into a business relationship with
us. While these transactions represent non-cash charges, they will increase our
expenses and net loss and our net loss available to common shareholders.
If we are unable to raise additional working capital funds, we may not be
able to sustain our operations. We believe that our present cash and cash
equivalents, working capital and commitments for additional equity investments
will be adequate to sustain our current level of operations through 2001. There
is no assurance that we will be able to raise additional funds in amounts
required or upon acceptable terms. In addition, we may discover that we have
underestimated our working capital needs, and we may need to obtain additional
funds to sustain our operations through fiscal 2001. If we cannot raise
additional funds when needed, we may be required to curtail or scale back our
operations. These actions could have a material adverse effect on our business,
financial condition or results of operations.
We may never become or remain profitable. Our ability to become
profitable depends on the ability of our products and services to generate
revenues. The success of our revenue model will depend upon many factors
including:
o The success of our distribution partners in marketing their products and
services; and
o The extent to which consumers and businesses use our services and
conduct e-commerce transactions and advertising utilizing our services.
Because of the new and evolving nature of the Internet, we cannot predict
whether our revenue model will prove to be viable, whether demand for our
products and services will materialize at the prices we expect to be charged, or
whether current or future pricing levels will be sustainable. Additionally, our
customer contracts may result in significant development revenue in one quarter,
which will not recur in the next quarter for that customer. As a result, it is
likely that components of our revenue will be volatile, which may cause our
stock price to be volatile as well.
Our business depends on the growth of the Internet. Our business plan
assumes that the Internet will develop into a significant source of
communication and communication interactivity. However, the Internet market is
new and rapidly evolving and there is no assurance that the Internet will
develop in this manner. If the Internet does not develop in this manner, our
business, operating results and financial condition would be materially
adversely affected. Numerous factors could prevent or inhibit the development of
the Internet in this manner, including:
o The failure of the Internet's infrastructure to support Internet usage
or electronic commerce;
13
<PAGE>
o The failure of businesses developing and promoting Internet commerce to
adequately secure the confidential information, such as credit card
numbers, needed to carry out Internet commerce; and
o Regulation of Internet activity.
Use of many of our products and services will be dependent on distribution
partners. Because we have elected to partner with other companies for the
distribution of many of our products and services, many users of our products
and services are expected to utilize our services through our distribution
partners. As a result, our distribution partners, and not us, will substantially
control the customer relationship with these users. If the business of the
companies with whom we partner is adversely affected in any manner, our
business, operating results and financial condition could be materially
adversely affected.
We may be unable to develop desirable products. Our products are subject to
rapid obsolescence and our future success will depend upon our ability to
develop new products and services that meet changing customer and marketplace
requirements. There is no assurance that we will be able to successfully:
o Identify new product and service opportunities; or
o Develop and introduce new products and services to market in a timely
manner.
If we are unable to accomplish these items, our business, operating
results and financial condition could be materially adversely affected.
Our products and services may not be successful. Even if we are able to
successfully identify, develop, and introduce new products and services there is
no assurance that a market for these products and services will materialize to
the size and extent that we anticipate. If a market does not materialize as we
anticipate, our business, operating results, and financial condition could be
materially adversely affected. The following factors could affect the success of
our products and services:
o The failure of our business plan to accurately predict the rate at which
the market for Internet products and services will grow;
o The failure of our business plan to accurately predict the types of
products and services the future Internet marketplace will demand;
o Our limited experience in marketing our products and services;
o The failure of our business plan to accurately predict our future
participation in the Internet marketplace;
o The failure of our business plan to accurately predict the estimated
sales cycle, price and acceptance of our products and services;
o The development by others of products and services that renders our
products and services noncompetitive or obsolete; or
o Our failure to keep pace with the rapidly changing technology, evolving
industry standards and frequent new product and service introductions
that characterize the Internet marketplace.
The intense competition that is prevalent in the Internet market could have
a material adverse effect on our business. Our current and prospective
competitors include many companies whose financial, technical, marketing and
other resources are substantially greater than ours. There is no assurance that
we will have the financial resources, technical expertise or marketing, sales
and support capabilities to compete successfully. The presence of these
competitors in the Internet marketplace could have a material adverse effect on
our business, operating results or financial condition by causing us to:
o Reduce the average selling price of our products and services; or
o Increase our spending on marketing, sales and product development.
There is no assurance that we would be able to offset the effects of any
such price reductions or increases in spending through an increase in the number
of our customers, higher sales from premium services, cost reductions or
otherwise. Further, our financial condition may put us at a competitive
disadvantage relative to our competitors. If
14
<PAGE>
we fail to, or cannot, meet competitive challenges, our business, operating
results and financial condition could be materially adversely affected.
A limited number of our customers generate a significant portion of our
revenues. We had four customers representing 67% of revenues for the year ended
December 31, 1999, and four customers representing 71% of revenues for the year
ended December 31, 1998. There is no assurance that we will be able to attract
or retain major customers. The loss of, or reduction in demand for products or
services from major customers could have a material adverse effect on our
business, operating results, cashflow and financial condition.
The sales cycle for our products and services is lengthy and unpredictable.
While our sales cycle varies from customer to customer, it typically has ranged
from one to six months. Our pursuit of sales leads typically involves an
analysis of our prospective customer's needs, preparation of a written proposal,
one or more presentations and contract negotiations. We often provide
significant education to prospective customers regarding the use and benefits of
our Internet technologies and services. Our sales cycle may also be affected by
a prospective customer's budgetary constraints and internal acceptance reviews,
over which we have little or no control. In order to quickly respond to, or
anticipate, customer requirements, we may begin development work prior to having
a signed contract, which exposes us to the risk that the development work will
not be recovered from revenue from that customer.
We may be unable to adjust our spending to account for potential
fluctuations in our quarterly results. As a result of our limited operating
history, we do not have historical financial data for a sufficient number of
periods on which to base planned operating expenses. Therefore, our expense
levels are based in part on our expectations as to future sales and to a large
extent are fixed. We typically operate with little backlog and the sales cycles
for our products and services may vary significantly. As a result, our quarterly
sales and operating results generally depend on the volume and timing of and the
ability to close customer contracts within the quarter, which are difficult to
forecast. We may be unable to adjust spending in a timely manner to compensate
for any unexpected sales shortfalls. If we were unable to so adjust, any
significant shortfall of demand for our products and services in relation to our
expectations would have an immediate adverse effect on our business, operating
results and financial condition. Further, we currently intend to increase our
capital expenditures and operating expenses to fund product development and
increase sales and marketing efforts. To the extent that such expenses precede
or are not subsequently followed by increased sales, our business, operating
results and financial condition will be materially adversely affected.
We may be unable to retain our key executives and research and development
personnel. Our future success also depends in part on our ability to identify,
hire and retain additional personnel, including key product development, sales,
marketing, financial and executive personnel. Competition for such personnel is
intense and there is no assurance that we can identify or hire additional
qualified personnel.
Executives and research and development personnel who leave us may compete
against us in the future. We generally enter into written nondisclosure and
nonsolicitation agreements with our officers and employees which restrict the
use and disclosure of proprietary information and the solicitation of customers
for the purpose of selling competing products or services. However, we generally
do not require our employees to enter into non-competition agreements. Thus, if
any of these officers or key employees left, they could compete with us, so long
as they did not solicit our customers. Any such competition could have a
material adverse effect on our business.
We may be unable to manage our expected growth. If we are able to implement
our growth strategy, we will experience significant growth in the number of our
employees, the scope of our operating and financial systems and the geographic
area of our operations. There is no assurance that we will be able to implement
in whole or in part our growth strategy or that our management or other
resources will be able to successfully manage any future growth in our business.
Any failure to do so could have a material adverse effect on our operating
results and financial condition.
We may be unable to protect our intellectual property rights. Intellectual
property rights are important to our success and our competitive position. There
is no assurance that the steps we take to protect our intellectual
15
<PAGE>
property rights will be adequate to prevent the imitation or unauthorized use of
our intellectual property rights. Policing unauthorized use of proprietary
systems and products is difficult and, while we are unable to determine the
extent to which piracy of our software exists, we expect software piracy to be a
persistent problem. In addition, the laws of some foreign countries do not
protect software to the same extent as do the laws of the United States. Even if
the steps we take to protect our proprietary rights prove to be adequate, our
competitors may develop services or technologies that are both non-infringing
and substantially equivalent or superior to our services or technologies.
Computer viruses and similar disruptive problems could have a material
adverse effect on our business. Our software and equipment may be vulnerable to
computer viruses or similar disruptive problems caused by our customers or other
Internet users. Our business, financial condition or operating results could be
materially adversely affected by:
o Losses caused by the presence of a computer virus that causes us or
third parties with whom we do business to interrupt, delay or cease
service to our customers;
o Losses caused by the misappropriation of secured or confidential
information by a third party who, in spite of our security measures,
obtains illegal access to this information;
o Costs associated with efforts to protect against and remedy security
breaches; or
o Lost potential revenue caused by the refusal of consumers to use our
products and services due to concerns about the security of transactions
and commerce that they conduct on the Internet.
Future government regulation could materially adversely affect our
business. There are currently few laws or regulations directly applicable to
access to, communications on, or commerce on the Internet. Therefore, we are not
currently subject to direct regulation of our business operations by any
government agency, other than regulations applicable to businesses generally.
Due to the increasing popularity and use of the Internet, however, federal,
state, local, and foreign governmental organizations are currently considering a
number of legislative and regulatory proposals related to the Internet. The
adoption of any of these laws or regulations may decrease the growth in the use
of the Internet, which could, in turn:
o Decrease the demand for our products and services;
o Increase our cost of doing business; or
o Otherwise have a material adverse effect on our business, results of
operations and financial condition.
Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, copyright, trademark, trade secret,
obscenity, libel and personal privacy is uncertain and developing. Our business,
results of operations and financial condition could be materially adversely
affected by the application or interpretation of these existing laws to the
Internet.
Our articles of incorporation and bylaws may discourage lawsuits and other
claims against our directors. Our articles of incorporation provide, to the
fullest extent permitted by Colorado law, that our directors shall have no
personal liability for breaches of their fiduciary duties to us. In addition,
our bylaws provide for mandatory indemnification of directors and officers to
the fullest extent permitted by Colorado law. These provisions may reduce the
likelihood of derivative litigation against directors and may discourage
shareholders from bringing a lawsuit against directors for a breach of their
duty.
The price of our common stock has been highly volatile due to factors that
will continue to affect the price of our stock. Our common stock closed as high
as $67.75 per share and as low as $7.44 per share between January 1, 1999 and
March 17, 2000. Historically, the over-the-counter markets for securities such
as our common stock have experienced extreme price and volume fluctuations. Some
of the factors leading to this volatility include:
o Price and volume fluctuations in the stock market at large that do not
relate to our operating performance;
o Fluctuations in our quarterly revenue and operating results;
o Announcements of product releases by us or our competitors;
o Announcements of acquisitions and/or partnerships by us or our
competitors; and
16
<PAGE>
o Increases in outstanding shares of common stock upon exercise or
conversion of derivative securities.
These factors may continue to affect the price of our common stock in the
future.
We have issued numerous options, warrants, and convertible securities to
acquire our common stock that could have a dilutive effect on our shareholders.
As of March 17, 2000, we had issued warrants and options to acquire 4,116,824
shares of our common stock, exercisable at prices ranging from $1.63 to $58.25
per share, with a weighted average exercise price of approximately $14.07 per
share. In addition to these warrants and options, we have reserved 1,875,000
shares of common stock for issuance upon conversion of our 10% convertible note
and series B convertible preferred stock. During the terms of these derivative
securities, the holders will have the opportunity to profit from either an
increase or, in the case of the preferred stock and note, decrease in the market
price of our common stock with resulting dilution to the holders of shares who
purchased shares for a price higher than the respective exercise or conversion
price. In addition, the increase in the outstanding shares of our common stock
as a result of the exercise or conversion of these derivative securities could
result in a significant decrease in the percentage ownership of our common stock
by the purchasers of our common stock.
The potentially significant number of shares issuable upon conversion of
our 10% convertible note and series B convertible preferred stock could make it
difficult to obtain additional financing. Due to the significant number of
shares of our common stock which could result from a conversion of our 10%
convertible note and series B convertible preferred stock, new investors may
either decline to make an investment in Webb due to the potential negative
effect this additional dilution could have on their investment or require that
their investment be on terms at least as favorable as the terms of the 10%
convertible note or series B convertible preferred stock. If we are required to
provide similar terms to obtain required financing in the future, the potential
adverse effect of these existing financings could be perpetuated and
significantly increased.
Future sales of our common stock in the public market could adversely
affect the price of our common stock. Sales of substantial amounts of common
stock in the public market that is not currently freely tradable, or even the
potential for such sales, could have an adverse affect on the market price for
shares of our common stock and could impair the ability of purchasers of our
common stock to recoup their investment or make a profit. As of March 17, 2000,
these shares consist of:
o Approximately 310,000 shares owned by our executive officers and
directors of our outstanding common stock ("Affiliate Shares");
o Up to 1,875,000 shares issuable upon conversion of the 10% convertible
note and series B preferred stock; and
o Approximately 4,116,824 shares issuable to warrant and option holders.
Unless the Affiliate Shares are further registered under the securities
laws, they may not be resold except in compliance with Rule 144 promulgated by
the SEC, or some other exemption from registration. Rule 144 does not prohibit
the sale of these shares but does place conditions on their resale which must be
complied with before they can be resold.
The common stock issuable upon conversion of our convertible note and
preferred stock may increase as the price of our common stock decreases, which
may adversely affect the price of our common stock. On March 17, 2000, we had
issued and outstanding $2,500,000 principal amount of a 10% convertible note and
12,500 shares of series B convertible preferred stock. The number of shares of
common stock that may ultimately be issued upon conversion of these securities
is presently indeterminable and could fluctuate significantly. Purchasers of
common stock could therefore experience substantial dilution upon conversion of
the convertible note and preferred stock. In addition, the significant downward
pressure on the market price of our common stock could develop as the holders
convert and sell material amounts of common stock which could encourage short
sales by the holders or others, placing further downward pressure on the market
price of our common stock.
To illustrate the potential dilution that may occur upon conversion of the
convertible note and preferred stock, the following table sets forth the number
of shares of common stock that would be issued upon conversion of
17
<PAGE>
the principal of the convertible note and the shares of preferred stock if the
market price for our common stock on the dates that the conversion prices of
these securities are subject to adjustment is $41.00, the closing sale price for
our common stock on March 17, 2000, and at assumed market prices of 75%, 50%,
25% and 10% of the market price on March 17, 2000, assuming that the conversion
price for the 10% note is adjusted after September 29, 2000. At March 17, 2000,
the lowest potential conversion price was $8.00 per share.
<TABLE>
<CAPTION>
Shares Issued Upon Conversion
-------------------------------------------------------------
Market Price 10% Notes (Conversion Series B Preferred Stock Total (Percentage of
Price) (Conversion Price) Outstanding)
- ---------------------------------- -------------------------- -------------------------------- -----------------------
<S> <C> <C> <C>
$41.00 (actual price at 03/17/00) 248,262 ($10.07) 625,000 ($20.00) 873,262 (9.7%)
$30.75 (75% of 03/17/00 price) 248,262 ($10.07) 625,000 ($20.00) 873,262 (9.7%)
$20.50 (50% of 03/17/00 price) 248,262 ($10.07) 625,000 ($20.00) 873,262 (9.7%)
$10.25 (25% of 03/17/00 price) 248,262 ($10.07) 1,219,512 ($10.25) 1,467,774 (16.3%)
$ 4.10 (10% of 03/17/00 price) 312,500 ($ 8.00) 1,562,500 ($8.00) 1,875,000 (20.8%)
</TABLE>
Future sales of our common stock in the public market could limit our
ability to raise capital. Sales of substantial amounts of our common stock in
the public market pursuant to Rule 144, upon exercise or conversion of
derivative securities or otherwise, or even the potential for such sales, could
affect our ability to raise capital through the sale of equity securities.
Provisions in our articles of incorporation allow us to issue shares of
stock that could make a third party acquisition of us difficult. Our Articles of
Incorporation authorize our Board of Directors to issue up to 20,000,000 shares
of common stock and 5,000,000 shares of preferred stock in one or more series,
the terms of which may be determined at the time of issuance by the Board of
Directors, without further action by our shareholders. Preferred stock
authorized by the Board of Directors may include voting rights, preferences as
to dividends and liquidation, conversion and redemptive rights and sinking fund
provisions. If the Board of Directors authorizes the issuance of preferred stock
in the future, this authorization could affect the rights of the holders of
common stock, thereby reducing the value of the common stock, and could make it
more difficult for a third party to acquire us, even if a majority of the
holders of our common stock approved of an acquisition.
The issuance of our 10% convertible note payable and series B convertible
preferred stock required us to record non-cash expenses which will, in turn,
increase our net loss available to common shareholders. Based on current
accounting standards, we recorded a non-cash expense of approximately $2.1
million as additional interest expense for the year ended December 31, 1999, as
a result of the issuance of our 10% convertible note. We will record additional
non-cash expenses of approximately $643,000 during the three years ending
December 31, 2002 related to the issuance of the note and approximately $12.5
million during the first quarter of 2000 in connection with the issuance of the
preferred stock.
We do not anticipate paying dividends on our common stock for the
foreseeable future. We have never paid dividends on our common stock and do not
intend to pay any dividends on our common stock in the foreseeable future. Any
decision by us to pay dividends on our common stock will depend upon our
profitability at the time, cash available therefor, and other factors. We
anticipate that we will devote profits, if any, to our future operations.
Item 2. DESCRIPTION OF PROPERTY.
Our principal offices are located in approximately 16,800 square feet of
space in Denver, Colorado, leased at a current base monthly rental of $25,401.
Commencing in May 2000, our principal offices will be located in approximately
21,400 square feet of space in Denver, Colorado, leased for a period of five
years at a base monthly rental of $46,362 during the first three years and of
$49,929 thereafter.
18
<PAGE>
We also have offices with approximately 5,620 square feet in Boulder,
Colorado, leased until March 31, 2001. From April 1, 2001 until March 31, 2002,
the base monthly rental will be $5,308, and from April 1, 2002 until March 31,
2003, the base monthly rental will be $5,494.
Item 3. LEGAL PROCEEDINGS.
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
19
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The number of record holders of our common stock on February 25, 2000 was
130. Based on information provided by nominee holders of our common stock, we
believe that the number of beneficial holders of our common stock is in excess
of 11,000. The table below sets forth the high and low bid prices for the common
stock as reported on the Nasdaq Small Cap Market during the two years ended
December 31, 1999. The information shown is based on information provided by the
Nasdaq Stock Market. These quotations represent prices between dealers, and do
not include retail markups, markdowns or commissions, and may not represent
actual transactions.
COMMON STOCK
----------------------------------
Quarter Ended High Bid Low Bid
- ------------- ----------------- ---------------
1998
- ----
March 31 $10.38 $ 6.50
June 30 $15.63 $ 8.50
September 30 $15.69 $ 4.88
December 31 $14.75 $ 3.25
1999
- ----
March 31 $20.81 $10.75
June 30 $18.75 $10.81
September 30 $16.50 $ 7.44
December 31 $23.25 $ 8.25
We have never paid a cash dividend on our common stock. The payment of
dividends, if any, in the future rests within the discretion of our Board of
Directors and will depend, among other things, upon our earnings, capital
requirements and financial condition.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
Webb provides innovative advanced online commerce and communication
solutions for small businesses, with a particular emphasis on local commerce
interaction. Our AccelX product line of XML-based commerce and buyer-seller
interaction services provide businesses with powerful web site development and
communication tools to attract customers, generate leads, increase buyer-seller
interaction and strengthen customer relationship management. The AccelX services
are divided into two categories: Customer Relationship Management Services and
Marketplace Services.
We license our services on a private-label basis to high-volume
distribution partners such as yellow page directory publishers, newspapers, city
guides, vertical market portals and other aggregators of local businesses. Our
products are designed to be delivered on an application service provider
business model whereby we host the software on our servers and deliver and
manage the service on behalf of our distribution partners. Generally, these
services are provided on a revenue-share basis providing us with recurring
revenues as our distribution partners sell these services to their small
business customers. This distribution model is designed to provide us with a
growing base of businesses using one or more of our services who are ideal
customers for additional AccelX services.
To date, we have generated revenues through the sale of design and
consulting services for web site development and network engineering services,
resale of software licenses, mark-ups on computer hardware and software sold to
customers, maintenance fees charged to customers to maintain computer hardware
and web sites, license fees based on a portion of revenues from our products and
services, training course fees, and monthly fees paid by customers for Internet
access which we have provided. We commenced sales in February 1995, and were in
the development stage through December 31, 1995. We have incurred losses from
operations since inception. At December 31, 1999, we had an accumulated deficit
of approximately $42.6 million.
Prior to the third quarter of 1997, our focus generally was on three
markets: general web site development, maintenance and hosting; rural or small
market Internet service providers; and healthcare information services and
continuing medical education. Each of these activities involved, to varying
degrees, the building of online communities and the development of tools and
services to allow for the building of strategic and customized web sites. As an
outgrowth of these activities, since mid 1997, our business has evolved to the
development of online communities. Most recently, the focus on community
communications was enhanced with our development of applications that apply
these capabilities to e-commerce services for large numbers of small businesses.
Prior to January 2000, we were organized around our primary market focus on
local commerce services, with an additional business unit dedicated to e-banking
services. In the local commerce segment, we target small and medium sized
businesses with our AccelX application services supporting XML-based commerce
and buyer-seller interaction. The electronic banking unit targets credit
unions, community banks, and savings and loan institutions with a full line of
e-banking transaction processing and account management services. In January
2000, we formed a new subsidiary in order to commercialize separately from our
AccelX application services business, the Jabber.org instant messaging system.
We intend to seek significant participation from external partners to help us
maximize the value of the e-banking and instant messaging businesses.
The accumulated deficit at December 31, 1999, included approximately $17.6
million of non-cash expenses related to the issuance of preferred stock and
warrants in financing transactions, stock and stock options issued for services,
warrants issued to four customers and interest expense on the 10% convertible
note payable. Based on applicable current accounting standards, we estimate that
we will be required to record a non-operating expense of approximately $250,000
in 2001 and $160,000 in 2002 in connection with the issuance of our 10%
convertible note. We will be required to record additional non-cash charges of
$12.5 million in the first quarter of 2000 in connection with the issuance of
series B convertible preferred stock. Non-operating expenses of approximately
$4.6 million were charged to earnings in connection with a private placement of
preferred stock during 1999. While these charges do not affect our operating
losses or working capital, they do result in a decrease in our net income
available to common stockholders. Additionally, we recorded a non-cash charge
for preferred stock dividends during 1999 of approximately $273,000.
Results of Operations
The following table sets forth for the periods indicated the percentage of
net revenues by items contained in the Statements of Operations. All percentages
are calculated as a percentage of total net revenues, with the exception of cost
of revenues which are calculated based on the respective net revenue amounts.
20
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Net revenues:
Licenses 20.2% 6.2% -
Service bureau fees 13.6% 8.4% 1.1%
Services 60.2% 16.0% 58.9%
Hardware and software sales 6.0% 69.4% 40.0%
------------------- ------------------- -------------------
Total net sales 100.0% 100.0% 100.0%
Cost of revenues:
Cost of licenses 97.5% 219.8% -
(as percentage of license revenues)
Cost of service bureau revenues 28.5% 27.1% 25.0%
(as percentage of service bureau revenues)
Cost of services 101.0% 53.0% 60.5%
(as percentage of service revenues)
Cost of hardware and software 80.1% 82.0% 87.0%
(as percentage of hardware and software revenues)
------------------- ------------------- -------------------
Total cost of revenues 89.2% 81.3% 71.4%
Gross margin 10.8% 18.7% 28.6%
------------------- ------------------- -------------------
Operating expenses:
Sales and marketing expenses 88.8% 156.0% 42.9%
Product development expenses 148.7% 79.5% 39.7%
General and administrative expenses 341.4% 374.9% 65.8%
Customer acquisition costs 48.4% 35.3% -
Depreciation and amortization expenses 156.2% 49.8% 7.1%
------------------- ------------------- -------------------
Total operating expenses 783.5% 695.5% 155.5%
Loss from operations (772.7)% (676.8)% (126.9)%
------------------- ------------------- -------------------
Net loss (888.6)% (668.0)% (120.9)%
Preferred stock dividends (14.0)% (20.7)% -
Accretion of preferred stock to redemption value (162.4)% (258.6)% -
Accretion of preferred stock for guaranteed
return in excess of redemption value (59.6)% (44.5)% -
------------------- ------------------- -------------------
Net loss available to common stockholders (1124.6)% (991.8)% (120.9)%
=================== =================== ===================
</TABLE>
21
<PAGE>
Twelve Months Ended December 31, 1999 and 1998.
Components of net revenues and cost of revenues are as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Net revenues:
Licenses $ 392,810 $ 97,892
Service bureau fees 263,888 132,959
Services 1,170,076 254,812
Hardware and software 117,509 1,103,717
Total net revenues 1,944,283 1,589,380
------------------ ------------------
Cost of revenues
Cost licenses 382,951 215,142
Cost of service bureau fees 75,313 35,986
Cost of services 1,181,895 135,175
Cost of hardware and software 94,155 905,234
------------------ ------------------
Total cost of revenues 1,734,314 1,291,537
------------------ ------------------
Gross margin $ 209,969 $ 297,843
================== ==================
</TABLE>
License revenues represent fees earned for granting customers licenses to
use our software products and services and are calculated on the usage of our
products based on a fixed amount or on a per consumer basis or as a portion of
revenues our customers earn from consumers. Our net revenues from software
license fees were $392,810 for the year ended December 31, 1999, which
represents an increase of 301.3% when compared with the year ended December 31,
1998. The increase is primarily due to fees earned from Switchboard, Inc. in
the form of quarterly guaranteed minimum revenue and from a 192% increase in
revenues from Re/Max International, Inc.
Service bureau revenues represent fees earned for providing monthly online
banking application service provider services to our e-banking customers. Our
net revenues from service bureau fees were $263,888 for the year ended December
31, 1999, which represents an increase of 98.5% when compared with the year
ended December 31, 1998. The increase is due to higher monthly revenues from
Rockwell Federal Credit Union as well as revenue from HP Rocky Mountain Federal
Credit Union which went online during the fourth quarter of 1999.
Services revenues consists principally of revenue derived from professional
services for the customization of our software to customer specifications,
assisting our customers in configuring and integrating our software
applications, network engineering fees and hosting fees as well as fees for
ongoing maintenance, which consists of unspecified product upgrades and
enhancements on a when-and-if-available basis. Our net revenues from services
were $1,170,076 for the year ended December 31, 1999, which represents an
increase of 359.2% when compared with the year ended December 31, 1998. The
increase is primarily due to fees we earned for developing and integrating our
local directory software for Switchboard, Inc. and design and integration fees
from CU Cooperative Systems, Inc. we are recognizing on a percentage of
completion basis. In addition, during July 1999, we sold two customer contracts
to an unrelated third party, including related computer hardware, for
approximately $270,000. We provided services and equipment under the terms of
the original contracts enabling our customers to provide Internet access to
their end users. We recorded $138,504 of service revenue for the year ended
December 31, 1999 related to providing services to the purchaser of these two
contracts. We recognized revenue from these contracts totaling approximately
$6,000 for the year ended December 31, 1999.
Revenues from hardware and software include the resale of computer hardware
and third party software to customers generally in connection with implementing
our local directory/enterprise products and services. During the second quarter
of 1998, we changed our pricing structure whereby we supply any required
equipment and the
22
<PAGE>
products and services. Consequently the customer is not required to pay any
significant fees upon the delivery of such items. Our net revenues from the
resale of hardware and software was $117,509 for the year ended December 31,
1999 compared to $1,103,717 for the year ended December 31, 1998. During 1999,
we sold equipment to customers with whom we have existing contracts to provide
equipment. We do not anticipate significant revenues from hardware and equipment
sales in future periods.
We had four customers representing 67% of revenues and four customers
representing 71% of revenues for the years ended December 31, 1999 and 1998,
respectively. These customers for the 1999 period are as follows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
--------------------------------------------
Customer 1999 1998
- ------------------------------------------------------------ -------------------
<S> <C> <C>
Switchboard, Inc. 26% --
Rockwell Federal Credit Union 19% 14%
CU Co Operative Systems, Inc. 16% --
Intermedia Partners 6% 12%
</TABLE>
As of December 31, 1999, we have revenue backlog totaling approximately
$1,372,000 which we expect to recognize as revenue during 2000.
Cost of revenues as a percentage of net revenues was 89.2% for the year
ended December 31, 1999 compared to 81.3% for the year ended December 31, 1998.
License revenues - Cost of license revenues consist of compensation
costs associated with assisting our customers in delivering our services to
end users, third party content software license fees, and third party
transaction fees. Cost of license revenues were $382,951 for the year ended
December 31, 1999, or 97.5% of net license revenues, as compared to
$215,142 for the year ended December 31, 1998, or 219.8% of 1998 net
license revenues. The absolute dollar increase was primarily attributable
to the amortization of a one-year third party software license we purchased
to integrate directory functionality into our products.
Service bureau fees - Cost of service bureau fees consist of
compensation costs for customer service, help desk fees, third party
software support agreements and Internet connectivity costs. Cost of
service bureau fees were $75,313 for the year ended December 31, 1999, or
28.5% of net service bureau fees, as compared to $35,986 for the year ended
December 31, 1998, or 27.1% of 1998 net license revenues. The absolute
dollar increase was primarily attributable to an increase in the number of
credit union members using the services, including costs associated with a
second credit union which began using our services during the fourth
quarter of 1999.
Service revenues - Cost of service revenues consist of compensation
costs and consulting fees associated with performing custom programming,
installation and integration services for our customers and support
services as well as costs for hosting services which consist of costs to
operate our network operating center. Cost of service revenues were
$1,181,895 for the year ended December 31, 1999, or 101.0% of net service
revenues, as compared to $135,175 for the year ended December 31, 1998, or
53.0% of 1998 net service revenues. The increases in costs were due to
providing professional services for four new customers at lower margins as
the contracts specify future revenue sharing arrangements and/or subscriber
based fees or were entered into to establish strategic alliances. We also
incurred costs to operate our network operating center, which we began
operating during the second quarter of 1999, including costs associated
with delivering Internet access and content to the customers of our cable
operator distribution partners. We constructed the network operating center
to accommodate our current customer base, our contract backlog and our
projected future growth. Consequently, during 1999, the cost to operate the
network operating center out paced our current revenues resulting in a
lower gross margin.
23
<PAGE>
Hardware and software revenues - Cost of hardware and software
revenues consist of computer and third party software purchased for resale
to cable operators. Cost of hardware and software revenue was 80.1% of net
revenues for the year ended December 31, 1999 compared to 82.0% of net
revenues for the year ended December 31, 1998. Cost of hardware and
software revenues as a percentage of net revenues decreased slightly
between periods because we sold equipment to existing customers at somewhat
lower margins during 1998. Due to the change in our business model whereby
we offer services to our customers, equipment sales are not expected to be
significant in future periods.
Sales and marketing expenses consist primarily of employee compensation,
advertising, trade show expenses, and costs of marketing materials. Sales and
marketing expenses were $1,726,004 for the year ended December 31, 1999, or
88.8% of net revenues as compared to $2,479,029, or 156.0% of net revenues for
the year ended December 31, 1998. The decrease in absolute dollars was
primarily attributable to (i) a net decrease of six employees; (ii) the phase
out of our international marketing efforts; and (iii) a decrease in advertising
dollars as a result of our focus on distribution partners (rather than on
consumers). These decreases were partially off-set by an increase in trade
show expenses, and new product support materials for our local
directory/enterprise products. We expect sales and marketing expenses to
increase on an absolute dollar basis in future periods but decrease as a
percentage of net revenues as our revenues increase from current levels as we
continue to market our products and services.
Product development expenses consist primarily of employee compensation and
programming fees relating to the development and enhancement of the features and
functionality of our AccelX services. Product development expenses were
$2,891,569 for the year ended December 31, 1999, or 148.7% of net revenues as
compared to $1,264,287, or 79.5% of net revenues for the year ended December 13,
1998. During 1999, all product development costs have been expensed as
incurred. We capitalized $281,775 of development costs during 1998, which were
written off to depreciation and amortization expense during 1998. The increase
in absolute dollars was due primarily to (i) an increase in technology personnel
from 12 to 31 and an increase in contract labor to support the continued
development of our products; and (ii) an increase in third party software
maintenance and support costs. We believe that significant investments in
product development are critical to attaining our strategic objectives and, as a
result, we expect product development expenses to increase in future periods.
General and administrative expenses consist primarily of employee
compensation, consulting expenses, fees for professional services, and the non-
cash expense of stock and warrants issued for services. General and
administrative expenses were $6,637,601 for the year ended December 31, 1999, or
341.4% of net revenues as compared to $5,958,617, or 374.9% of net revenues for
the year ended December 31, 1998. The increase in absolute dollars was primarily
attributable to (i) an increase in compensation costs; (ii) increases in legal
and accounting fees generally associated with securities filings; (iii)
increases in office rent expense; (iv) increases in investor relation expenses;
and (v) costs incurred associated with operating the DCI California office
through November 1999. These increases were partially offset by a decrease in
non-cash expenses for stock and options we issued for services and a decrease in
fees we paid to consultants. We expect general and administrative expenses to
decrease as a percentage of revenues as our revenues increase.
Customer acquisition costs consist of the value of warrants to purchase our
common stock we issued to customers in connection with customer contracts for
our products and services. We expense the value of warrants on the date of
issuance unless the related contract specifies minimum guaranteed revenues.
Customer acquisition costs were $941,684 for the year ended December 31, 1999,
or 48.4% of net revenues as compared to $560,824, or 35.3% of net revenues for
the year ended December 31, 1998. During 1999, we issued warrants to three
customers to purchase an aggregate of 161,667 shares of our common stock.
Depreciation and amortization was $3,036,773 for the year ended December
31, 1999, compared to $791,155 for the year ended December 31, 1998, which
included approximately $403,000 of capitalized development costs that we wrote-
off during 1998. We recorded more depreciation expense in 1999 as a result of an
increase in fixed assets primarily from construction of our network operating
center and computer hardware and third party software to support the launch of
our AccelX services, two new e-banking customers, and computer equipment
24
<PAGE>
to support our product development team. We also began amortizing the intangible
assets and goodwill we acquired in the DCI and NetIgnite acquisitions and
recorded $2,523,351 of amortization expense in 1999. As a result of these
acquisitions as well as the acquisition of Update Systems we completed in
January 2000, we expect to record approximately $9,200,000 of such expenses in
2000 and 2001 and approximately $6,700,000 of such expenses in 2002. Because our
business has never been profitable, and due to the other risk and uncertainties
discussed herein, it is possible that an analysis of these long-lived assets in
future periods could result in a conclusion that they are impaired, and the
amount of the impairment could be substantial.
Interest income was $225,712 for the year ended December 31, 1999, compared
to $146,830 for the year ended December 31, 1998. During 1999, we also recorded
$22,050 of interest income from our note receivable from DCI.
Interest expense was $2,352,062 for the year ended December 31, 1999,
compared to $7,024 for the year ended December 31, 1998. During 1999, we
recorded $2,311,026 of interest expense related to the 10% convertible note
payable we issued in August 1999, including (i) $173,973 of cash interest
expense and (ii) non-cash charges of $2,092,137 related to amortization of the
beneficial conversion feature and the discount recorded for the issuance of a
common stock purchase warrant; and (iii) $44,916 related to the amortization of
financing fees.
Net losses allocable to common stockholders were $21,866,012 for the year
ended December 31, 1999, compared to $15,762,372 for the year ended December 31,
1998. We recorded non-cash expenses for the following items:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Amortization of intangible assets and goodwill $ 2,523,351 $ -
Customer acquisition costs 941,684 560,824
Amortization of beneficial conversion, discount
and placement fees to interest expense related
to the 10% convertible note payable 2,137,053 -
Stock and warrants issued for services 1,814,683 2,309,804
Preferred stock dividends 272,663 329,120
Accretion of preferred stock 4,316,254 4,816,989
------------------- -------------------
Total $12,005,688 $8,016,737
=================== ===================
</TABLE>
The increase in losses reflect expenses in sales and marketing, product
development, and general and administrative areas that have increased at a
faster rate than revenues. This is due to the time lag associated with product
development and market introduction as well as the long sales cycle for most of
our products and services. We expect to continue to experience increased
operating expenses and investments during 2000, as we continue to develop new
product offerings and the infrastructure required to support our anticipated
growth. We expect to report operating and net losses for 2000 and for one or
more years thereafter.
Twelve Months Ended December 31, 1998 and 1997.
Net sales for the twelve months ended December 31, 1998 totaled $1,589,380,
including $485,663 for service and license sales and $1,103,717 for hardware and
software sales. This represents a decrease of 43% below 1997 net sales of
$2,791,556, which consisted of $1,674,198 for service sales and $1,117,358 for
hardware and software sales. We had four customers representing 71% of sales
and four customers representing 47% of sales for the years ended December 31,
1998 and 1997, respectively. The decrease in sales for the 1998 period compared
to the 1997 period was due to the reduction of certain of our web site
development, maintenance and hosting activities during the fourth quarter of
1997 and due to a new revenue-based pricing structure for our products and
services for broadband operators. During the second quarter of 1998, we
implemented a new pricing structure for these products and services whereby we
supply any required equipment and the products and services and the customer is
not required to pay any significant fees upon the delivery of such items. This
structure results in a lower front-end cost
25
<PAGE>
for the operator and lower initial revenues for us, in consideration for which
we expect to receive a higher percentage of advertising and transaction fees
received from the broadband operators' subscribers.
Cost of sales as a percentage of net sales was 81.3% for the twelve
month 1998 period and 71.4% for the comparable 1997 period.
Service Sales - Cost of service sales increased in the 1998 period as
a percentage of service sales as the mix of sales changed from custom web
page development, hosting and maintenance activities, which were at higher
margins, to transactional services, such as e-banking, our Re/MAX Main
Street product, and our enterprise products, which were at lower margins.
We incurred development expenses to assist our customers in enabling and
launching their sites, which included charges such as help desk set-up
fees, credit card processing set-up fees, and costs associated with
integrating the billing system through the Internet, totaling $49,100
related to the Re/Max Main Street product, and also provided programming
services to our e-banking customer at discounts, which contributed to lower
gross margins on service sales. In addition, the increase in cost of
service sales in the 1998 period reflect an increase in direct costs, such
as telephone line costs (on a per customer basis) related to the our
Internet connectivity business coupled with decreasing revenues from that
activity as we are selling these services to fewer customers as a result of
our decision to emphasize our Internet content services.
Hardware and Software Sales - Cost of hardware and software sales
increased in the 1998 period as a percentage of hardware sales because we
sold equipment to existing customers at lower margins.
Sales and marketing expenses were $2,479,029 for the twelve months ended
December 31, 1998, compared to $1,197,038 for the 1997 period. Sales and
marketing expenses as a percentage of net sales increased from 42.9% in 1997 to
156.0% in 1998. During the 1998 period, we incurred new market development
costs associated with developing our enterprise business. These costs consist
of expenses incurred by us, principally labor, travel and other third-party
costs such as software licenses, in connection with getting our customer's ISP
presence established, including design and branding of the customer's Internet
start page, developing local area content, and assisting our customers in
developing our Internet business presence. We also incurred costs in the 1998
period associated with opening international markets, principally in Mexico and
Argentina, costs associated with developing sales collateral materials,
including brochures and PC based presentation software as well as additional
compensation expense as a result of employing more experienced sales people.
Product development expenses were $1,264,287 for the twelve months ended
December 31, 1998, compared to $1,108,456 for the 1997 period. Product
development expense as a percentage of net sales increased from 39.7% in 1997 to
79.5% in 1998. We capitalized $281,776 of development costs during 1998 and
$124,097 during 1997 related to the development of our enterprise product
offerings. (See discussion below regarding depreciation and amortization.)
During 1998, we continued developing our enterprise products and services,
including the development of e-commerce and the integration of DCI's
CommunityWare(R) with our software. During 1997, we developed our initial
enterprise product, wireless cable capabilities, and initial product offerings
targeted at the medical education market.
General and administrative expenses were $5,958,617 for the twelve
months ended December 31, 1998, compared to $1,837,330 for the 1997 period.
General and administrative expenses as a percentage of net sales increased from
65.8% in 1997 to 374.9% in 1998. During the 1998 period, we recorded non-cash
charges of $2,870,628 for grants of common stock and options and warrants to
purchase common stock to non-employees in exchange for services, including
$1,925,000, which we incurred during the fourth quarter of the year to enhance
our activities in corporate finance, mergers and acquisitions, and public and
investor relations. We also added (in the aggregate) nine individuals in 1998 in
the finance, strategic development, and network operations areas to support our
business segments, and we incurred costs in connection with the administration
of our operating segments, including additional personnel costs, particularly
for our Chief Operating Officer, as well as administration of our financial
services business segment. Additionally, in the 1998 period we incurred costs of
$179,562 in connection
26
<PAGE>
with unsuccessful business acquisition efforts and accounting, legal and other
expenses associated with capital raising activities.
Depreciation and amortization was $791,155 for the twelve months ended
December 31, 1998, compared to $198,788 for the 1997 period. During the 1998
period, we fully amortized our software costs and recorded $403,805 of
amortization expense. We also recorded more depreciation expense as a result of
an increase in fixed assets, including our e-banking service bureau based
solution, and equipment and software to support our product development and
testing.
Interest income was $139,806 during the twelve-month period ended December
31, 1998, compared to $168,298 for the 1997 period. During the 1998 period, we
utilized more of our cash reserves to fund our operations, which resulted in
less cash available for investment in interest bearing securities. We also
recorded interest income on the note receivable to DCI, which partially offset
the decrease in interest income from our cash investments. Our investments
consist of corporate bonds and cash equivalents.
Net losses allocable to common stockholders were $15,762,372 for the
twelve-month period ended December 31, 1998 compared to $3,375,279 for the 1997
period. During the 1998 period, we recorded non-operating expenses for preferred
stock dividends and accretion of preferred stock to redemption value of $329,120
and $4,110,060, respectively. In addition, during 1998 we recorded $706,929 of
accretion of preferred stock for the guaranteed return in excess of the
redemption value. Additionally, the increase in losses reflect expenses in sales
and marketing, product development, and general and administrative areas that
have increased at a faster rate than net sales. This is due to the time lag
associated with product development and market introduction as well as the long
sales cycle for most of our products and services.
Liquidity and Capital Resources
As of December 31, 1999, we had cash and cash equivalents of $4,164,371 and
working capital of $2,752,052. We financed our operations and capital
expenditures and other investing activities during 1999 primarily through the
sale of securities (See Notes 6 and 7 of Notes to Consolidated Financial
Statements for information regarding these sales of securities).
We used $8,603,881 in cash to fund our operations for the year ended
December 31, 1999, compared to $5,228,646 for the year ended December 31, 1998.
The increase in net cash used resulted primarily from the following: (i) an
increase in costs paid for continued development of our XML-based technologies
and e-banking core applications; (ii) higher compensation costs paid to
employees; (iii) payment of costs to operate the DCI California office; and (iv)
payment of 1998 accounts payable and accrued liabilities in the first quarter of
1999.
We used an additional $2,388,592 in cash for capital expenditures and other
investing activities during the year ended December 31, 1999, compared to
$2,380,462 during the year ended December 31, 1998. We purchased $1,692,532 of
property and equipment, advanced DCI $593,649 for working capital and invested
$240,564 in NetIgnite prior to the consummation of the respective mergers.
Planned capital expenditures for 2000 are approximately $2.5 million, including
computer equipment, software and leasehold improvements for our new corporate
offices.
We received $14,458,505 in operating capital from financing activities for
the year ended December 31, 1999, compared to $4,627,165 for the year ended
December 31, 1998. During 1999, we received funds from the following financing
transactions:
o During August 1999, we issued a 10% convertible note payable and
received $4,616,816 in net proceeds;
o During January and June 1999, we sold 3,000 and 2,000 shares,
respectively, of series C preferred stock with a stated value of $1,000
per share, which resulted in total net proceeds of $4,615,500;
o During 1999 we received $7,197,462 in cash from the issuance of our
common stock as a result of the exercise of common stock options and
warrants.
27
<PAGE>
During the first two months of 2000, we have received additional net
operating capital of $11,660,000 from the sale of our series B preferred stock
with warrants attached and approximately $4,976,000 from the exercise of
outstanding stock purchase warrants and options. We believe that based on our
cash and cash equivalents and working capital at February 29, 2000, we have
sufficient working capital to fund operations through at least January 1, 2002.
Item 7. FINANCIAL STATEMENTS.
See Financial Statements beginning on page F-1.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Incorporated by reference to Webb's definitive proxy statement for the 2000
Annual Meeting of Shareholders.
Item 10. EXECUTIVE COMPENSATION.
Incorporated by reference to Webb's definitive proxy statement for the 2000
Annual Meeting of Shareholders.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference to Webb's definitive proxy statement for the 2000
Annual Meeting of Shareholders.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to Webb's definitive proxy statement for the 2000
Annual Meeting of Shareholders.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) For Financial Statements filed as a part of this Report, reference is made
to "Index to Financial Statements" on page F-1 of this Report. For a list
of Exhibits filed as a part of this Report, see Exhibit Index page
following Audited Financial Statements and Notes thereto.
(b) During the last quarter for the period covered by this Report, we did not
file any reports on Form 8-K.
28
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WEBB INTERACTIVE SERVICES, INC.
Date: March 24, 2000 By /s/ Perry Evans
------------------------------------
Perry Evans, Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
/s/ Perry Evans March 24, 2000
- ----------------------------
Perry Evans
(President, Chief Executive
Officer and a Director)
/s/ William R. Cullen March 24, 2000
- ----------------------------
William R. Cullen
(Chief Financial Officer and
a Director)
/s/ Stuart Lucko March 24, 2000
- ----------------------------
Stuart Lucko
(Controller)
/s/ Robert J. Lewis March 24, 2000
- ----------------------------
Robert J. Lewis
(Director)
/s/ Richard C. Jennewine March 24, 2000
- ----------------------------
Richard C. Jennewine
(Director)
29
<PAGE>
Item 7. FINANCIAL STATEMENTS.
WEBB INTERACTIVE SERVICES, INC.
-------------------------------
(FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the Years Ended December 31, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-6-F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Webb Interactive Services, Inc.:
We have audited the accompanying consolidated balance sheets of WEBB INTERACTIVE
SERVICES, INC. (a Colorado corporation), formerly known as Online System
Services, Inc., as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Webb Interactive
Services, Inc. as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 25, 2000.
F-2
<PAGE>
WEBB INTERACTIVE SERVICES, INC.
(FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,164,371 $ 698,339
Accounts receivable, net (Note 2) 103,132 124,912
Accounts receivable from related party (Note 13) 4,000 22,925
Note and accrued interest receivable (Note 9) - 896,787
Inventory, net - 55,126
Prepaid expenses 399,217 74,179
Deferred acquisition costs - 229,404
Short-term deposits 444,545 101,441
------------ ------------
Total current assets 5,115,265 2,203,113
Property and equipment, net (Note 3) 2,352,489 1,178,628
Intangible assets, net (Notes 1 and 9) 12,503,047 -
Deferred financing costs 2,649,517 -
Other assets 4,216 3,535
------------ ------------
Total assets $ 22,624,534 $ 3,385,276
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital leases payable (Note 4) $ 108,525 $ 21,766
Accounts payable and accrued liabilities 841,440 873,901
Accrued salaries and payroll taxes payable 1,059,338 329,755
Accrued interest payable 126,028 -
Customer deposits and deferred revenue 227,882 100,600
------------ ------------
Total current liabilities 2,363,213 1,326,022
Capital leases payable (Note 4) 115,493 39,915
Commitments and contingencies (Note 14)
10% convertible note payable, net (Note 6) 4,052,290 -
Stockholders' equity (Note 7):
Preferred stock, no par value, 5,000,000 shares authorized:
10% redeemable, convertible preferred stock, 10% cumulative return;
85,000 and 245,000 shares issued and outstanding, respectively,
including dividends payable of $170,295 and $241,172, respectively 1,020,295 2,691,172
Series A redeemable, convertible preferred stock, 5% cumulative
return; 0 and 1,400 issued and outstanding, respectively,
including dividends payable of $0 and $10,164, respectively - 1,410,164
Common stock, no par value, 20,000,000 shares authorized,
7,830,028 and 4,642,888 shares issued and outstanding, respectively 49,513,769 16,410,300
Warrants and options 8,612,322 2,281,832
Deferred compensation (412,707) -
Accumulated deficit (42,640,141) (20,774,129)
------------ ------------
Total stockholders' equity 16,093,538 2,019,339
------------ ------------
Total liabilities and stockholders' equity $ 22,624,534 $ 3,385,276
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-3
<PAGE>
WEBB INTERACTIVE SERVICES, INC.
(FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net revenues $ 1,822,163 $ 1,403,612
Net revenues from related party (Note 13) 122,120 185,768
------------ ------------
1,944,283 1,589,380
------------ ------------
Cost of revenues 1,656,021 1,163,537
Cost of revenues from related party (Note 13) 78,293 128,000
------------ ------------
1,734,314 1,291,537
------------ ------------
Gross margin 209,969 297,843
Operating expenses:
Sales and marketing expenses 1,726,004 2,479,029
Product development expenses 2,891,569 1,264,287
General and administrative expenses 6,637,601 5,958,617
Customer acquisition costs 941,684 560,824
Depreciation and amortization 3,036,773 791,155
------------ ------------
15,233,631 11,053,912
------------ ------------
Loss from operations (15,023,662) (10,756,069)
Interest income 225,712 146,830
Interest expense (2,352,062) (7,024)
Equity in loss of subsidiary (127,083) -
------------ ------------
Net loss (17,277,095) (10,616,263)
Preferred stock dividends (Note 7) (272,663) (329,120)
Accretion of preferred stock to redemption value (Note 7) (3,157,691) (4,110,060)
Accretion of preferred stock for guaranteed return in excess
of redemption value (Note 7) (1,158,563) (706,929)
------------ ------------
Net loss available to common stockholders $(21,866,012) $(15,762,372)
============ ============
Loss per share, basic and diluted $ (3.31) $ (4.35)
============ ============
Weighted average shares outstanding, basic and diluted 6,610,836 3,621,585
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-4
<PAGE>
WEBB INTERACTIVE SERVICES, INC.
(FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
10% Preferred Stock Series C Preferred Stock
----------------------------------- -----------------------------------
Shares Amount Shares Amount
----------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Balances, December 31, 1997 245,000 $ 1,226,376 - $ -
Stock issued in conjunction with private
placements-
Preferred stock 22,500 159,559 - -
Common stock - - - -
Common stock warrants - - - -
Offering costs - (18,980) - -
Warrants issued for placement fees - - - -
Guaranteed return on preferred stock - (56,250) - -
Preferred stock dividends - 259,822 - -
Preferred stock and dividends converted to
common stock (22,500) (243,650) - -
Exercises of stock options and warrants - - - -
Accretion of preferred stock to redemption value - 1,364,295 - -
Accretion of preferred stock for guaranteed
return in excess of redemption value - - - -
Stock and stock options issued for services
and to customer - - - -
Net loss available to common stockholders - - - -
---------------- ------------ --------- -----------
Balances, December 31, 1998 245,000 2,691,172 - -
Stock issued in conjunction with private
placement-
Series C preferred stock - - 5,000 5,000,000
Offering costs - - - (384,500)
Guaranteed return on preferred stock - - - (3,931,754)
Preferred stock dividends - 94,216 - 29,121
Common stock and common stock warrants
issued in connection with DCI merger - - - -
Common stock issued in connection with - - - -
NI merger
Preferred stock and dividends converted to
common stock (160,000) (1,765,093) (5,000) (5,029,121)
Preferred stock beneficial conversion
feature on dividends paid through the
issuance of common stock - - - -
Convertible notes payable converted to
common stock - - - -
Exercises of stock options and warrants - - - -
10% Note Payable beneficial conversion feature - - - -
Common stock warrant issued in connection
with 10% Note Payable - - - -
Accretion of preferred stock to redemption value - - - 3,157,691
Accretion of preferred stock for guaranteed
return in excess of redemption value - - - 1,158,563
Stock and stock options issued for services
and to customers - - - -
Deferred compensation - - - -
Net loss available to common stockholders - - - -
---------------- ------------ --------- -----------
Balances, December 31, 1999 85,000 $ 1,020,295 - $ -
================ ============ ========= ===========
<CAPTION>
5% Preferred Stock Series A Preferred Stock Common Stock
---------------------------- ---------------------------- -------------------------
Shares Amount Shares Amount Shares Amount
------------ ------------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1997 - $ - - $ - 3,315,494 $ 8,726,554
Stock issued in conjunction with private
placement-
Preferred stock 3,000 2,597,500 1,400 764,400 - -
Common stock - - - - - 46,406
Common stock warrants - - - - 5,625 -
Offering costs - (626,855) - (103,001) - (5,520)
Warrants issued for placement fees - - - - - -
Guaranteed return on preferred stock - (316,410) - (1,368,328) - 1,740,988
Preferred stock dividends - 59,134 - 10,164 - _
Preferred stock and dividends converted to
common stock (3,000) (3,059,134) - - 685,538 3,302,784
Exercises of stock options and warrants - - - - 262,231 494,088
Accretion of preferred stock to redemption
value - 1,345,765 - 1,400,000 - -
Accretion of preferred stock for guaranteed
return in excess of redemption value - - - 706,929 - -
Stock and stock options issued for services
and to customer - - - - 374,000 2,105,000
Net loss available to common stockholders - - - - - -
------------ ------------- ------------- ------------- ------------ -----------
Balances, December 31, 1998 - - 1,400 1,410,164 4,642,888 16,410,300
Stock issued in conjunction with private
placement-
Series C preferred stock - - - - - -
Offering costs - - - - - -
Guaranteed return on preferred stock - - - - - 3,931,754
Preferred stock dividends - - - 2,301 - -
Common stock and common stock warrants
issued in connection with DCI merger - - - - 947,626 9,239,358
Common stock issued in connection with NI merger - - - - 71,429 984,400
Preferred stock and dividends converted to
common stock - - (1,400) (1,412,465) 904,981 8,206,679
Preferred stock beneficial conversion
feature on dividends paid through the
issuance of common stock - - - - - 147,025
Convertible notes payable converted to
common stock - - - - 82,402 894,879
Exercises of stock options and warrants - - - - 1,144,205 7,197,462
10% Note Payable beneficial conversion
feature - - - - - 1,967,522
Common stock warrant issued in connection
with 10% Note Payable - - - - - -
Accretion of preferred stock to redemption
value - - - - - -
Accretion of preferred stock for guaranteed
return in excess of redemption value - - - - - -
Stock and stock options issued for services
and to customers - - - - 36,497 534,390
Deferred compensation - - - - - -
Net loss available to common stockholders - - - - - -
------------ ------------- ------------- ------------- ------------ -----------
Balances, December 31, 1999 - $ - - $ - 7,830,028 $49,513,769
============ ============= ============= ============= ============ ===========
<CAPTION>
Warrants and Deferred Accumulated Stockholders'
Options Compensation Deficit Equity
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1997 165,427 $ - $ (5,011,757) $ 5,106,600
Stock issued in conjunction with private
placements-
Preferred stock - - - 3,521,459
Common stock - - - 46,406
Common stock warrants 1,057,135 - 1,057,135
Offering costs (184,806) - - (939,162)
Warrants issued for placement fees 478,448 - - 478,448
Guaranteed return on preferred stock - - - -
Preferred stock dividends - - - 329,120
Preferred stock and dividends converted to
common stock - - - -
Exercises of stock options and warrants - - - 494,088
Accretion of preferred stock to redemption - - - 4,110,060
value
Accretion of preferred stock for guaranteed
return in excess of redemption value - - - 706,929
Stock and stock options issued for services
and to customer 765,628 - - 2,870,628
Net loss available to common stockholders - - (15,762,372) (15,762,372)
------------ ------------- ------------- -------------
Balances, December 31, 1998 2,281,832 - (20,774,129) 2,019,339
Stock issued in conjunction with private
placement-
Series C preferred stock - - - 5,000,000
Offering costs - - - (384,500)
Guaranteed return on preferred stock - - - -
Preferred stock dividends - - - 125,638
Common stock and common stock warrants
issued in connection with DCI merger 2,158,837 - - 11,398,195
Common stock issued in connection with NI merger - - - 984,400
Preferred stock and dividends converted to
common stock - - - -
Preferred stock beneficial conversion
feature on dividends paid through the
issuance of common stock - - - 147,025
Convertible notes payable converted to
common stock - - - 894,879
Exercises of stock options and warrants (1,846,830) - - 5,350,632
10% Note Payable beneficial conversion
feature - - - 1,967,522
Common stock warrant issued in connection
with 10% Note Payable 3,383,800 - - 3,383,800
Accretion of preferred stock to redemption
value - - - 3,157,691
Accretion of preferred stock for guaranteed
return in excess of redemption value - - - 1,158,563
Stock and stock options issued for services
and to customers 2,634,683 - - 3,169,073
Deferred compensation - (412,707) - (412,707)
Net loss available to common stockholders - - (21,866,012) (21,866,012)
------------ ------------- ------------- -------------
Balances, December 31, 1999 $ 8,612,322 $ (412,707) $ (42,640,141) $ 16,093,538
============ ============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
WEBB INTERACTIVE SERVICES, INC.
(FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------------
1999 1998
-------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(17,277,095) $(10,616,263)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 3,211,532 791,155
Loss on sale and disposal of property and equipment 249,468 -
Provision for excess and obsolete inventory 55,126 -
Accrued interest income on advances to DCI (46,379) (49,304)
Reduction in note receivable for services received from DCI 368,643 540,372
Stock and stock options issued for services and to customers 2,756,366 2,870,628
Loss from investment in subsidiary 127,083 -
Interest expense on 10% convertible note from beneficial conversion feature 1,967,522 -
Amortization of 10% convertible note payable discount 124,615 -
Amortization of 10% convertible note payable financing costs 45,142 -
Changes in operating assets and liabilities:
Decrease in accounts receivable 22,533 719,961
Decrease (increase) in accounts receivable from related party 18,925 (22,925)
Decrease in inventory - 180,315
(Increase) decrease in prepaid expenses (302,083) 175,331
(Increase) decrease in short-term deposits and other assets (342,985) 73,579
Decrease in accounts payable and accrued liabilities (490,049) (96,036)
Increase in accrued salaries and payroll taxes payable 690,832 113,262
Increase in accrued interest payable 107,333 -
Increase in customer deposits and deferred revenue 109,590 91,279
------------------- ------------------
Net cash used in operating activities (8,603,881) (5,228,646)
------------------- ------------------
Cash flows from investing activities:
Cash acquired in business combinations 32,484 -
Proceeds from the sale of property and equipment 133,137 -
Purchase of property and equipment (1,692,532) (481,427)
Capitalized software development costs - (281,776)
Cash advances to DCI (593,649) (1,387,855)
Payment of acquisition costs (27,468) (229,404)
Investment in subsidiary (240,564) -
------------------- ------------------
Net cash used in investing activities (2,388,592) (2,380,462)
------------------- ------------------
Cash flows from financing activities:
Payments on capital leases and convertible notes payable (124,443) (31,209)
Proceeds from issuance of common stock and warrants - 65,441
Proceeds from issuance of 10% convertible note payable 5,000,000 -
Proceeds from exercise of stock options and warrants 5,350,632 494,088
Proceeds from issuance of Series C Preferred Stock 5,000,000 -
Proceeds from issuance of 10% Preferred Stock - 159,559
Proceeds from issuance of 5% Preferred Stock and warrants - 3,000,000
Proceeds from issuance of Series A Preferred Stock and warrants - 1,400,000
10% convertible note payable financing costs (383,184) -
Stock offering costs (384,500) (460,714)
------------------- ------------------
Net cash provided by financing activities 14,458,505 4,627,165
------------------- ------------------
Net increase (decrease) in cash and cash equivalents 3,466,032 (2,981,943)
Cash and cash equivalents, beginning of year 698,339 3,680,282
------------------- ------------------
Cash and cash equivalents, end of year $ 4,164,371 $ 698,339
=================== ==================
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
WEBB INTERACTIVE SERVICES, INC.
(FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------------
1999 1998
------------------- --------------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 59,056 $ 7,024
Supplemental schedule of non-cash investing and financing activities:
Common stock and warrants issued in business combinations $12,382,595 $ -
Accretion of preferred stock to redemption value 3,157,691 4,110,060
Accretion of preferred stock for guaranteed return in excess of
redemption value 1,158,563 706,929
Preferred stock dividends paid or to be paid in common stock 272,663 329,120
Preferred stock and dividends converted to common stock 8,206,679 3,302,784
Stock and stock options issued for services and value to customers 2,756,366 2,870,628
Common stock warrants issued for offering costs - 478,448
Beneficial conversion of 10% convertible note payable 1,967,522 -
Discount of 10% convertible note payable 124,615 -
Convertible notes payable converted to common stock 894,879 -
Capital leases for equipment 195,405 68,750
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
WEBB INTERACTIVE SERVICES, INC.
(FORMERLY KNOWN AS ONLINE SYSTEM SERVICES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND BUSINESS
Webb Interactive Services, Inc. (the "Company"), formerly known as Online
System Services, Inc., was incorporated on March 22, 1994, under the laws of
Colorado, and principal operations began in 1995. The Company develops next
generation Internet applications for unlocking the potential of local market e-
commerce, including the development of XML-based technologies that facilitate
buyer-seller interaction and enable individuals and local businesses to easily
manage their web-based communications. In addition, the Company also provides an
online banking solution, marketed generally to financial institutions having
less than $500 million in assets, using a service bureau approach to e-banking,
which enables institutions to provide many of the capabilities and services
available to the larger financial institutions without the cost associated with
the development of institution-specific systems.
On June 2 and June 30, 1999, the Company consummated its acquisitions of
NetIgnite, Inc. ("NI") and Durand Communications, Inc. ("DCI"), respectively.
DCI's and NI's shareholders exchanged all of their shares for shares of the
Company's common stock in business combinations that were recorded using the
purchase method of accounting. The consolidated financial statements of the
Company reflect the results of operations of NI and DCI from the consummation of
the acquisitions through December 31, 1999. The consideration paid in excess of
the fair market value of the tangible assets acquired was recorded as intangible
assets and goodwill. Because the business now operated by the Company has never
been profitable, and due to the other risks and uncertainties discussed herein,
it is reasonably possible that an analysis of these long-lived assets in future
periods could result in a conclusion that they are impaired, and the amount of
the impairment could be substantial.
The Company derives revenues principally from licenses of its software;
professional services fees for customization of its software, assisting its
customers in configuring and integrating the Company's software applications;
service bureau application fees; and hosting and support services. Prior to
June 1999, the Company also earned revenues from the sale of design and
consulting services for web site development, network engineering services,
resale of software licenses, mark-ups on computer hardware and software sold to
customers, maintenance fees charged to customers to maintain computer hardware
and web sites, training course fees, and monthly fees paid by customers for
Internet access which the Company provided.
The Company has not been profitable since inception. The Company competes
in an intensively competitive industry, which has been characterized by price
erosion, rapid technological change, short product life cycles, and rapidly
changing business models. Significant technological changes in the Internet
access and broadband data delivery require that the Company expend significant
funds in order to compete in an ever-changing marketplace. The Company has
expended significant funds to develop its current product offerings. During
2000, the Company anticipates increased operating expenses and research and
development expenditures, which are necessary for the Company to further develop
and market its products, and to achieve market acceptance of its products in
sufficient quantities to achieve positive cash flow from operations. Based on
its cash balances at February 25, 2000, the Company believes that it has
sufficient cash to fund operations through December 2001. The Company's future
revenues are highly dependent upon the use of its products by the customers of
its distribution partners who have entered into business relationships with the
Company. The Company is also highly dependant on certain key personnel. There
can be no guarantee that the Company will be successful in marketing its
products or that it will be able to achieve positive cash flow from operations.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Business Combinations
Business combinations which have been accounted for under the purchase
method of accounting include the results of operations of the acquired
businesses from the date of acquisition. Net assets of the companies acquired
are recorded at their fair value to the Company at the date of acquisition (See
Note 9).
F-8
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions may affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include highly liquid investments with original maturities of 90
days or less that are readily convertible into cash and are not subject to
significant risk from fluctuations in interest rates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. The Company has no significant off balance-sheet
concentrations of credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements. The Company maintains the
majority of its cash with financial institutions that it believes to be of high
credit quality in the form of demand deposits, and denominates the majority of
its transactions in U.S. dollars.
The Company performs ongoing evaluations of its customers' financial
condition and generally does not require collateral, except for billings in
advance of work performed, and maintains reserves for potential credit losses.
Accounts receivable are shown net of allowance for doubtful accounts of $4,000
and $18,000 at December 31, 1999 and 1998, respectively.
As discussed in Note 11, the Company has three and five customers that
accounted for more than 10% of 1999 and 1998 revenues, respectively, and four
and three customers that accounted for more than 10% of accounts receivable as
of December 31, 1999 and 1998, respectively.
Inventory
At December 31, 1998, inventory consisted of computer hardware purchased
for resale to its customers and was stated at the lower of cost (first-in,
first-out) or market.
Property and Equipment
Property and equipment is stated at cost and depreciation is provided using
the straight-line method over the estimated useful lives of the respective
assets. Maintenance and repairs are expensed as incurred and improvements are
capitalized.
Long-Lived Assets
Long-lived assets and certain identifiable intangibles to be held and used
by the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Any long-lived assets and certain identifiable intangibles to be
disposed of are reported at the lower of carrying amount or fair value less cost
to sell.
Intangible Assets and Goodwill
Intangible assets and goodwill relate to purchase transactions and are
being amortized on a straight-line basis over three years. Subsequent to
acquisitions which result in goodwill, the Company continually evaluates whether
later events and circumstances have occurred that indicate the remaining useful
life of goodwill may
F-9
<PAGE>
warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that intangible assets and goodwill should be
evaluated for possible impairment, the Company uses an estimate of the
undiscounted cash flows over the remaining life of the intangible assets and
goodwill in measuring whether the intangible assets and goodwill are
recoverable. The Company recorded $2,523,351 of intangible assets and goodwill
amortization expense for the year ended December 31, 1999.
Capitalized Software Development Costs and Research and Development Costs
The Company capitalizes software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to be Sold, Leased, or Otherwise Marketed" ("SFAS 86").
Capitalization of development costs of software products begins once the
technological feasibility of the product is established. The establishment of
technological feasibility is highly subjective and requires the exercise of
judgment by management. Based on the Company's product development process,
technological feasibility is established upon completion of a detailed program
design. Capitalization ceases when such software is ready for general release,
at which time amortization of the capitalized costs begins.
During 1998 and 1999, the Company determined that the time between
technological feasibility and general release is short, consequently, the
Company did not capitalize software development costs but expensed those costs
as incurred. During 1998, $403,805, representing all capitalized software
costs, were fully amortized. Product development costs relating principally to
the design and development of non-software products are generally expensed as
incurred. The cost of developing routine software enhancements are expensed as
product development costs as incurred.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
short-term trade receivables, payables, and capital leases. As of December 31,
1999 and 1998, the carrying values of such instruments approximated their fair
values. Based upon interest rates currently available to the Company, the fair
value of the Note Payable is estimated to be $4,167,822.
Customer Acquisition Costs
The Company capitalizes acquisition costs to acquire customers if the
related customer contract contains guarantees of minimum revenue which supports
the amount paid and amortizes those costs over the term the guaranteed revenue
is recognized. When the contract does not specify guaranteed revenue, the
Company expenses the acquisition costs when incurred.
Revenue Recognition
The Company recognizes software license revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2"), which requires the Company to
recognize revenue on software transactions only when persuasive evidence of an
agreement exists, delivery of the product has occurred, no significant Company
obligations remain, the fee is fixed or determinable, and collectibility is
probable.
Revenue from software license fees is recognized upon delivery, provided
that no future Company obligation exists. If obligations do exist, revenue is
deferred until the obligation is satisfied, which may require the Company to
recognize revenue from software licenses over the term of the contract. In
instances where the Company charges monthly license fees, revenue is recognized
in the month the license is provided. Guaranteed minimum revenue is recognized
on a straight-line basis over the period the minimum applies.
Revenue from professional services billed on a time and materials basis is
recognized as performed. Revenue from fixed price long-term contracts are
recognized on the percentage of completion method for individual contracts,
commencing when progress reaches a point where experience is sufficient to
estimate final results with reasonable accuracy. Revenues are recognized in the
ratio that costs incurred bear to total estimated contract costs. The Company's
use of the percentage of completion method of revenue recognition requires
estimates of percentage of project completion. Changes in job performance,
estimated profitability and final contract settlements may result in revisions
to costs and income in the period in which the revisions are determined.
Provisions for any estimated losses on uncompleted contracts are made in the
period in which such losses are determinable. In instances when the work
performed on fixed price agreements is of relatively short duration, the Company
uses the completed contract method
F-10
<PAGE>
accounting whereby revenue is recognized when the work is completed. Customer
advances and billed amounts due from customers in excess of revenue recognized
are recorded as deferred revenue.
Revenue from service bureau fees is recognized in the month the service is
provided.
Revenue from hosting, maintenance and support agreements is recognized on a
straight-line basis over the life of the related agreement.
In multiple element arrangements when vendor specific objective evidence
does not exist for the individual elements, all revenue from the arrangement is
deferred until the earlier of the point at which (a) such sufficient vendor-
specific objective evidence does exist or (b) all elements of the arrangement
have been delivered. In some instances, the Company recognizes all the revenue
from the arrangement on a straight-line basis over the life of the related
agreement.
Revenue from hardware sales is recognized upon shipment, or when title
passes to the customer.
Estimates of returns and allowances are recorded in the period of the sale
based on the Company's historical experience and the terms of individual
transactions.
Income Taxes
The current provision for income taxes represents actual or estimated
amounts payable on tax return filings each year. Deferred tax assets and
liabilities are recorded for the estimated future tax effects of temporary
differences between the tax basis of assets and liabilities and amounts reported
in the accompanying balance sheets, and for operating loss and tax credit
carryforwards. The change in deferred tax assets and liabilities for the period
measures the deferred tax provision or benefit for the period. Effects of
changes in enacted tax laws on deferred tax assets and liabilities are reflected
as adjustments to the tax provision or benefit in the period of enactment. The
Company's deferred tax assets have been reduced by a valuation allowance to the
extent it is more likely than not, that some or all of the deferred tax assets
will not be realized (See Note 12).
Stock-Based Compensation
The Company accounts for its employee stock option plans and other employee
stock-based compensation arrangements in accordance with the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB Opinion No. 25") and related interpretations. As such,
compensation expense related to employee stock options is recorded if, on the
measurement date, the fair value of the underlying stock exceeds the stock
option exercise price. The Company adopted the disclosure-only provisions of
SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), which
allows entities to continue to apply the provisions of APB Opinion No. 25 for
transactions with employees and provide pro forma disclosures for employee stock
grants made in 1996 and future years as if the fair-value-based method of
accounting in SFAS 123 had been applied to these transactions.
The Company accounts for warrants issued for services to non-employees in
accordance with SFAS 123 and related interpretations. Certain grants of
warrants require the use of variable plan accounting whereby the warrants are
valued using the Black-Scholes option pricing model at the date of issuance and
at each subsequent balance sheet date with final valuation on the vesting date.
The Company records deferred compensation expense based on the calculated values
and records expense over the vesting term of the warrant.
Net Loss Per Share
Net loss per share is calculated in accordance with SFAS No. 128, "Earnings
Per Share" ("SFAS 128"), and Securities and Exchange Commission Staff Accounting
Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic
net loss per share is computed by dividing net loss available to common
shareholders
F-11
<PAGE>
for the period by the weighted average number of common shares outstanding for
the period. Diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common and potential common shares
outstanding during the period if the effect of the potential common shares is
dilutive. As a result of the Company's net losses, all potentially dilutive
securities, as indicated in the table below, would be anti-dilutive and are
excluded from the computation of diluted loss per share.
<TABLE>
<CAPTION>
December 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Stock options 2,770,055 1,758,665
10% convertible note payable 496,524 -
Warrants and underwriter options 973,149 1,190,612
10% Preferred Stock 102,030 300,401
Series A Preferred Stock - 246,964
---------- ----------
Total 4,341,758 3,496,642
========== ==========
</TABLE>
The number of shares excluded from the earning per share calculation
because they are anti-dilutive, using the treasury stock method, were 1,489,286
and 1,317,854 for the years ended December 31, 1999 and 1998, respectively.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting comprehensive income and its components in financial
statements. Comprehensive income, as defined, includes all changes in equity
(net assets) during a period from non-owner sources. From its inception through
December 31, 1999, the Company has not had any material transactions that are
required to be reported in comprehensive income as compared to its net loss.
Accounting for the Costs of Computer Software Development or Obtained for
Internal Use
Effective January 1, 1999, the Company adopted the provisions of Statement
or Position 98-1, "Accounting for the Costs of Computer Software Development or
Obtained for Internal Use" ("SOP 98-1"). This statement establishes standards
for the capitalization of costs related to internal use software. In general,
costs incurred during the development stage are capitalized, while the costs
incurred during the preliminary project and post-implementation stages are
expensed.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). The Statement establishes accounting and reporting standards for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133 - An
amendment of FASB Statement No. 133" ("SFAS 137"). SFAS 137 delays the effective
date of SFAS 133 to fiscal years beginning after June 15, 2000. The Company does
not typically enter into arrangements that would fall under the scope of
SFAS 133 and thus, management believes SFAS 133 will not
significantly affect its financial condition and results of operations.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions," ("SOP 98-9"). SOP 98-9
amends certain paragraphs of SOP 97-2, to require the application of a residual
method of accounting for software revenue when certain conditions exist. SOP 98-
9 also amends SOP 98-4,
F-12
<PAGE>
"Deferral of the Effective Date of a Provision of SOP 97-2" ("SOP 98-4"), to
extend the deferral of the application of certain passages of SOP 97-2 provided
by SOP 98-4 through fiscal years beginning on or before March 25, 1999. All
other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. All other provisions of SOP 98-9
are effective for transactions entered into in fiscal years beginning after
March 15, 1999. Earlier adoption is permitted, however, retroactive application
is prohibited. The Company believes SOP 98-9 will not materially impact its
financial statements.
In December 1999, the Securities and Exchange Commission Staff released
SAB No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
provides interpretive guidance on the recognition, presentation and disclosure
of revenue in financial statements. SAB 101 must be applied to financial
statements no later than the first fiscal quarter of 2000. The Company is
currently reviewing SAB 101 to determine what impact, if any, adoption of this
SAB will have on its financial position or results of operations.
Reclassifications
Certain reclassifications to prior year financial statements have been made
to conform to the current year's presentation.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
-------------------------
1999 1998
----------- ----------
Computer equipment $ 2,658,213 $1,238,966
Office furniture and equipment 222,494 207,639
Purchased software 807,283 243,492
Leasehold improvements 66,657 66,657
Assets under construction - 163,426
----------- ----------
3,754,647 1,920,180
Less accumulated depreciation (1,402,158) (741,552)
----------- ----------
Net property and equipment $ 2,352,489 $1,178,628
=========== ==========
Certain office equipment, computer equipment and software is pledged as
collateral for capital leases payable (See Note 4).
The Company depreciates computer equipment, office equipment, and software
over three to five years, office furnishings over seven years, and leasehold
improvements over the life of the lease. Depreciation expense was $687,661 and
$387,181 for the years ended December 31, 1999 and 1998, respectively.
F-13
<PAGE>
(4) CAPITAL LEASES PAYABLE
Capital leases payable consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------
1999 1998
--------- --------
<S> <C> <C>
Capital lease payable in monthly principal and
interest payments of $2,828, for thirty-six months
beginning November 1, 1998, effective interest rate
of 16%, secured by software $ 58,261 $ 47,393
Capital lease payable in monthly principal and
interest payments of $624, for twenty-four months
beginning May 1, 1998, effective interest rate of
12.3%, secured by computer equipment 2,957 9,684
Capital lease payable in monthly principal and
interest payments of $195, for thirty-six months
beginning March 10, 1998, effective interest rate
of 22%, secured by office equipment 2,395 4,016
Capital lease payable in quarterly principal and
interest payments of $22,994, for eight quarters
beginning January 1, 2000, effective interest rate
of 16.47%, secured by cash certificate of deposit 160,405 -
Capital lease payable in monthly principal and
interest payments of $198, for thirty-six months
beginning April 26, 1996, effective interest rate
of 19.7%, secured by a phone system - 588
--------- --------
224,018 61,681
Less current portion (108,525) (21,766)
--------- --------
$ 115,493 $ 39,915
========= ========
</TABLE>
Future minimum lease payments under capital leases as of December 31, 1999
are as follows:
<TABLE>
<S> <C>
2000 $ 131,274
2001 125,643
---------
Total minimum lease payments 256,917
Less amount representing interest (32,899)
---------
$ 224,018
=========
</TABLE>
The net book value of assets under capital lease was $239,296 and $64,641
for the years ended December 31, 1999 and 1998, respectively.
F-14
<PAGE>
(5) CONVERTIBLE NOTES PAYABLE
Subsequent to the agreement to acquire DCI (See Note 9), the Company issued
convertible notes payable to DCI creditors totaling $942,885. The notes were
convertible at the election of the holder into a number of common shares at
conversion prices equal to $9.61 and the greater of $9.75 or the closing bid
price on the conversion date. During 1999, holders of the convertible notes
payable converted $894,879 of principal and accrued interest payable into 82,402
shares of the Company's common stock at conversion prices per share ranging from
approximately $9.61 to $14.75 as summarized in the following table:
<TABLE>
<CAPTION>
Note Payable
and Accrued Common Stock Common Stock
Interest Shares Conversion
Conversion Date Converted Issued Price per Share
- ---------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
July 15, 1999 $236,509 16,034 $14.75
September 27, 1999 144,150 15,000 9.61
September 28, 1999 49,011 5,100 9.61
September 29, 1999 112,437 11,700 9.61
September 30, 1999 50,938 5,000 10.19
October 1, 1999 106,250 10,000 10.63
October 4, 1999 78,501 7,753 10.13
October 5, 1999 15,684 1,600 9.61 to 10.13
October 7, 1999 72,308 7,231 10.00
October 15, 1999 29,091 2,984 9.75
------------------- -------------------
Total $894,879 82,402
=================== ===================
</TABLE>
(6) 10% CONVERTIBLE NOTE PAYABLE
On August 25, 1999, the Company entered into a Securities Purchase
Agreement and executed a $5,000,000 three-year 10% Convertible Promissory Note
(the "Note Payable"). Net proceeds to the Company were $4,616,816 after
deducting $383,184 in financing costs. The financing costs were recorded as a
deferred asset and are being amortized as additional interest expense over the
term of the Note Payable. During 1999, the Company recorded $45,142 of
additional interest expense as a result of amortizing the deferred financing
costs.
On December 18, 1999, the terms of the Note Payable were amended at the
Company's request as the Company believed this would facilitate its ability to
raise additional working capital (See Note 16). In consideration for the
holder's agreement to exchange the Note Payable for an amended note with terms
the Company believed to be more favorable to the Company, the Company issued to
the holder a five-year warrant representing the right to acquire 136,519 shares
of the Company's common stock at an exercise price of $18.51 per share.
The material amendments to the Note Payable and the warrant are as follows:
(i) the conversion price for the Note Payable was set at $10.07 per share until
March 22, 2000; (ii) to eliminate the variable conversion price feature of the
Note Payable (iii) to enable the Company to require the conversion of one-half
of the principal amount of the Note Payable upon certain events; (iv) to
eliminate certain of the Company's rights to pre-pay the Note Payable; (v) in
the event that the Company forces the conversion of one-half of the principal
amount of the Note Payable, to permit the holder to elect to have the interest
thereafter due and payable on the Note Payable paid in shares of the Company's
common stock or additional Notes Payable similar to the 10% convertible Note
Payable; and (vi) to provide for the amendment in the exercise price of the
warrant on September 30, 2000, if the market price for the Company's common
stock is then less than $11.44.
The Note Payable is convertible into shares of common stock at a conversion
price of $10.07 per share. The conversion price between March 22, 2000 and
September 30, 2000 is $10.07 per share. The conversion price after September
29, 2000 will continue to be $10.07 per share unless the market price for the
Company's common stock at that time is less than $10.07. In this event, the
conversion price will be adjusted and will be the greater of (i) the average of
the five lowest closing bid prices during the period from September 1, 2000
through September 29, 2000 and (ii) $8.00.
The Company can prepay the Note Payable at any time after August 25, 2000,
if the closing bid price for its common stock for 20 consecutive trading days is
at least 200% of the conversion price then in effect. The redemption price
would equal 115% of the face amount of the Note Payable, plus accrued and unpaid
interest.
F-15
<PAGE>
The Note Payable bears interest at the rate of 10% per annum. If the
Company forces the conversion of one-half of the Note Payable, the holder may
thereafter elect to have the interest on the Note Payable paid either in shares
of the Company's common stock or by the issuance of additional Notes Payable.
The holder of the Note Payable has been granted two five-year warrants for
136,519 shares each, one exercisable at $11.44 per share and one exercisable at
$18.51 per share. The exercise price for both warrants will be subject to
adjustment on September 29, 2000, if the market price for the Company's common
stock is then less than the exercise price of the warrants. In this event, the
exercise price will be equal to the average closing bid prices for the period
from September 1, 2000 through September 29, 2000. Each of the warrants is also
subject to anti-dilution protection in the event of the issuance of our common
stock at prices less than the exercise prices for the warrant or the then
current price for our common stock and for stock splits, stock dividends and
other similar transactions.
The Company valued the warrants utilizing the Black-Scholes option pricing
model using the following assumptions:
<TABLE>
<CAPTION>
Issue Date
------------------------------------------------------
August 25, 1999 December 18, 1999
---------------------- ------------------------
<S> <C> <C>
Recorded value $1,072,325 $2,311,475
Exercise price $ 11.44 $ 18.51
Fair market value of common stock on grant date $ 10.13 $ 21.06
Option life 5 years 5 Years
Volatility rate 104% 104%
Risk free rate of return 6% 6%
Dividend rate 0% 0%
</TABLE>
The fair value of the warrant issued on August 25, 1999 was recorded as an
additional discount to the Note Payable and will be amortized as additional
interest expense over the term of the Note Payable. For the year ended December
31, 1999, the Company recorded $124,615 of additional interest expense related
to this warrant. The value of the warrant issued on December 18, 1999 was
recorded as a deferred placement costs related to the sale of the Company's
Series B Preferred Stock (See Note 16).
Due to the conversion feature associated with the Note Payable, the Company
accounted for a beneficial conversion feature (a "Guaranteed Return") as
additional interest expense. Based on current generally accepted accounting
principles, the computed value of the Guaranteed Return of $1,967,522 was
initially recorded as a reduction of the Note Payable and an increase to
additional paid-in capital on the date of issuance, even though the Note Payable
was not then convertible and was subject to redemption prior to the date that it
first becomes convertible. The Guaranteed Return reduction to the Note Payable
totaling $1,967,522 was amortized as additional interest expense from the date
of issuance to the earliest date of conversion which was during the fourth
quarter of 1999.
On February 18, 2000, the holder converted $2,500,000 of the outstanding
Note Payable into 248,262 shares of the Company's common stock and also
exercised a warrant to purchase 136,519 shares of the Company's common stock,
resulting in proceeds to the Company of $1,561,777 (See Note 16).
(7) STOCKHOLDERS' EQUITY
Series C Preferred Stock
On January 11, 1999, the Company completed a private placement of preferred
stock which resulted in gross proceeds of $3,000,000. The Company sold 3,000
shares of its Series C cumulative, convertible, redeemable
F-16
<PAGE>
preferred stock (the "Series C Preferred Stock"). Net proceeds to the Company
were $2,755,500 after deducting $244,500 in offering costs.
In addition, the Company also issued a warrant which entitled the holder to
purchase, at a price of $1,000 per share, up to 2,000 shares of the Company's
Series C Preferred Stock. This warrant also granted the Company the right to
require the holder to exercise such warrants. On June 18, 1999, the Company
exercised this right and sold 2,000 shares of the Series C Preferred Stock for
net proceeds of $1,860,000 after deducting $140,000 in offering costs.
The Series C Preferred Stock specified a 4% per annum cumulative, non-
compounding dividend based on the stated value of $1,000 per share. Each share
of Series C Preferred Stock was convertible, at the option of the holder
thereof, at any time after February 1, 1999, into the number of shares of common
stock equal to $1,000 divided by the lesser of (i) 140% of the closing bid price
of the common stock on the date of the issuance of the Series C Preferred Stock
being converted (initially $20.48), or if less and if the conversion is
occurring at least 120 days after the issuance of the Series C Preferred Stock
being converted, 100% of the closing bid price of the Company's common stock on
the trading day closest to the date that is 120 days after the Series C
Preferred Stock that is being converted was issued or (ii) the average of the
five lowest closing bid prices of common stock during the 44 consecutive trading
days immediately preceding the conversion of the Series C Preferred Stock
conversion date.
Due to the conversion feature associated with the Series C Preferred Stock,
the Company accounted for a beneficial conversion feature (a "Guaranteed
Return") as additional preferred stock dividend. The computed value of the
Guaranteed Return of $3,931,754 was initially recorded as a reduction of the
Series C Preferred Stock and an increase to additional paid-in capital. The
Guaranteed Return reduction to the Series C Preferred Stock was accreted, as
additional dividends, by recording a charge to income available to common
stockholders from the date of issuance to the earliest date of conversion. The
Company also recorded annual dividends of $40 per share as a reduction of income
available to common stockholders which totaled $29,121 for the year ended
December 31, 1999.
The difference between the stated redemption value of $1,000 per share and
the recorded value on January 11, 1999, and June 18, 1999 (the dates upon which
the Series C Preferred Stock were issued) totaling $4,316,254 (which includes
$1,158,563 of accretion of preferred stock for the Guaranteed Return in excess
of the redemption value) was accreted as a charge to income available to common
stockholders on the date that the Series C was first convertible, which occurred
in the first and second quarters of 1999, respectively, and was comprised of the
following:
<TABLE>
<CAPTION>
Closings
---------------------------------------------------
June 18, 1999 January 11, 1999
---------------------- ----------------------
<S> <C> <C>
Guaranteed Return $ 17,691 $ 3,914,063
Series C Preferred Stock offering costs 140,000 244,500
---------------------- ----------------------
Total accretion recorded $ 157,691 $ 4,158,563
====================== ======================
</TABLE>
During 1999, the investor converted all of the 5,000 shares of the Series C
Preferred Stock, including accrued dividends payable of $29,121 into 480,508
shares of the Company's common stock at conversion prices per share ranging from
approximately $8.59 to $11.13 as summarized in the following table:
F-17
<PAGE>
<TABLE>
Number of Shares
--------------------------------------------
Series C Common Stock
Preferred Conversion
Conversion Date Stock Common Stock Price per Share
- ------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
February 10, 1999 1,500 140,157 $10.74
February 11,1999 500 46,724 10.74
February 26, 1999 500 45,683 11.00
July 6, 1999 1,000 90,843 11.13
July 20, 1999 700 63,141 11.13
August 25, 1999 150 17,597 8.59
September 7, 1999 650 76,363 8.59
------------------ -------------------
Total 5,000 480,508
================== ===================
</TABLE>
10% Preferred Stock
On March 12, 1998, as a result of a private placement completed on December
31, 1997, the Company sold an additional 2.25 units of its 10% cumulative,
convertible, redeemable preferred stock (the "10% Preferred Stock") which
resulted in gross proceeds of $225,000, consisting of an aggregate of 22,500
shares of 10% Preferred Stock, 5,625 shares of common stock, and warrants to
purchase 4,500 shares of common stock. Net proceeds to the Company were
$198,236 after deducting $26,764 in offering costs.
The 10% Preferred Stock entitles the holder to voting rights of one vote
per share and specifies a 10% per annum cumulative, non-compounding dividend
based on the stated value of $10 per share. The Company may redeem the 10%
Preferred Stock at any time for $10 per share.
Each share of 10% Preferred Stock is convertible at any time after
September 30, 1998, at the election of the holder thereof, into the number of
shares of common stock of the Company equal to $10 divided by the lesser of (i)
$10 or (ii) 80% of the average per share closing bid price of the Company's
common stock for the five trading days immediately preceding the 10% Preferred
Stock conversion date.
Due to the conversion feature associated with the 10% Preferred Stock, the
Company accounted for a beneficial conversion feature (a "Guaranteed Return") as
additional preferred stock dividend. The computed value of the Guaranteed
Return of $56,250 was initially recorded as a reduction of the 10% Preferred
Stock and an increase to additional paid-in capital. The Guaranteed Return
reduction to the 10% Preferred Stock was accreted, as additional dividends, by
recording a charge to income available to common stockholders during 1998 from
the date of issuance to the earliest date of conversion. The Company will also
record annual dividends of $1 per share as a reduction of income available to
common stockholders, whether or not declared by the Board of Directors, which
totaled $94,216 and $259,822 for the years ended December 31, 1999 and 1998,
respectively. The Company has the option to pay the dividends either in cash or
in common stock upon conversion. It is the Company's intention to pay the
accrued dividends on the 10% Preferred Stock through the issuance of its common
stock at the time the 10% Preferred Stock is converted. Consequently, the
Company has recorded the dividends payable within the preferred stock balance in
the accompanying balance sheets, which totaled $170,295 and $241,172 as of
December 31, 1999 and 1998, respectively.
The difference between the stated redemption value of $10 per share and the
recorded value was accreted as a charge to income available to common
stockholders during the year ended December 31, 1998 and was comprised of the
following:
F-18
<PAGE>
Guaranteed return $ 56,250
Value of common stock 46,406
Value of common stock warrants 19,035
10% Preferred Stock offering costs 18,980
----------
Total accretion recorded $140,671
----------
The common stock was valued based on the closing price of the Company's
common stock March 12, 1998 of $8.25. The 4,500 common stock warrants issued
with the 10% Preferred Stock, valued at $19,035, entitle the holder to purchase
one share of the Company's common stock for a purchase price of $15 per share at
any time during the three-year period commencing on the closing date.
The warrants were valued utilizing the Black-Scholes option pricing model
using the following assumptions:
<TABLE>
<S> <C>
Exercise price $15.00
Fair market value of common stock on grant date $ 8.25
Option life 3 years
Volatility rate 98%
Risk free rate of return 5.13%
Dividend rate 0%
</TABLE>
During January and February 2000, holders exercised warrants to purchase
12,000 shares of the Company's common stock, resulting in proceeds to the
Company of $180,000 (See Note 16).
During 1999 and 1998, 182,500 shares of the Company's 10% Preferred Stock,
including accrued dividends payable of $183,747, were converted into 235,348
shares of the Company's common stock with conversion prices per share ranging
from approximately $3.64 to $10.00 as summarized in the following table:
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------------
10% Common Stock
Preferred Common Conversion
Conversion Date Stock Stock Price per Share
---------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
November 4, 1998 10,000 29,321 $ 3.64
November 10, 1998 10,000 23,798 4.49
November 11, 1998 2,500 5,123 5.14
January 5, 1999 10,000 11,590 9.46
January 7, 1999 10,000 11,039 9.98
January 14, 1999 5,000 5,422 10.00
January 15, 1999 60,000 66,248 10.00
January 19, 1999 10,000 10,858 10.00
January 20, 1999 25,000 27,636 10.00
January 28, 1999 10,000 11,077 10.00
February 2, 1999 20,000 22,083 10.00
February 25, 1999 10,000 11,153 10.00
------------------- -------------------
Total 182,500 235,348
=================== ===================
</TABLE>
During January and February 2000, 85,000 shares of the 10% Preferred Stock
were converted into 102,302 shares of the Company's common stock (See Note 16).
Series A Preferred Stock
On November 9, 1998, the Company completed a private placement which
resulted in gross proceeds of $1,400,000. The Company sold 1,400 shares of its
Series A cumulative, convertible, redeemable preferred stock
F-19
<PAGE>
(the "Series A Preferred Stock") and warrants to purchase 140,000 shares of
common stock. Net proceeds to the Company were $1,287,300 after deducting
$112,700 in offering costs.
The Series A Preferred Stock specified a 5% per annum cumulative, non-
compounding dividend based on the stated value of $1,000 per share.
Each share of Series A Preferred Stock was convertible, at the option of
the holder thereof, into such number of shares of common stock of the Company
equal to $1,000, plus the amount of any accrued and unpaid dividends the Company
elected to pay in common stock, divided by the lesser of (i) $5.71 or (ii) 80%
of the average closing bid price of the shares of common stock for the lowest
five consecutive trading days within the 20 days immediately preceding the
Series A Preferred Stock conversion date.
Due to the conversion feature associated with the Series A Preferred Stock,
the Company accounted for a beneficial conversion feature (a "Guaranteed
Return") as additional preferred stock dividend. The computed value of the
Guaranteed Return of $1,368,328 was initially recorded as a reduction of the
Series A Preferred Stock and an increase to additional paid-in capital. The
Guaranteed Return reduction to the Series A Preferred Stock was accreted, as
additional dividends, by recording a charge to income available to common
stockholders on the date of issuance. The Company also recorded annual
dividends of $50 per share as a reduction of income available to common
stockholders, which totaled $2,301 and $10,164 for the years ended December 31,
1999 and 1998, respectively. The Company had the option to pay the dividends
either in cash or in common stock upon conversion. The Company paid the accrued
dividends on the Series A Preferred Stock through the issuance of its common
stock at the time the Series A Preferred Stock was converted. Consequently, the
Company recorded the dividends payable within the preferred stock balance in the
accompanying balance sheets, which totaled $10,164 as of December 31, 1998.
The difference between the stated redemption value of $1,000 per share and
the recorded value on November 9, 1998, totaling $2,106,929 (which includes
$706,929 of accretion of preferred stock for the Guaranteed Return in excess of
the redemption value), was accreted as a charge to income available to common
stockholders during 1998 and was comprised of the following:
<TABLE>
<S> <C>
Guaranteed return $1,368,328
Value of common stock warrants 635,600
Series A Preferred Stock offering costs 103,001
----------
Total accretion recorded $2,106,929
==========
</TABLE>
The 140,000 common stock purchase warrant issued in the above private
placement, valued at $635,600, entitled the holder to purchase one share of the
Company's common stock for a purchase price of $5.71 per share at any time
during the five-year period commencing on November 9, 1998. The warrant was
valued utilizing the Black-Scholes option pricing model using the following
assumptions:
<TABLE>
<S> <C>
Exercise price $ 5.71
Fair market value of common stock on grant date $ 6.03
Option life 5 years
Volatility rate 94.7%
Risk free rate of return 5.13%
Dividend rate 0%
</TABLE>
During January 1999, the holder converted all 1,400 shares of the Series A
Preferred Stock into 247,367 shares of the Company's common stock at a
conversion price of $5.71 per share and exercised the warrant to purchase
140,000 shares of the Company's common stock, resulting in proceeds to the
Company of $799,400.
In connection with services provided with the issuance of the Series A
Preferred Stock, the Company also issued to the placement agent a warrant to
purchase 20,000 shares of the Company's common stock for a purchase price of
$5.71 per share at any time during the three-year period commencing November
1998. The Company
F-20
<PAGE>
recorded $75,948 in offering costs related to the warrants, which were valued
utilizing the Black-Scholes option pricing model using the following
assumptions:
<TABLE>
<S> <C>
Exercise price $ 5.71
Fair market value of common stock on grant date $ 6.03
Option life 3 years
Volatility rate 94.7%
Risk free rate of return 5.13%
Dividend rate 0%
</TABLE>
During July 1999, the holders exercised the warrant and purchased 20,000
shares of the Company's common stock, resulting in proceeds to the Company of
$114,200.
5% Preferred Stock
On May 22, 1998, the Company completed a private placement which resulted
in gross proceeds of $3,000,000. The Company sold 3,000 shares of its 5%
cumulative, convertible, redeemable preferred stock (the "5% Preferred Stock")
and warrants to purchase 50,000 shares of common stock. Net proceeds to the
Company were $2,678,750 after deducting $321,250 in offering costs.
The 5% Preferred Stock specified a 5% per annum cumulative non-compounding
dividend based on the stated value of $1,000 per share.
Each share of 5% Preferred Stock was convertible, at the option of the
holder thereof, into such number of shares of common stock equal to $1,000, plus
the amount of any accrued and unpaid dividends the Company elected to pay in
common stock, divided by the lesser of (i) $16.33 or (ii) 86% of the average
closing bid price of the Company's common stock for the five trading days
immediately preceding the 5% Preferred Stock conversion date.
Due to the conversion feature associated with the 5% Preferred Stock, the
Company accounted for a beneficial conversion feature (a "Guaranteed Return") as
additional preferred stock dividend. The computed value of the Guaranteed
Return of $316,410 was initially recorded as a reduction of the 5% Preferred
Stock and an increase to additional paid-in capital. The Guaranteed Return
reduction to the 5% Preferred Stock was accreted, as additional dividends, by
recording a charge to income available to common stockholders from the date of
issuance to the earliest date of conversion. The Company also recorded annual
dividends of $50 per share as a reduction of income available to common
stockholders which totaled $59,134 for the year ended December 31, 1998.
The difference between the stated redemption value of $1,000 per share and
the recorded value on May 22, 1998, totaling $1,345,765, was accreted as a
charge to income available to common stockholders during 1998 and was comprised
of the following:
<TABLE>
<S> <C>
Guaranteed return $ 316,410
Value of common stock warrants 402,500
5% Preferred Stock offering costs 626,855
-----------
Total accretion recorded $ 1,345,765
===========
</TABLE>
The 50,000 common stock purchase warrants issued with the 5% Preferred
Stock, valued at $402,500, entitle the holder to purchase one share of the
Company's common stock for a purchase price of $16.33 per share at any time
during the three-year period commencing on May 22, 1998. In addition, the
Company also issued 50,000 common stock purchase warrants, valued at $402,500,
to the placement agent as offering costs with the same terms. The warrants were
valued utilizing the Black-Scholes option pricing model using the following
assumptions:
F-21
<PAGE>
<TABLE>
<S> <C>
Exercise price $ 16.33
Fair market value of common stock on grant date $ 13.50
Option life 3 years
Volatility rate 98%
Risk free rate of return 5.13%
Discount rate 0%
</TABLE>
During January 2000, the holder exercised the warrant and purchased 100,000
shares of common stock resulting in proceeds to the Company of $1,633,000 (See
Note 16).
During 1998, all 3,000 shares of the 5% Preferred Stock, including accrued
dividends payable of $59,134, were converted into 627,296 shares of the
Company's common stock at conversion prices per share ranging from approximately
$3.28 to $8.87 as summarized in the following table:
<TABLE>
<CAPTION>
Number of Shares Common Stock
---------------------------------------------
5% Preferred Common Conversion
Conversion Date Stock Stock Price per
Share
---------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C>
July 30, 1998 500 56,907 $8.87
September 16, 1998 250 54,950 4.62
September 25, 1998 325 74,646 4.43
October 30, 1998 75 23,379 3.28
November 3, 1998 100 29,722 3.44
November 5, 1998 500 122,617 4.17
November 10, 1998 1,250 265,075 4.83
-------------- -------------
Total 3,000 627,296
============== =============
</TABLE>
Liquidation Preference of Preferred Stock
The Company's 10% Preferred Stock has preference in involuntary liquidation
before any distribution to the holders of the Company's common stock as follows:
Holders of the 10% Preferred Stock are entitled to receive from the
Company's remaining net assets (after payment of the Company's debts and other
liabilities) the amount of $10 per share of 10% Preferred Stock in cash plus
payment of all accrued but unpaid cumulative dividends. Holders of the 10%
Preferred Stock are not entitled to receive any other payments if the Company
liquidates, dissolves or winds-up its business.
Common Stock
On November 5, 1999 and 1998, the Company executed a four-month and one-
year consulting agreement, respectively, with a financial consulting firm to
enhance Company activities in corporate finance, mergers and acquisitions, and
public and investor relations. In addition, if the consulting firm introduces
the Company to a lender or equity purchaser, the Company is required to pay the
consultant a cash fee at the time of closing. To date, the Company has not paid
a cash fee for this service. In connection with the agreements, the Company
issued restricted shares of its common stock for commencement bonuses as
follows:
<TABLE>
<CAPTION>
November 5,
---------------------------------------------------
1999 1998
---------------------- ----------------------
<S> <C> <C>
Common shares issued 30,000 350,000
Date of issuance December 2, 1999 November 5, 1998
Fair market value on date of issuance $ 14.81 $ 5.50
Value of common stock $444,390 $1,925,000
</TABLE>
F-22
<PAGE>
The Company recorded expense on the date of issuance for the commencement
bonuses equal to the value of the common stock granted as the shares are not
refundable to the Company, even if the agreement is terminated by either party.
In February 1999, the Company entered into a third consecutive six-month
agreement with an individual to provide the Company consulting services in his
capacity as the Company's Chief Operating Officer and subsequent duties as Chief
Financial Officer. Pursuant to the terms of the agreement, in addition to a
monthly cash fee of $15,000, the consultant earned shares of the Company's
common stock determined by dividing $15,000 by the fair market value of the
common stock on the last trading day of the month. During the year ended
December 31, 1999, the Company issued 6,497 shares of common stock under this
agreement valued in the aggregate $90,000.
In February 1998, the Company entered into two consecutive six month
agreements with an individual to provide the Company consulting services in his
capacity as the Company's Chief Operating Officer. Pursuant to the terms of the
agreement, the consultant was paid $30,000 per month, each month, which was
comprised of $15,000 in cash payments and 2,000 shares of the Company's common
stock. During the year ended December 31, 1998, the Company issued 24,000
shares of common stock under this agreement.
Stock Option Plan
During 1995, the Company adopted the 1995 Stock Option Plan (the "Plan").
Under the terms of the Plan, the Company may grant options for up to 3,500,000
shares, at exercise prices equal to the stock's fair market value on the date of
grant. The options vest over various terms with a maximum vesting period of 42
months and expire after a maximum of ten years. As of December 31, 1999, the
Company had options outstanding for 2,770,055 shares.
A summary of the status of the Plan as of December 31, 1999 and 1998 and
changes during the years then ended is presented in the tables and narrative
below:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------- ----------------------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
------------------- ----------------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,758,665 $ 5.93 1,002,910 $2.26
Granted 2,101,897 12.03 1,416,350 8.09
Exercised (452,773) 2.71 (240,331) 1.89
Forfeited and canceled (637,734) 9.24 (420,264) 6.76
-------------- ------------
Outstanding at end of year 2,770,055 $10.31 1,758,665 $5.93
============== ========= ============ ============
Exercisable at end of year 468,861 $ 7.62 346,401 $2.50
============== ========= ============ ============
Weighted average fair value of options
Granted during year $8.83 $5.34
============== ============
</TABLE>
F-23
<PAGE>
The status of total stock options outstanding and exercisable under the
Plan as of December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
------------------------------------------ --------------------------------------
Weighted Weighted
Weighted Average Weighted Average
Range of Average Remaining Average Remaining
Exercise Number of Exercise Contractual Number of Exercise Contractual
Prices Shares Price Life (Years) Shares Price Life (Years)
- ------------------ ------------ ---------- -------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 1.63 - 4.08 120,550 $ 2.76 4.99 53,250 $ 3.02 5.55
4.09 - 10.21 1,610,040 8.54 5.74 389,611 7.85 5.13
10.22 - 21.06 1,039,465 13.93 6.36 26,000 13.37 6.55
----------- ----------
$ 1.63 - 21.06 2,770,055 $10.31 5.72 468,861 $ 7.62 5.76
=========== ========== ============= ========== ========== ============
</TABLE>
Pro Forma Fair Value Disclosures
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1999 and 1998, respectively: risk-free interest
rate of 5.68 and 5.01 percent, no expected dividend yields, expected lives of
3.0 years, and expected volatility ranging from 118 and 104 percent,
respectively. Fair value computations are highly sensitive to the volatility
factor assumed; the greater the volatility, the higher the computed fair value
of options granted.
Cumulative compensation costs recognized in pro forma net loss available to
common stockholders with respect to options that are forfeited prior to vesting
are adjusted as a reduction of pro forma compensation expense in the period of
forfeiture.
Had compensation cost for options granted been determined consistent with
SFAS 123, the Company's net loss available to common stockholders and net loss
available to common stockholders per common and common equivalent share would
have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- -------------------------------------------
As Reported Pro Forma As Reported Pro Forma
------------------- ------------------ ------------------- ------------------
<S> <C> <C> <C> <C>
Net loss available to common
stockholders $(21,866,012) $(24,897,608) $(17,124,629)
=================== ================== =================== ==================
Net loss available to common
stockholders per share-basic and
diluted $ (3.31) $ (3.77) $ (4.35) $ (4.73)
=================== ================== =================== ==================
</TABLE>
Because the fair value method of accounting required by SFAS 123 has not
been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.
IPO Common Stock Warrants-
In connection with the initial public offering ("IPO") in May 1996, the
Company issued 1,265,000 units, each unit consisting of one share of common
stock and one common stock purchase warrant and 110,000 similar warrants to the
underwriter (collectively the "IPO Warrants"). Two IPO Warrants entitled the
holders to purchase one share of common stock at a price of $9.00 per share or
the holders had the option of using a cashless exercise provision whereby
holders could surrender a portion of the stock received upon exercise of their
IPO Warrants as consideration for the exercise price for the IPO Warrants
exercised.
In May 1999, the Company received $3,056,871 in net proceeds, after
deducting offering costs of $17,387 from the exercise of the IPO Warrants and
issued 341,578 shares of common stock. In addition, the Company
F-24
<PAGE>
issued 131,614 shares of common stock as a result of holders of the IPO Warrants
utilizing the cashless exercise provision of the Warrant. As of December 31,
1999, all of the IPO Warrants have been exercised or have expired.
In connection with the initial public offering in May 1996, the Company
issued to the underwriters an option to purchase 110,000 shares of the Company's
common stock at an exercise price of $8.10 per share for a period of four years
beginning May 1997. As of December 31, 1999 and 1998, 3,300 units had been
exercised.
During January and February 2000, holders exercised their warrants to
purchase 84,042 shares of common stock resulting in proceeds to the Company of
$645,789 (See Note 16).
Stock Option Based Compensation Expense
During 1999 and 1998, the Company granted stock options under the Plan to
several consultants in connection with agreements to provide the Company with
services related to developing financing sources and strategic alliances as well
as investor relations. The terms of the agreements range from approximately six
months to three years. The Company issued in the aggregate 52,168 and 89,000
shares during 1999 and 1998, respectively, of its common stock at exercise
prices ranging from $4.00 to $11.00. The Company applied variable plan
accounting pursuant to SFAS 123 and valued these options utilizing the Black-
Scholes option pricing model on the vesting dates using the following
assumptions:
<TABLE>
<CAPTION>
<S> <C>
Exercise price $4.00 to $11.00
Fair market value of common stock on grant date $5.50 to $16.25
Option life 1 to 7 years
Volatility rate 95% to 104%
Risk free rate of return 4.52% to 6.00%
Dividend rate 0%
Vesting period Date of grant to 3 years
</TABLE>
The Company recorded expense for these options totaling $1,074,432 and
$160,328 for the years ended December 31, 1999 and 1998, respectively.
On November 24, 1998, in connection with the merger with DCI (See Note 9),
the Company granted stock options to the employees of DCI under the Plan to
purchase an aggregate of 83,000 shares of the Company's common stock at an
exercise price of $7.63 per share. The options were granted to these individuals
in their capacity as employees of the Company and vest over a three-year period
and can be exercised over a seven-year period.
On June 30, 1999, as a result of the consummation of the merger with DCI,
the Company recorded the intrinsic value of the options whereby the difference
between the fair market value of the Company's common stock on June 30, 1999
($17.50 per shares) and the exercise price of the options ($7.63 per share) is
expensed over the vesting period of the options. The Company recorded expense
for these options totaling $205,861 and $13,549 for the years ended December 31,
1999 and 1998, respectively.
Exercise of Common Stock Warrants
In November and December 1999, holders of warrants to purchase common stock
issued in connection with the acquisition of DCI (See Note 9) exercised 78,577
warrants, including 66,644 utilizing the cashless exercise provision of the
Agreements. As a result, the Company issued 44,740 shares of its common stock,
including 32,807 from the cashless exercises, resulting in proceeds to the
Company totaling $121,238.
Common Stock Warrants Issued in Private Placement
In connection with a private placement of the Company's common stock in
March 1996, the Company issued warrants to purchase 18,450 shares of the
Company's common stock at an exercise price of $2.25 per share, which vested
immediately and are exercisable for 5 years. On the date of issuance, the
Company determined the
F-25
<PAGE>
warrants had a nominal value. During 1999 and 1998, 13,500 and 3,600 warrants
were exercised, respectively, and as of December 31, 1999, 900 warrants were
outstanding.
Summary of Outstanding Warrants and Options For Common Stock Issued Outside
the Plan
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------------------- ----------------------------------------
Underwriter Underwriter
Options and Common Options and Common
Conversion Warrants Share Warrants Share
Description Ratio Outstanding Equivalents Outstanding Equivalents
- ------------------------- ---------- ------------------ --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Common stock warrants
issued in IPO 2:1 - - 1,265,000 632,500
Option to purchase
common stock
issued to underwriter
in IPO (See Note 16) 1:1 106,700 106,700 106,700 106,700
Option to purchase
common stock
warrants issued to
underwriter in IPO 2:1 - - 106,700 53,350
Common stock
warrants issued in
common stock
private placement 1:1 900 900 14,400 14,400
Common stock warrants
issued in connection
with 10% Preferred
Stock (See Note 16) 1:1 53,500 53,500 53,500 53,500
Common stock warrants
issued in connection
with 5% Preferred
Stock (See Note 16) 1:1 100,000 100,000 100,000 100,000
Common stock warrants
issued in connection
with Series A
Preferred Stock 1:1 - - 140,000 140,000
Common stock warrants
issued to placement
agent in Series A
Preferred Stock 1:1 - - 20,000 20,000
Common stock warrants
issued in connection
with DCI merger
(See Notes 9 and 16) 1:1 207,182 207,182 - -
Common stock warrants
issued to 10%
convertible Note
Payable 1:1 273,038 273,038 - -
Common stock warrants
issued to customers
(See Note 16) 1:1 231,829 231,829 70,162 70,162
------------ ----------- ------------ --------------
Total 973,149 973,149 1,876,462 1,190,612
============ =========== ============ ==============
</TABLE>
F-26
<PAGE>
(8) NET REVENUES
Net revenues consist of software license fees; service bureau application
provider service fees; service fees for professional services for software
integration, configuration, custom programming, hosting and software support and
maintenance; and computer hardware sales. Net revenues are comprised of the
following:
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net revenues:
License $ 392,810 $ 140,914
Service bureau application provider service fees 263,888 132,959
Services 1,170,076 211,790
Hardware and software 117,509 1,103,717
----------
Total net revenues $1,944,283 $1,589,380
========== ==========
</TABLE>
During July 1999, the Company sold two customer contracts to an unrelated
third party, including computer hardware, for approximately $270,000. The
Company provided services and equipment under the terms of the original
contracts enabling the customers to provide Internet access to their end users.
The Company recorded $138,504 of service revenue for the year ended December 31,
1999 related to providing services to the purchaser of these two contracts.
Revenue recognized by the Company from these contracts totaled approximately
$6,000 for the year ended December 31, 1999.
(9) ACQUISITIONS
DURAND COMMUNICATIONS, INC.
On June 30, 1999, Durand Acquisition Corporation ("DAC"), a wholly owned
subsidiary of the Company, completed a merger with DCI, a developer and marketer
of Internet "community" building tools, by exchanging 947,626 of the Company's
common stock for all of the common stock of DCI at an exchange ratio of 2.46
shares of the Company's common stock for each share of DCI's common stock. In
addition, outstanding DCI options and warrants to purchase common stock were
converted at the same exchange ratio into 242,293 options and warrants to
purchase the Company's common stock. The acquisition of the assets and
liabilities was recorded using the purchase method of accounting whereby the
consideration paid of $14,216,876 was allocated based on the fair values of the
assets and liabilities acquired with the excess consideration over the fair
market value of tangible assets of $14,132,445 recorded as intangible assets.
The Company has determined that substantially all of the intangible assets
acquired are represented by the value of the developed technology, workforce and
goodwill acquired from DCI.
Total consideration for the merger is as follows:
<TABLE>
<S> <C>
Value of common stock issued $ 9,239,358
Value of warrants and options issued 1,504,349 (a)
Liabilities assumed 2,190,566 (b)
Acquisition expenses 1,282,603
-----------
Total purchase price $14,216,876
===========
</TABLE>
The purchase price was allocated to the assets acquired based on their fair
market values as follows:
F-27
<PAGE>
<TABLE>
<S> <C>
Cash and cash equivalents $ 23,739
Other current assets 23,708
Property and equipment 36,984
-----------
Total tangible assets acquired 84,431
Developed technologies, goodwill and other intangibles 14,132,445
-----------
Total assets acquired $14,216,876
===========
</TABLE>
(a) 242,293 warrants and options issued, which were valued using the Black-
Scholes option pricing model using the following assumptions:
<TABLE>
<S> <C>
Exercise prices $4.30 to $20.33
Fair market value of common stock on
measurement date $9.75
Option lives 1 to 9 years
Volatility rate 104%
Risk free rate of return 5.0%
Dividend rate 0%
</TABLE>
(b) The liabilities assumed by the Company included a $1,168,173 note payable
and accrued interest from DCI to the Company which was forgiven at the
consummation of the transaction.
In connection with the merger, the Company issued a warrant to financial
advisory firm to purchase 50,150 shares of the Company's common stock at an
exercise price of $8.85. The warrant is exercisable for a period of five years.
The Company recorded $654,488 in acquisition costs for the warrant, which was
valued using the Black-Scholes option pricing model utilizing the following
assumptions:
<TABLE>
<S> <C>
Exercise price $ 8.85
Fair market value of common stock on grant date $15.50
Option life 5 Years
Volatility rate 104%
Risk free rate of return 5.0%
Dividend rate 0%
</TABLE>
The transaction with DCI resulted in $14,132,445 of intangible assets
(primarily developed technologies, workforce and goodwill). These intangible
assets will be amortized over their estimated economic lives of three years.
The purchase price allocation is subject to adjustment based on the final
determination of the fair value of the assets and liabilities assumed, which
could take as long as one year from June 30, 1999.
The results of operations of DCI are included in the Company's results from
the date of the DCI acquisition and all significant intercompany balances and
transactions have been eliminated in consolidation.
NETIGNITE, INC.
On March 10, 1999, the Company acquired a controlling interest in a newly
formed company, NetIgnite 2, LLC ("NetIgnite"). NetIgnite was a development
stage company which the Company formed with a predecessor company by the name of
NetIgnite, Inc. ("NI"), the sole shareholder and founder of which was Perry
Evans, the founder and past President of MapQuest.com. The Company was, as a
result of this transaction, entitled to 99.5% of NetIgnite's operating income
and approximately 60% of any proceeds upon the sale of NetIgnite. NI was
entitled to .5% of NetIgnite's operating income and approximately 40% of any
proceeds upon the sale of NetIgnite. Mr. Evans entered into an Employment
Agreement with the Company which has an initial term of two years, provides for
a minimum annual salary of $190,000 and the granting of stock options to
purchase 80,000 shares of
F-28
<PAGE>
common stock at an exercise price of $12.25, one-third of such option shares to
vest annually during the next three years subject to Mr. Evans' continuous
employment by the Company.
Prior to June 2, 1999, the Company utilized the equity method of accounting
for this subsidiary and recorded a loss from this investment totaling $127,083
for the year ended December 31, 1999.
On June 2, 1999, the Company acquired the assets and liabilities of NI in
exchange for 71,429 shares of common stock valued at $984,400. The acquisition
of these assets and liabilities was recorded using the purchase method of
accounting whereby the consideration paid was allocated based on the fair values
of the assets and liabilities acquired with the excess consideration of $893,953
being recorded as an intangible asset, primarily developed technologies and
goodwill. These intangible assets will be amortized over their estimated
economic lives of three years. The purchase price allocation is subject to
adjustment based on the final determination of the fair value of the assets and
liabilities assumed, which could take as long as one year from June 2, 1999.
The results of operations of NetIgnite are included in the Company's
results from the date of the NI acquisition and all significant intercompany
balances and transactions have been eliminated in consolidation.
The following table summarizes the results of operations for the Company on
a pro forma basis as if both the acquisitions had occurred on January 1, 1998:
PRO FORMA
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998
------------ ------------
Net revenues $ 1,928,118 $ 1,606,896
Net loss available to common stockholders $(27,434,184) $(21,735,056)
Loss per share, basic and diluted $ (4.15) $ (6.00)
(10) CUSTOMER ACQUISITION COSTS
During 1999 and 1998, the Company granted warrants to three and one
customers, respectively, to purchase in the aggregate 161,667 and 70,162 shares,
respectively, of the Company's common stock at exercise prices ranging from
$8.77 to $9.94 per share which may be exercised at any time during the one to
three-year periods from the date of issuance. Because the agreements entered
into by the Company did not contain minimum guaranteed revenue and due to the
start-up nature of these services and other uncertainties regarding these
arrangements, the Company recorded expense for customer acquisition costs of
$941,684 and $560,824 for the years ended December 31, 1999 and 1998,
respectively. The Company valued these options utilizing the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<CAPTION>
1999 1998
------------------ --------------------
<S> <C> <C>
Exercise prices $9.19 to $9.94 $ 8.77
Fair market value of common stock on grant date $8.81 to $15.50 $11.69
Option lives 1 to 3 Years 3 years
Volatility rate 104% 98%
Risk free rate of return 5.0% to 6.0% 4.52%
Dividend rate 0% 0%
</TABLE>
In January 2000, a warrant holder exercised its warrant to purchase 7,000
shares of the Company's common stock resulting in proceeds to the Company of
$68,250 (See Note 16).
F-29
<PAGE>
(11) MAJOR CUSTOMERS
A substantial portion of the Company's sales is derived from a limited
number of customers. The Company's sales to customers in excess of 10% of net
sales for the years ended December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
<S> <C> <C>
Customer A $500,000 $ -
Customer B 364,365 227,098
Customer C 325,000 -
Customer D - 440,109
Customer E - 277,301
Customer F 122,120 185,768
</TABLE>
The Company's accounts receivable balances from customers in excess of 10%
of the accounts receivable and accrued revenue receivables balance for the years
ended December 31, 1999 and 1998, are as follows:
1999 1998
------- -------
Customer B $21,825 $18,350
Customer D - 72,821
Customer F 4,000 22,925
Customer G 19,000 -
Customer H 35,000 -
Customer I 17,056 -
(12) INCOME TAXES
The provision for income taxes includes the following:
Year Ended
December 31,
-------------------------------
1999 1998
----------- -----------
Current:
Federal $ - $ -
State - -
----------- -----------
Total current provision - -
----------- -----------
Deferred:
Federal (5,497,115) (3,583,883)
State (533,543) (347,847)
Valuation allowance 6,030,658 3,931,730
----------- -----------
Total deferred provision (benefit) - -
----------- -----------
Total provision $ - $ -
=========== ===========
The statutory federal income tax rate was 34% for the years ended December
31, 1999 and 1998. Differences between the income tax expense reported in the
statements of operations and the amount reported by applying the statutory
federal income tax rate to loss available to common shareholders before income
taxes are as follows:
Year Ended
December 31,
------------------------------
1999 1998
----------- -----------
Benefit at statutory rate $(7,434,444) $(5,359,206)
Increase (decrease) due to:
State income taxes (721,578) (520,158)
Nondeductible expenses 2,125,364 1,947,634
Valuation allowance 6,030,658 3,931,730
----------- -----------
Income tax provision $ - $ -
=========== ===========
F-30
<PAGE>
Components of net deferred assets (liabilities) as of December 31, 1999 and 1998
are as follows:
Year Ended
December 31,
------------------------------
1999 1998
------------ -----------
Current:
Accrued liabilities and other reserves $ 77,920 $ 21,894
Deferred revenue 85,000 -
Non-current:
Depreciation 21,788 14,137
Book amortization in excess of tax 44,035 123,202
Net operating losses 11,882,482 5,921,334
------------ -----------
Total net deferred tax assets 12,111,225 6,080,567
Valuation allowance (12,111,225) (6,080,567)
------------ -----------
Net deferred tax assets $ - $ -
============ ===========
For income tax purposes, the Company has approximately $31,856,000 of net
operating loss carryforwards that expire at various dates through 2019. The Tax
Reform Act of 1986 contains provisions that may limit the net operating loss
carryforwards available to be used in any given year in the event a significant
change in ownership. Realization of net operating loss carryforwards is
dependent on generating sufficient taxable income prior to its expiration dates.
During 1999 and 1998, the Company increased its valuation allowance by
$6,030,658 and $3,931,730, respectively, due mainly to uncertainty relating to
the realizability of the 1999 and 1998 net operating loss carryforwards. The
amount of the deferred tax assets considered realizable could be adjusted in the
near term if future taxable income materializes.
(13) RELATED PARTY TRANSACTIONS
Customer
A director of the Company is also the general partner and chief executive
officer for one of the Company's customers. The Company entered into a contract
during August 1997, as amended, whereby the Company provides its products and
services to the customer for several markets. The expiration dates of the
contract and related amendments range from August 1999 to July 2000. The Company
earns revenue from the sale of computer hardware, engineering fees, equipment
installation fees, and royalties from subscriber Internet access and content
fees. The Company recognized revenue totaling $122,120 and $185,768 for the
years ended December 31, 1999 and 1998, respectively. Included in accounts
receivable at December 31, 1999 and 1998 are amounts due from the customer
totaling $4,000 and $22,925, respectively.
Legal Services
The Company's vice-president of administration and corporate counsel, who
began his employment with the Company in 1999, is also a partner in the firm the
Company retains for its legal services. During the year ended December 31, 1999,
the Company paid $268,412 in legal fees to the firm and $8,013 was included in
the Company's accounts payable balance as of December 31, 1999.
F-31
<PAGE>
(14) COMMITMENTS AND CONTINGENCIES
Minimum future annual lease payments as of December 31, 1999 are as follows:
2000 $ 837,813
2001 847,335
2002 556,348
2003 584,878
2004 599,136
Thereafter 299,568
----------
$3,725,078
==========
The total operating lease expense for the years ended December 31, 1999 and
1998, was $368,168 and $363,709, respectively.
In November 1999, the Company entered into a three-year application service
provider agreement whereby the Company pays approximately $7,300 per month for
financial application software hosting services. The term of the agreement is
for three years and the Company has the right to terminate the agreement at any
time for a termination fee of 30% of the remaining monthly payments. Total
payments under this agreement are expected to be approximately $265,000.
On January 14, 2000, the Company entered into a two-year software lease
agreement which specifies an initial payment of $50,000 and thereafter quarterly
lease payments of $54,412 beginning January 2000. Total lease payments are
$485,296 (See Note 17).
On February 2, 2000, the Company entered into a three-year lease for a
second office location. Total lease payments are $61,539 in 2000, $63,693 in
2001 and $65,922 in 2002.
The Company has entered into employment agreements with R. Steven Adams and
its executive officers, including William R. Cullen, Perry Evans, Gwenael Hagan
and Andre Durand which takes effect only if a change of control of 30% or more
of our outstanding voting stock occurs. If a change of control occurs, these
agreements provide for the continued employment (at similar responsibility and
salary levels) of the employee for a period of three years after the change of
control. During this three year period, if the Company (or a successor entity)
terminates the employee's employment without cause or if the employee terminates
his employment for a good reason, then the Company (or a successor entity) must
pay a lump sum severance to the employee equal to three years salary (including
bonus), accelerate the vesting of all outstanding options held by the employee
and allow the employee to continue to participate in our benefit and welfare
plans (or those of the successor entity) for a period of three years after the
employment terminates.
(15) BUSINESS SEGMENT INFORMATION
The Company supports products and services that simplify and support e-
commerce transactions in local markets by providing an interactive framework of
local commerce and community-based services comprised of publishing, content
management, community-building and communications. In addition, the Company
supports products and services for electronic banking applications, targeting
credit unions, community banks, and savings and loan institutions with a full
line of e-banking transaction processing and account management services. The
Company has two reportable business segments: Local Commerce/Enterprise and e-
Banking.
Local Commerce/Enterprise consists of Internet application solutions which
provide merchants options for reaching their target customers through simple
tools that publicize their company, product and service offerings; buyers to
quickly find rich information about merchants and their offerings; and buyers
and sellers a more effective and efficient transaction.
e-Banking consists of an online banking solution, marketed generally to
financial institutions having less than $500 million in assets, using a service
bureau approach to e-banking, which enables institutions to provide many of the
capabilities and services available to the larger financial institutions without
the cost associated with the development of institution-specific systems.
Corporate Activities consists of general corporate expenses, including
capitalized costs that are not allocated to specific business segments. Assets
of corporate activities include unallocated cash, receivables, prepaid expenses,
note receivable, deferred acquisition costs, deposits, intangible assets
acquired in mergers, and corporate use of property and equipment.
F-32
<PAGE>
Net Sales
- --------------------------------------------------------------------------------
Year Ended
December 31,
----------------------------
1999 1998
----------- ----------
Local commerce/enterprise $1,193,196 $1,362,282
e-Banking 751,087 227,098
---------- ----------
Total net sales $1,944,283 $1,589,380
========== ==========
Net Loss
- --------------------------------------------------------------------------------
Year Ended
December 31,
------------------------------
1999 1998
------------ -------------
Local commerce/enterprise $ (5,378,071) $ (4,578,160)
e-Banking 30,193 (309,523)
Corporate activities (11,929,217) (5,728,580)
------------ ------------
Net loss $(17,277,095) $(10,616,263)
============ ============
Assets
- --------------------------------------------------------------------------------
December 31,
-----------------------------
1999 1998
------------ ----------
Local commerce/enterprise $ 1,651,481 $ 696,219
e-Banking 714,216 416,071
Corporate activities 20,258,837 2,272,986
----------- ----------
Total $22,624,534 $3,385,276
=========== ==========
F-33
<PAGE>
Property and Equipment, net
- --------------------------------------------------------------------------------
December 31,
---------------------------
1999 1998
---------- ----------
Local commerce/enterprise $1,378,408 $ 516,918
e-Banking 683,890 397,721
Corporate activities 290,191 263,989
---------- -----------
Total $2,352,489 $ 1,178,628
========== ===========
Depreciation and Amortization
- --------------------------------------------------------------------------------
Year Ended
December 31,
---------------------------
1999 1998
---------- ----------
Local commerce/enterprise $ 576,306 $ 546,824
e-Banking 134,250 140,953
Corporate activities 2,500,976 103,378
---------- ----------
Total $3,211,532 $ 791,155
========== ==========
Property and Equipment Additions
- -----------------------------------------------------------------------------
Year Ended
December 31,
------------------------------
1999 1998
---------- --------
Local commerce/enterprise $1,121,102 $221,672
e-Banking 420,418 124,652
Corporate activities 151,012 135,103
---------- --------
Total $1,692,532 $481,427
========== ========
(16) SUBSEQUENT EVENTS
Business Acquisition
On January 7, 2000, the Company acquired assets of Update Systems, Inc.
("Update"), a developer and provider of e-communication solutions for businesses
in the highly competitive world of Internet relationships, by issuing 278,411
shares of the Company's common stock. In addition, outstanding Update options to
purchase common stock were exchanged into 49,704 options to purchase the
Company's common stock. The acquisition of the assets was recorded using the
purchase method of accounting whereby the consideration paid of $10,060,417 was
allocated based on the fair values of the assets acquired with the excess
consideration over the fair market value of tangible assets of $10,014,485
recorded as intangible assets. The Company has determined that substantially all
of the intangible assets acquired are represented by the value of the developed
technology and workforce acquired from Update.
Total consideration for the merger is as follows:
Value of common stock issued $ 8,630,741
Value of options issued 1,364,676 (a)
Acquisition expenses 65,000
-----------
Total purchase price $10,060,417
===========
The purchase price was allocated to the assets acquired based on their fair
market values as follows:
Acquired property and equipment $ 45,932
Developed technologies, goodwill and other intangibles 10,014,485
-----------
Total assets acquired $10,060,417
===========
(a) 49,704 warrants and options issued, valued using the Black-Scholes option
pricing model using the following assumptions:
Exercise prices $ 4.33
Fair market value of common stock on
measurement date $29.50
Option lives 5 years
Volatility rate 104%
Risk free rate of return 5.0%
Dividend rate 0%
F-34
<PAGE>
The transaction with Update resulted in $10,014,485 of intangible assets
(primarily developed technologies, workforce and goodwill). These intangible
assets will be amortized over their estimated economic lives of three years. The
purchase price allocation is subject to adjustment based on the final
determination of the fair value of the assets acquired, which could take as long
as one year from January 7, 2000.
Series B Preferred Stock
On February 18, 2000, the Company completed a private placement which
resulted in gross proceeds of $12,500,000. The placement was made pursuant to a
securities purchase agreement entered into on December 31, 1999. The Company
sold 12,500 shares of its Series B convertible preferred stock (the "Series B
Preferred Stock"), including warrants to purchase 343,750 shares of the
Company's common stock. Net proceeds to the Company were approximately
$11,660,000 after deducting approximately $840,000 in offering costs.
The Series B Preferred Stock is convertible into shares of the Company's
common stock, initially at $20.00. The conversion rate for the Series B
Preferred Stock is subject to potential resets. The first will be on the date
that a registration statement relating to the common stock issuable upon
conversion of the Series B Preferred Stock is declared effective by the SEC and
the second will be on the later of November 18, 2000 or three months after the
effective date of the registration statement. The adjustment price on each such
date shall be the then market price for the Company's common stock if lower than
the then effective conversion price but will not be less than $8.00 per share.
Due to the conversion feature associated with the Series B Preferred Stock,
the Company must account for a beneficial conversion feature (a "Guaranteed
Return") as additional preferred stock dividend. The computed value of the
Guaranteed Return of $2,434,957 is limited to the relative fair value of the
Series B Preferred Stock, which totaled $2,434,957 and is initially recorded as
a reduction of the Series B Preferred Stock and an increase to additional paid-
in capital. The Guaranteed Return reduction to the Series B Preferred Stock will
be accreted, as additional dividends, by recording a charge to income available
to common stockholders from the date of issuance to the earliest date of
conversion.
In connection with the 10% convertible note payable (See Note 6), the terms
of the note payable agreement were amended on December 18, 1999 whereby the
Company issued the note holder a five-year warrant to purchase 136,519 shares of
the Company's common stock at an exercise price of $18.51 per share in
consideration for the note holder's agreement to exchange the note for an
amended note with terms more favorable for the Company to facilitate the sale of
the Company's Series B Preferred Stock. The Company recorded deferred offering
costs related to the Series B Preferred Stock for the issuance of the warrant
valued at $2,311,475.
The difference between the stated redemption value of $1,000 per share and
the recorded value on February 18, 2000, totaling $12,500,000, will be accreted
as a charge to income available to common stockholders on the date the Series B
Preferred Stock is first convertible is comprised of the following:
Guaranteed return $ 2,434,957
Value of common stock warrants 6,913,568
Value of common stock warrant issued to holder of 10%
note payable 2,311,475
Series B Preferred Stock offering costs 840,000
-----------
Total accretion recorded $12,500,000
===========
The 343,750 common stock purchase warrants issued with the Series B
Preferred Stock, valued at $7,038,891 based on the relative fair value of the
warrants using the Black-Scholes option pricing model compared to the net
proceeds received by the Company, entitles the holder to purchase one share of
the Company's common stock for a purchase price initially set at $20.20, equal
to 101% of the initial conversion price of the preferred stock at any time
during the five-year period commencing on February 18, 2000. The exercise price
for the warrants is subject to being reset based upon future market prices for
the Company's common stock. The warrant was valued utilizing the Black-Scholes
option pricing model using the following assumptions:
F-35
<PAGE>
Exercise price $20.20
Fair market value of common stock on grant date $66.88
Option life 5 Years
Volatility rate 120%
Risk free rate of return 0%
Discount rate 6.7%
Conversion of 10% Convertible Note Payable
On February 18, 2000, the holder converted $2,500,000 of the outstanding
Note Payable into 248,262 shares of the Company's common stock at an exercise
price of $10.07 per share.
Exercise of Common Stock Warrants
During January and February 2000, holders of warrants exercised their right
to purchase 451,515 shares of the Company's common stock resulting in proceeds
to the Company totaling $4,976,226 as summarized in the following table:
<TABLE>
<CAPTION>
Common
Stock Exercise Common Proceeds
Warrant Price Stock To the
Warrant Exercised Exercised Per Share Issued Company
- -------------------------------- --------- ------------- ------- -----------
<S> <C> <C> <C> <C>
10% preferred stock warrants 12,000 $15.00 12,000 180,000
IPO representative warrants 90,727 8.10 84,042 645,789
Warrants issued in connection
with the DCI merger 105,269 6.61 to 10.16 103,607 887,410
Warrant issued in connection
with 5% Preferred Stock 100,000 16.33 100,000 1,633,000
Warrant issued to customer 7,000 9.75 7,000 68,250
Warrant issued to 10%
convertible note holder 136,519 11.44 136,519 1,561,777
------- ------- ----------
451,515 443,168 $4,976,226
======= ======= ==========
</TABLE>
Included in the common stock issued in connection with the exercise of the
IPO representative warrants and the warrants issued in connection with the DCI
merger are 8,992 and 6,865 shares, respectively, issued to the holders as a
result of utilizing the cashless exercise provision of the Agreements for the
exercise of 11,000 and 8,527 warrants, respectively.
F-36
<PAGE>
Conversion of 10% Preferred Stock
During January and February 2000, 85,000 shares of the 10% Preferred Stock,
including accrued dividends payable of $173,027, were converted into 102,302
shares of the Company's common stock at conversion prices of $10.00 as
summarized in the following table:
Number of Shares
-------------------------
10% Common Stock
Preferred Common Conversion
Conversion Date Stock Stock Price per Share
--------------- --------- ------ ---------------
January 11, 2000 80,000 96,240 $ 10.00
February 14, 2000 5,000 6,062 10.00
------ -------
85,000 102,302
====== =======
Lease Agreements
On January 14, 2000, the Company entered into a two-year software license
lease agreement which specifies an initial payment of $50,000 and thereafter
quarterly payments of $54,412. Total lease payments will be $485,296. The lease
is secured by a one-year cash certificate of deposit totaling $267,685.
On February 2, 2000, the Company entered into a three-year lease for a
second office location. Total lease payments are $61,539 in 2000, $63,693 in
2001 and $65,922 in 2002.
F-37
<PAGE>
WEBB INTERACTIVE SERVICES, INC.
INDEX TO EXHIBITS
FORM 10-KSB (For Year Ended December 31, 1999)
(a) Listing of Exhibits:
2.1 Agreement and Plan of Merger dated March 19, 1998 among Webb, Durand
Acquisition Corporation and Durand Communications, Inc. (1)
2.2 Asset Purchase Agreement, including exhibits thereto, dated December
27, 1999, between Webb Interactive Services, Inc., Update Systems,
Inc. and Kevin Schaff. (2)
2.3 Agreement and Plan of Merger between Webb and NetIgnite, Inc., dated
June 1, 1999 (3)
3.1 Articles of Incorporation, as amended, of Webb (4)
3.2 Bylaws of Webb (5)
4.1 Specimen form of Webb's Common Stock certificate (6)
4.2 Stock Option Plan of 1995 (5)
4.3 Form of Incentive Stock Option Agreement for Stock Option Plan of
1995 (5)
4.4 Form of Nonstatutory Stock Option Agreement for Stock Option Plan of
1995 (5)
4.5 Form of Warrant issued in 1996 to private investors (5)
4.6 Form of Warrant Agreement issued in 1997 and 1998 to private
investors (1)
10.1 Form of Nondisclosure and Nonsolicitation Agreement between Webb and
its employees (4)
10.2 Office Lease for Webb's principal offices commencing May 2000*
10.3 Form of Change of Control Agreement between Webb and certain
employees (7)
10.4 Operating and Member Control Agreement dated March 10, 1999, among
NetIgnite2, LLC, Webb and NetIgnite, Inc., Buy-Sell Agreement dated
March 10, 1999, among NetIgnite2, LLC, Webb and NetIgnite, Inc. and
Employment Agreement dated March 10, 1999, among Webb, NetIgnite2,
LLC and Perry Evans (7)
10.5 Electronic Banking Service Contract dated May 28, 1997 between Webb
and Rockwell Federal Credit Union (7)
10.6 Online Banking Service Agreement dated February 10, 1999 between Webb
and CU Cooperative Systems, Inc. (7)
10.7 Internet/Business Site Development & Host Agreement dated November
12, 1997, as amended January, 2000, between Webb and ReMax
International, Inc.*
10.8 Securities Purchase Agreement dated August 25, 1999 between Webb and
Castle Creek (8)
10.9 Promissory Note dated August 25, 1999 issued by Webb to Castle Creek
(8)
10.10 Amendment dated December 18, 1999 to Securities Purchase Agreement
dated August 25, 1999 between Webb and Castle Creek (9)
10.11 First Amendment dated December 18, 1999 to Promissory Note dated
August 25, 1999 issued by Webb to Castle Creek (9)
10.12 Stock Purchase Warrant dated December 18, 1999 issued by Webb to
Castle Creek (9)
10.13 Securities Purchase Agreement dated December 31, 1999, between Webb,
Marshall Capital Management and Castle Creek. Included as exhibits to
the Securities Purchase Agreement are the proposed form of Warrant
and the Registration Rights Agreement (10)
10.14 Articles of Amendment setting forth the terms of the Series B
Convertible Preferred Stock (11)
10.15 Development, Access and License Agreement, as amended, effective
June 30, 1999 between Webb and Switchboard, Inc. (12)
10.16 Engineering Services Agreement, effective June 30, 1999, between
Webb and Switchboard, Inc. (12)
13 The registrant intends to deliver to its shareholders a copy of 1999
Annual Report on form 10-KSB (without exhibits), in lieu of a
separate Annual Report to Shareholders
21 Subsidiaries of Webb Interactive Services, Inc.*
23.1 Consent of Arthur Andersen LLP*
27 Financial Data Schedule*
- -----------------------------
* Filed herewith.
<PAGE>
(1) Filed with the Form 10-KSB Annual Report for the year ended December 31,
1997, Commission File No. 0-28462.
(2) Filed with the Form 8-K Current Report, filed January 14, 2000, Commission
File No. 0-28642.
(3) Filed with the Form 10-QSB for the quarter ended June 30, 1999, Commission
File No. 0-28642.
(4) Filed with the Registration Statement on Form S-3, filed January 29, 1999,
Commission File No. 333-71503.
(5) Filed with the initial Registration Statement on Form SB-2, filed April 5,
1996, Commission File No. 333-3282-D.
(6) Filed with the Registration Statement on Form S-3, filed September 24,
1999, Commission File No. 333-86465.
(7) Filed with the Form 10-KSB Annual Report for the year ended December 31,
1998, Commission File No. 0-28462.
(8) Filed with the Form 8-K Current Report, filed September 2, 1999, Commission
File No. 0-28642.
(9) Filed with Amendment No. 2 to Webb's Registration Statement on Form S-3,
filed January 3, 2000, Commission File No. 333-87887
(10) Filed with the Form 8-K Current Report, filed January 5, 2000, Commission
File No. 0-28642.
(11) Filed with the Form 8-K Current Report, filed February 25, 2000, Commission
File No. 0-28642.
(12) Filed with the Registration Statement on Form S-3, filed September 2, 1999,
Commission File No. 333-86465.
<PAGE>
Exhibit 10.2
1899 WYNKOOP
OFFICE BUILDING LEASE
BETWEEN
CENTENNIAL VENTURE I, LLC,
LANDLORD, AND
WEBB INTERACTIVE SERVICES, INC.,
TENANT
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1. Premises......................................................... 1
2. Term and Possession.............................................. 1
3. Rent............................................................. 3
4. Security Deposit................................................. 4
5. Rent Adjustment.................................................. 4
6. Character of Occupancy........................................... 8
7. Services and Utilities........................................... 9
8. Quiet Enjoyment.................................................. 11
9. Maintenance and Repairs; Building Management..................... 11
10. Alterations and Additions........................................ 12
11. Entry by Landlord................................................ 13
12. Mechanic's Liens................................................. 13
13. Damage to Property; Injury to Persons............................ 14
14. Insurance........................................................ 14
15. Damage or Destruction to Building................................ 16
16. Condemnation..................................................... 17
17. Assignment and Subletting........................................ 18
18. Estoppel Certificate............................................. 19
20. Landlord's Lien.................................................. 23
21. Uniform Commercial Code.......................................... 23
22. Removal of Tenant's Property..................................... 23
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
23. Holdover......................................................... 23
24. Common Areas..................................................... 23
25. Surrender and Notice............................................. 24
26. Sales; Conveyance and Assignment................................. 24
27. Subordination; Non-Disturbance and Attornment.................... 24
28. Payments After Termination....................................... 24
29. Authorities for Action and Notice................................ 25
30. Liability of Landlord............................................ 25
31. Brokerage........................................................ 25
32. Tenant's Taxes................................................... 26
33. Substitution of Premises......................................... 26
34. Rights Reserved to Landlord...................................... 26
35. Force Majeure Clause............................................. 27
36. Signage.......................................................... 27
37. Attorneys' Fees.................................................. 27
38. Miscellaneous.................................................... 27
39. Hazardous Materials.............................................. 30
40. Parking.......................................................... 31
41. Right to Renew................................................... 31
42. Letter of Credit................................................. 32
</TABLE>
EXHIBIT A DESCRIPTION OF PREMISES
EXHIBIT B LEGAL DESCRIPTION
EXHIBIT C COMMENCEMENT DATE AGREEMENT
EXHIBIT D WORK LETTER
EXHIBIT E RULES AND REGULATIONS
-ii-
<PAGE>
SUMMARY OF BASIC LEASE PROVISIONS
LANDLORD: Centennial Venture I, LLC
ADDRESS OF 120 17th Street, 8th Floor
LANDLORD: Denver, Colorado 80202
(303) 436-9191
TENANT: Webb Interactive Services, Inc.
ADDRESS OF 1899 Wynkoop Street, Suite 600
TENANT: Premises Address Denver, Colorado 80202
Business Home Office
Address 1800 Glenarm, Suite 600
Denver, Colorado 80202
Business Home Office
Telephone No. 303-296-9200
PREMISES: Suite 600, containing approximately 21,398 rentable square
feet of space, as shown crosshatched on Exhibit A.
TENANT'S PRO-RATA 12.972%
SHARE:
LEASE TERM: Five (5) Years Two (2) Months
BASE RENT: Monthly Annual
Period Base Rent Base Rent
------ --------- ---------
Months 1-2 $46,362.33 See Paragraph 3
Months 3-36 $46,362.33 $556,348.00
Months 37-62 $49,928.67 $599,144.00
EXPENSE STOP: $6.50
SECURITY DEPOSIT: See infra Paragraph 4
PREPAID RENT: $46,362.33
-iii-
<PAGE>
1899 WYNKOOP
OFFICE BUILDING LEASE
THIS LEASE is made this 8th day of December 1999, by and between Centennial
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Venture I, LLC., a Colorado Limited Liability Company ("Landlord") and Webb
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Interactive Services, Inc., a Colorado corporation ("Tenant").
1. Premises: Landlord hereby leases to Tenant those certain premises
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described in Exhibit A, attached hereto and incorporated herein by this
reference, and the drawings referred to therein, consisting of a total of
approximately 21,398 rentable square feet of space on the 6th floor, suite 600
(the "Premises"), in the Building (hereinafter defined) to be erected on the
real property more particularly described on Exhibit B attached hereto and
incorporated herein by this reference, together with a non-exclusive right,
subject to the provisions hereof, to use all appurtenances thereunto, including,
but not limited to, any areas designated by Landlord for use by tenants of the
Building (the Building, the parking garage, the real property on which the same
is situated, other areas and appurtenances are hereinafter collectively
sometimes called the "Building Complex"). The Building is commonly known as 1899
Wynkoop and is located at 1899 Wynkoop Street, Denver, Colorado 80202 (The
"Building"). This Lease is subject to the terms, covenants and conditions set
forth herein and Tenant and Landlord each covenant as a material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions to be kept and performed by them.
2. Term and Possession:
-------------------
(a) The Term of this Lease shall be approximately five (5) years and
two (2) months to commence on the Commencement Date and to end, unless
sooner terminated, at midnight on the last day of the sixty-second (62nd)
full calendar month thereafter. Promptly after the Commencement Date,
Landlord and Tenant will execute an agreement in recordable form
(hereinafter referred to as the Commencement Date Agreement, a form of
which is attached hereto as Exhibit C) stating, among other things, the
rentable square foot area of the Premises, the commencement and expiration
dates of this Lease and the Base Rent.
(b) "Commencement Date" shall mean the earlier of the following
dates:
(1) The date upon which the Tenant takes possession or commences
the operation of its business in the Premises; or
(2) The date upon which the Premises are Ready for Occupancy
(hereinafter defined);
provided, that under either subparagraph 2(b)(1) or (2) the actual
Commencement Date shall not be prior to the Scheduled Commencement Date.
(c) The Scheduled Commencement Date shall be May 1, 2000. Tenant's
actual Commencement Date shall be established by the Commencement Date
Agreement. Prior to the Commencement Date, Landlord shall cause the
Premises to be prepared for occupancy, as provided in the Work Letter
attached to this Lease as Exhibit D. The cost of completion of the tenant
improvement work to the Premises shall be borne by the parties as provided
in the Work Letter. Other than as set forth in the Work Letter Landlord
shall have no obligation for the completion of the Premises, and Tenant
shall accept the Premises in its "as is" condition on the Commencement
Date. "Ready for Occupancy" as that term is used herein shall mean the date
when all major construction aspects of the Building and the Premises to be
performed by Landlord and Tenant to the extent agreed to in the Work Letter
are substantially completed although punch list items are not completed.
The certificate of the architect in charge of supervising the completion of
the Premises shall control the date upon which the Premises are Ready for
Occupancy. Landlord shall not have any obligation for the repair or
replacement of any portions of the interior of the Premises, including but
not limited to carpeting, draperies, window coverings, wall coverings or
painting, which are damaged or wear out during the term hereof, regardless
of the cause therefor, except as may otherwise be specifically set
<PAGE>
forth in this Lease. Except as expressly provided in the Work Letter, any
tenant improvements to the Premises for which Landlord shall be responsible
shall be subject to the following:
(1) Tenant may substitute different new material
(except exterior window coverings) or make changes to the final
working drawings and specifications only with Landlord's prior express
approval, which may be withheld in Landlord's sole discretion. Any
substitutions or changes must be shown on the working drawings and in
the specifications and shall be of equal or better quality than the
items originally designated and must be deemed by Landlord to be in
conformance with the quality and design criteria established within
the Building. In the event Landlord approves the requested
substitution or change, Tenant shall bear the cost of making any
changes to the working drawings and specifications as well as any
additional costs occasioned by the change or substitution, including
costs of disruption and delay. Tenant shall pay such additional costs
to Landlord within ten (10) days of receipt of Landlord's invoice for
the same.
(2) If Landlord shall be delayed in sufficiently completing said
work as a result of Tenant's request for substitution of materials,
finishes, fixtures, equipment or installations or any other change to
the working drawings and specifications requested by Tenant and
approved by Landlord, or the failure of Tenant to provide timely
approvals of working drawings or other specifications necessary for
completion of the work, then the Commencement Date of the Term of this
Lease and the payment of Base Rent shall not be extended, but shall be
accelerated as provided in the Work Letter.
(3) If Tenant occupies or begins to conduct business in all or
any portion of the Premises before the Premises are Ready for
Occupancy, such occupancy and conducting of its business by Tenant
shall be subject to all provisions of this Lease which reasonably and
logically apply thereto; provided, however, that Tenant shall not be
required to pay any Base Rent for the Premises for any period it
occupies and conducts business in the Premises prior to the Scheduled
Commencement Date. Such prior occupancy shall not operate to commence
the Term of the Lease for all or any part of the Premises.
(4) If Landlord is delayed in delivering possession of all or
any portion of the Premises to Tenant on or before the Scheduled
Commencement Date for reasons not attributable to Tenant's conduct or
requests, including, but not limited to, delays caused by governmental
authorities, then Tenant shall take possession of the Premises on the
date (not later than four (4) months after the Scheduled Commencement
Date) when Landlord delivers possession of all of the Premises and
Tenant obligation to pay Base Rent and the Termination Date shall be
extended for an equivalent period of time. Except as provided in
subparagraph 2(c)(6), this Lease shall not be void or voidable nor
shall Landlord be liable to Tenant for any loss or damage resulting
from any delay in delivering possession of the Premises to Tenant, its
servants, agents or independent contractors, no Base Rent shall be
payable by Tenant for the period prior to the date on which Landlord
can so deliver possession of all of the Premises.
(5) Taking possession of all or any portion of the Premises by
Tenant shall constitute Tenant's acceptance of the Premises or such
portion thereof as being in satisfactory condition, subject only to
punch list items listed in writing in a notice delivered by Tenant to
Landlord as provided for in the Work Letter.
(6) If the Premises are not Ready for Occupancy by the dates
indicated below for reasons other than delays caused by Tenant
(including those set forth in Exhibit D), delays caused by
governmental authorities or Force Majure events the Landlord shall pay
Tenant the amounts set forth below for each day of delay:
(A) If the Premises are not Ready for Occupancy on or
before April 15, 2000, Landlord shall pay Tenant its actual
Holdover Rent (hereinafter defined) not to
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<PAGE>
exceed $500.00 per each day of delay thereafter, until the
Premises are Ready for Occupancy, through April 30, 2000. As used
herein, Holdover Rent shall mean the difference between Tenant's
current base rent for its premises located at 1800 Glenarm, Suite
600, Denver, Colorado 80202, Denver, Colorado ($19.00 per square
foot per year), and the rate it is charged by its landlord for
said premises from and after April 15, 2000.
Tenant agrees that it shall use its best efforts to negotiate the
most favorable holdover rate with its current landlord; and
(B) If the Premises are not Ready for Occupancy on or
before April 30, 2000, Landlord shall pay Tenant its actual
Holdover Rent not to exceed $750.00 per each day of delay
thereafter, until the Premises are Ready for Occupancy through
June 30, 2000; provided that, if Landlord does not permit Tenant
to occupy one or more entire floors of said premises, Landlord
shall pay Tenant $750 per day from and after April 30, 2000.
(C) Notwithstanding the foregoing, if, on or after April 1,
2000, Tenant is required to vacate one or more full floors
included at its premises at 1800 Glenarm, then from and after the
date Tenant is required to vacate, the amount Landlord is
required to pay Tenant shall be $500.00 per day pursuant to
subparagraph (6)(A) and $750.00 per day pursuant to subparagraph
(6)(B). The amount set forth in this subparagraph (6)(C) shall be
in place of the amounts set forth in subparagraphs (6)(A) and (B)
and not in addition thereto.
(7) If the Landlord has not commenced construction of the
Leasehold Improvements by February 15, 2000, for reasons other than
delays caused by Tenant, delays caused by governmental entities or
Force Majure events, Tenant may terminate this Lease without liability
by giving Landlord written notice of the termination on or before
February 18, 2000. If construction of the Leasehold Improvements is
commenced by February 15, 2000, or if Tenant fails to exercise the
termination right in accordance with this subparagraph this
termination right shall lapse and be null and void.
(8) If the Premises are not Ready for Occupancy by July 1, 2000,
for reasons other than delays caused by Tenant, delays caused by
governmental entities or Force Majure events, Tenant may terminate
this Lease without liability by giving Landlord written notice of the
termination on or before July 5, 2000. If the Premises are Ready for
Occupancy by July 1, 2000, or if Tenant fails to exercise the
termination right in accordance with this subparagraph this
termination right shall lapse and be null and void
(9) If the Premises are not Ready for Occupancy by July 31,
2000, for reasons other than delays caused by Tenant, Tenant may
terminate this Lease without liability by giving Landlord written
notice of the termination on or before August 3, 2000. If the Premises
are Ready for Occupancy by July 31, 2000, or if Tenant fails to
exercise the termination right in accordance with this subparagraph
this termination right shall lapse and be null and void.
3. Rent: Tenant shall pay to Landlord, rent for the Premises ("Base
----
Rent") in accordance with the following schedule:
MONTHLY ANNUAL
PERIOD BASE RENT BASE RENT
Months 1-2 $46,362.33 See Paragraph 3
Months 3-36 $46,362.33 $556,348.00
Months 37-62 $49,928.67 $599,144.00
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<PAGE>
All installments of Base Rent shall be payable in advance, on the first
(1st) day of each calendar month during the term hereof. Base Rent for any
partial month during the term hereof shall be prorated based upon the number of
days during each of said months that the Lease term was in effect. The full
first month's Base Rent shall be due and payable on the date of execution of
this Lease by Tenant. All Base Rent shall be paid without notice, demand,
deduction or offset, at the office of Landlord or to such other person or at
such other place as Landlord may designate in writing. Notwithstanding anything
to the contrary set forth herein, Tenant may occupy the Premises and payment of
Base Rent and Tenant's Pro Rata Share of Operating Expenses shall be abated for
a period commencing on the Commencement Date and terminating on the last day of
the second month of the Lease Term (the "Abatement Rent Period"). If at any time
during the Primary Term, an Event of Default occurs, Tenant owes Landlord, in
addition to all other amounts, Base Rent and Tenant's Pro Rata Share of
Operating Expenses abated pursuant to this paragraph during the Abatement Rent
Period. Tenant, however, has no obligation to pay the abated amounts if no Event
of Default occurs prior to the expiration of the Primary Term. Tenant shall pay
to Landlord as "Additional Rent" all other sums due under this Lease. Late
payments shall be subject to interest and penalties as set forth in Paragraph 19
hereof. In the event that the Premises are determined by Landlord's architect,
using its standard methodology for measuring the Building, to contain less than
21,539 rentable square feet, the Base Rent will be reduced pro rata.
4. Security Deposit: It is agreed that in the event Tenant is no longer
required to post the letter of credit provided for in Paragraph 42 of this Lease
or if the Lease is renewed at the end of the Term, that it shall, prior to the
termination of the letter of credit requirement, deposit with Landlord, and
thereafter keep on deposit at all times during the remainder of the term of the
Lease the sum of Forty-Nine Thousand Nine Hundred Twenty-Eight Dollars and
67/100 ($49,928.67), as security for the payment by Tenant of the Base Rent,
Additional Rent and all other sums herein agreed to be paid and for the Tenant's
performance of this Lease. If, at any time during the term hereof, Tenant shall
be in default in the performance of any provisions of this Lease, which default
has not been cured by Tenant, Landlord shall have the right, but shall not be
obligated, to use said deposit, or so much thereof as necessary, to compensate
Landlord for any loss damage, cost or expense (including reasonable attorney's
fees and costs) which Landlord may incur by reason of tenants uncured event of
default. If any part of the security deposit is so used or applied, Tenant shall
within five (5) days of written demand of Landlord, remit to Landlord a
sufficient amount in cash to restore said deposit to its original amount. In the
event said deposit has not been utilized said deposit, or as much thereof as has
not been utilized for such purposes, shall be refunded to Tenant, without
interest, after the termination of this Lease upon full performance of this
Lease by Tenant and vacation of the Premises by Tenant. Landlord shall have the
right to commingle said deposit with other funds of Landlord. Landlord may
deliver the funds deposited herein by Tenant to any purchaser of Landlord's
interest in the Premises in the event such interest is sold, and thereupon
Landlord shall be discharged from further liability with respect to such
deposit. If the claims of Landlord exceed the amount of said deposit, Tenant
shall remain liable for the balance of such claims.
5. Rent Adjustment:
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(a) The following terms shall have the following meanings with
respect to the provisions of this Paragraph 5:
(1) "Expense Stop" shall mean an amount equal to $6.50 per
rentable square foot of the Building.
(2) "Operating Expense Differential" shall mean the
difference between the Expense Stop and the actual Operating Expenses
of the Building Complex on a per rentable square foot basis.
(3) "Tenant's Operating Expense Differential" shall mean
the Operating Expense Differential times the number of rentable square
feet contained in the Premises.
(4) "Building Rentable Area" shall mean all rentable space
available for lease in the Building as set forth below. If there is a
significant change in the aggregate Building Rentable
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<PAGE>
Area, of a permanent nature, as a result of an addition to the
Building, partial destruction thereof or similar circumstance,
Landlord's architect and/or accountant shall determine and make an
appropriate adjustment to the provisions herein.
(5) "Premises Rentable Area" shall mean the total number of
square feet of rentable area in the Premises as determined by
Landlord's architect.
(6) "Tenant's Pro Rata Share" shall mean a fraction, the
numerator of which is the Premises Rentable Area (i.e., 21,398 square
feet) and the denominator of which is the Building Rentable Area
(i.e., 164,958 square feet), and is equal to 12.972%. At such time, if
ever, any space is added to or subtracted from the Premises pursuant
to the terms of this Lease, Tenants Pro Rata Share shall be increased
or decreased accordingly.
(7) "Operating Expenses" shall mean:
(A) All operating expenses of any kind or nature which are
necessary, ordinarily or customarily incurred with respect to the operation,
maintenance, repair and management of the Building Complex and generally charged
as an operating expense to tenants by landlords of comparable office buildings
in Denver, Colorado, and shall include, but not be limited to:
(ii) Costs of supplies, including but not
limited to the cost of "relamping" all tenant lighting
as the same may be required from time to time;
(iii) Costs incurred in connection with obtaining
and providing energy for the Building Complex,
including but not limited to costs of propane, butane,
natural gas, steam, electricity, solar energy and fuel
oils, coal or any other energy sources;
(iv) Costs of water and sanitary and storm
drainage services;
(v) Costs of janitorial and security services,
if any;
(vi) Costs of general maintenance and repairs,
including costs under heating, ventilation, and air
conditioning ("HVAC") and other mechanical maintenance
contracts; and repairs and replacements of equipment
used in connection with such maintenance and repair
work;
(vii) Costs of maintenance and replacement of
landscaping; and costs of maintenance, repair of common
areas, plazas and other areas used by tenants of the
Building Complex, including trash and snow removal;
(viii) Insurance premiums, including fire and all-
risk property coverage, together with loss of rent
endorsement; commercial general liability insurance;
rental interruption insurance; and any other insurance
carried by Landlord on the Building Complex or any
component parts thereof;
(ix) Labor costs, including wages and other
payments, costs to Landlord of workmen's compensation
and disability insurance, payroll taxes, welfare fringe
benefits and all legal fees and other costs or expenses
incurred in resolving any union labor disputes;
(x) Building management fees (not to exceed the
amount paid to other third party managers of comparable
office buildings in the downtown Denver market area)
and all costs related to the provision of building
management services including the cost of office and
storage space;
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<PAGE>
(xi) Reasonable legal, accounting, inspection
and other consultation fees incurred for the normal
prudent operation of the Building Complex;
(xii) The costs of capital improvements and
structural repairs and replacements made in or to the
Building Complex or the cost of any machinery or
equipment installed in the Building Complex in order to
conform to changes, subsequent to the Lease
Commencement Date, in any applicable laws, ordinances,
rules, regulations or orders of any governmental or
quasi- governmental authority having jurisdiction over
Building Complex (herein, "Required Capital
Improvement"); and the costs of any capital
improvements and structural repairs and replacements
designed primarily to reduce Operating Expenses
(herein, "Cost Savings Improvements"). The expenditures
for Required Capital Improvements and Cost Savings
Improvements shall be amortized over the useful life of
such capital improvement or structural repair or
replacement (as determined by Landlord's accountants);
and
(xiii) "Real Estate Taxes" including all real
property taxes, assessments and fees levied against the
Building Complex by any governmental or quasi-
governmental authority or district (including any
historic or improvement district) and which are due and
payable during the Term, including any taxes,
assessments, surcharges, or service or other fees of a
nature not presently in effect which shall hereafter be
levied on the Building Complex as a result of the use,
ownership or operation of the Building Complex or for
any other reason, whether in lieu of or in addition to
any current real estate taxes, assessments, and fees;
provided, however, that any taxes which shall be levied
on the rentals of the Building Complex shall be
determined as if the Building Complex were Landlord's
only property and provided further, that in no event
shall the term "taxes, assessments, and fees", as used
herein, include any federal, state or local income
taxes levied or assessed on Landlord, unless such taxes
are a specific substitute for real property taxes.
"Assessments" shall include any and all so-called
special assessments, license tax, business license fee,
business license tax, commercial rental tax, levy,
charge or tax imposed by any authority or district
having the direct power to tax, including any city,
county, state or federal government, or any school,
agricultural, lighting, water, drainage or other
improvement or special district thereof, against the
Premises, the Building or the Building Complex, or
against any legal or equitable interest of Landlord
therein. For the purposes of this Lease, any special
assessment or fee shall be deemed payable in maximum
number of installments as is permitted by law, whether
or not actually so paid.
(B) Expressly excluded from Operating Expenses are the following:
(ii) Landlord's income taxes;
(iii) Leasing commissions, advertising and
promotional expenses incurred in the leasing of the
Building;
(iv) Interest on debt or amortization payments
on any mortgages or deeds of trust;
(v) Costs of repairs or other work occasioned
by fire, windstorm or other casualty to the extent of
insurance proceeds received;
(vi) Depreciation;
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<PAGE>
(vii) Any capital improvement other than those
specified as "Cost Saving Improvements" or "Required
Capital Improvements" in Paragraph 5(a)(4)(xi); and
(viii) Attorney's fees associated with customary
lease review and negotiation, and/or lease enforcement.
(b) It is hereby agreed that Tenant shall pay to Landlord as
Additional Rent during each calendar year during the term hereof an
estimate of Tenant's Operating Expense Differential as reasonably estimated
by Landlord, payable monthly, at the rate of one twelfth (1/12) thereof, on
the same date and at the same place Base Rent is payable, with an
adjustment to be made between the parties at a later date as hereinafter
provided; provided, however, that for the calendar year 2000 Tenant shall
not be billed nor will it be required to pay any Operating Expense
Differential. Furthermore, to the extent Tenant's Pro Rata Share of
Operating Expense, during any year of the Term (annualized for a full
twelve months) would have been less than $6.50 per rentable square foot,
Tenant shall receive a credit for such amount against Tenant's Operating
Expense Differential, if, and when it would otherwise be due and payable by
Tenant or refunded to Tenant if no additional amounts are due from Tenant.
Notwithstanding the foregoing sentence, Tenant shall not be entitled to any
credit for any period during which the Base Rent is abated. Except for
increases in real estate taxes, insurance and utilities, Landlord agrees
that increases in the total Operating Expenses for which Tenant shall be
obligated during the Term of this Lease will not increase more than five
percent (5%) in any calendar year during the Term of this Lease over the
immediately preceding calendar year; provided, however, that such
percentage shall be increased by the unused portion of the five percent
(5%) cap for the preceding years of the Term of the Lease. It is further
agreed and understood that this shall only constitute a cap on the Tenant's
share of Operating Expenses, other than real estate taxes, insurance and
utilities which shall not be subject to the cap. Landlord shall deliver to
Tenant, as soon as practicable following the end of each calendar year, an
estimate of the Operating Expenses for the new calendar year (the "Budget
Sheet"). Until receipt of the Budget Sheet, Tenant shall continue to pay
its monthly Tenant's Operating Expense Differential based upon the estimate
for the preceding calendar year. To the extent that the Budget Sheet
reflects an estimate of Tenant's Operating Expense Differential for the new
calendar year greater than the amount actually paid to the date of receipt
of the Budget Sheet for the new calendar year, Tenant shall pay such amount
to Landlord within thirty (30) days of receipt of the Budget Sheet. Upon
receipt of the Budget Sheet, Tenant shall thereafter pay the amount of its
monthly Tenant's Operating Expense Differential as set forth in the Budget
Sheet. As soon as practicable following the end of any calendar year, but
not later than May 1st, Landlord shall submit to Tenant a statement in
reasonable detail describing the computations of the Operating Expenses,
setting forth the exact amount of Tenant's Operating Expense Differential
for the calendar year just completed (the "Statement"), and the difference,
if any, between the actual Tenant's Operating Expense Differential for the
calendar year just completed and the estimated amount of Tenant's Operating
Expense Differential paid by Tenant to Landlord. Landlord's failure to
deliver the Statement to Tenant on or before May 1st, shall in no way serve
as a waiver of Landlord's rights under this Paragraph. To the extent that
the actual Tenant's Operating Expense Differential for the period covered
by the Statement is higher than the estimated Tenant's Operating Expense
Differential which Tenant previously paid during the calendar year just
completed, Tenant shall also pay to Landlord such balance within thirty
(30) days following receipt of the Statement from Landlord. To the extent
that the actual Tenant's Operating Expense Differential for the period
covered by the Statement is less than the estimated Tenant's Operating
Expense Differential which Tenant previously paid during the calendar year
just completed, Landlord shall credit the excess against any sums then
owing or next becoming due from Tenant under the Lease, or, if no
additional sums are due, such amount shall be refunded to Tenant.
In calculating the Operating Expenses and Tenant's Operating Expense
Differential, Landlord shall on an annual basis determine the proportionate
division of shared Operating Expenses between the Building and the retail
spaces. Shared Operating Expenses shall include, but not be limited to real
estate taxes, insurance, common areas, utilities, and HVAC, security, grounds
and landscaping, parking and exterior maintenance and life safety expenses.
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<PAGE>
(c) If the Lease term hereunder covers a period of less than a full
calendar year during the first or last calendar years of the term hereof,
the Expense Stop and Tenant's Operating Expense Differential for such
partial year shall be calculated by proportionately reducing each to
reflect the number of months in such year during which Tenant leased the
Premises.
(d) Tenant shall have the right at its own expense and at a
reasonable time (after written notice to Landlord) within sixty (60) days
after receipt of the Statement to review Landlord's books relevant to the
Additional Rent due under this Paragraph 5; provided, however, that Tenant
may not employ any firm or individual to review Landlord's books which is
compensated on any form of contingent fee basis. In the event Tenant does
not review Landlord's books and deliver the results thereof to Landlord
within said 60- day period, the terms and amounts set forth in the
Statement shall be deemed conclusive and final and Tenant shall have no
further right to adjustment. In the event Tenant's examination reveals that
an error has been made in Landlord's determination of Tenant's Operating
Expense Differential and Landlord agrees with such determination, then the
amount of such adjustment shall be payable by Landlord or Tenant, to the
other party as the case may be. In the event Tenant's examination reveals
an error has been made in Landlord's determination of Tenant's Operating
Expense Differential, and Landlord disagrees with the results thereof,
Landlord shall have thirty (30) days to obtain a review from an accountant
of its choice to determine Tenant's Operating Expense Differential. In the
event Landlord's accountant and Tenant's accountant are unable to reconcile
their reviews, both accountants shall mutually agree upon a third
accountant, whose determination of Tenant's Operating Expense Differential
shall be conclusive.
(e) Landlord's failure during the Lease term to prepare and deliver
any statements or bills, or Landlord's failure to make a demand under this
Paragraph or under any other provision of this Lease shall not in any way
be deemed to be a waiver of, or cause Landlord to forfeit or surrender its
rights to collect any items of Additional Rent which may have become due
pursuant to this Paragraph during the term of this Lease. Tenant's
liability for all Additional Rent due under this Paragraph 5 shall survive
the expiration or earlier termination of this Lease.
(f) If at any time during the term of this Lease, the occupancy area
of the Building leased to tenants is less than 95% of the capacity, then
for purposes of calculating Operating Expenses, those Operating Expenses
that vary with occupancy shall be grossed up to reflect Building occupancy
of 95%. For purposes of calculating Operating Expenses, Real Estate Taxes
shall be included in an amount equal to the actual amount paid by the
Landlord for the year in question.
6. Character of Occupancy:
----------------------
(a) The Premises are to be used for general offices not inconsistent
with the character and type of tenancy found in comparable first-class
office buildings in the Denver metropolitan area and for no other purpose
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld.
(b) Tenant shall not suffer nor permit the Premises nor any part
thereof to be used in any manner, nor anything to be done therein, nor
suffer or permit anything to be brought into or kept therein, which would
in any way (i) make void or voidable any fire or liability insurance policy
then in force with respect to the Building Complex, (ii) make unobtainable
from insurance companies authorized to do business in Colorado any fire
insurance with extended coverage, or liability, elevator, boiler or other
insurance required to be furnished by Landlord under the terms of any lease
or mortgage to which this Lease is subordinate at standard rates, (iii)
cause or in Landlord's reasonable opinion be likely to cause physical
damage to the Building Complex or any part thereof, (iv) constitute a
public or private nuisance, (v) impair, in the opinion of Landlord, the
appearance, character or reputation of the Building Complex, (vi) discharge
objectionable fumes, vapors or odors into the Building air conditioning
system or into the Building flues or vents not designed to receive them or
otherwise in such manner as may unreasonably offend other occupants of the
Building, (vii) impair or interfere with any of the Building services or
impair or interfere with or tend to impair or interfere with the use of any
of the other areas of the Building by, or occasion discomfort, or annoyance
to Landlord or any of the other tenants or occupants of the Building
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<PAGE>
Complex, any such impairment or interference to be based upon the judgment
of Landlord, (viii) increase on an ongoing periodic basis the pedestrian
traffic in and out of the Premises or the Building above an ordinary level,
(ix) create waste in, on or around the Premises, Building, or Building
Complex, or (x) make any noise or set up any vibration which will disturb
other tenants, except in the course of permitted repairs or alterations at
times permitted by Landlord.
(c) Tenant shall not use the Premises nor permit anything to be done
in or about the Premises or Building Complex which will in any way conflict
with any law, statute, ordinance, protective covenants affecting the
Building Complex or governmental or quasi-governmental rules or regulations
now in force or which may hereafter be enacted or promulgated. Tenant shall
give written notice within two (2) days from receipt thereof to Landlord of
any notice it receives of the violation of any law or requirement of any
public authority with respect to the Premises or the use or occupation
thereof. Landlord shall give prompt notice to Tenant of any notice it
receives relative to the violation by Tenant of any law or requirement of
any public authority with respect to the Premises or the use or occupation
thereof.
7. Services and Utilities:
----------------------
(a) Landlord agrees, without charge except as provided herein, to
furnish water to the Building for use in lavatories and drinking fountains
(and to the Premises if the plans for the Premises so provide); during
Ordinary Business Hours (hereinafter defined) to furnish such heated or
cooled air to the Premises as may, in the judgment of Landlord, be
reasonably required for the comfortable use and occupancy of the Premises
provided that Tenant complies with the recommendations of Landlord's
engineer or other duly authorized representative, regarding occupancy and
use of the Premises; to provide janitorial services for the Premises
(including such interior and exterior window washing as may be required),
such janitorial services to be provided five (5) days a week, except for
"Holidays" as (hereinafter defined); during Ordinary Business Hours to
cause electric current to be supplied for lighting the Premises and public
halls; and to furnish such snow removal services to the Building Complex as
may, in the judgment of Landlord, be reasonably required for safe access to
the Building Complex.
(b) Landlord shall furnish to the Premises electricity during
Ordinary Business Hours for Building standard connected load in an average
amount of eight (8.0) watts per square foot of rentable area within the
Premises which includes the following: (i) two (2) watts per square foot of
rentable area within the Premises for ceiling lighting; and (ii)
approximately six (6) watts per square foot of rentable area within the
Premises for general purpose power (which includes two (2.0) watts for PC
rated power). Landlord shall provide Tenant with an average of 4.2 watts on
a demand load basis per square foot of rentable area in the Premises;
provided, that Tenant may, at its sole cost and expense, augment the
existing equipment in order to provide additional watts on a demand load
basis. Under such circumstances Tenant shall install at its sole cost and
expense a demand meter to measure Tenant's actual electricity consumption
and Tenant shall pay for all electricity consumption which is in excess of
the Building standard. The cost of any electrical service at (i) other than
Ordinary Business Hours and (ii) during Ordinary Business Hours but
exceeding the above specified wattage, whether determined by separate
metering or survey as set forth hereinafter, (the Excess Electricity) shall
be paid pursuant to Paragraph 7(c) as Additional Rent. Nothing herein shall
be deemed to create any obligation of Landlord to provide electrical
equipment in excess of that expressly set forth in this Paragraph 7(b).
Ordinary Business Hours shall mean from 7:00 a.m. to 6:00 p.m. weekdays and
from 8:00 a.m. to 1:00 p.m. Saturdays (Sundays and Holidays excepted).
(c) At any time and from time to time, Landlord may conduct
electrical surveys within the Premises to determine Tenant's consumption of
Excess Electricity, if any. If such survey(s) shall reveal usage by Tenant
of Excess Electricity, Tenant shall pay Landlord for such Excess
Electricity, at Landlord's average cost for the same per kilowatt hour
(KWH) (determined by dividing Landlord's total monthly cost for electricity
by the total number of KWHs consumed in the Building during the
corresponding month) upon monthly invoice for the same from Landlord. Said
invoices shall be deemed and paid as Additional Rent.
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(d) Landlord shall have the right, if it determines based on its own
judgment that Tenant is using electric current for purposes other than
those described above or Excess Electricity, to require Tenant to install a
check meter to determine the amount which Tenant is utilizing. The cost of
such Excess Electricity, and check meter, including but not limited to
monitoring, installation and repair thereof, shall be paid by Tenant.
(e) Tenant agrees that Landlord shall not be liable for failure to
supply any heating, air conditioning, elevator, electrical, janitorial,
lighting or other services during any period when Landlord uses reasonable
diligence to supply such services, or during any period Landlord is
required to reduce or curtail such services pursuant to any applicable
laws, rules or regulations, now or hereafter in force or effect, it being
understood and agreed to by Tenant that Landlord may discontinue, reduce or
curtail such services, or any of them at such times as it may be necessary
by reason of accident, repairs, alterations, improvements, strikes,
lockouts, riots, acts of God, application of applicable laws, statutes,
rules and regulations, or due to any other happening beyond the reasonable
control of Landlord. In the event of any such interruption, reduction or
discontinuance of Landlord's services due to events beyond its reasonable
control, Landlord shall not be liable for damages to persons or property as
a result thereof, nor shall the occurrence of any such event in any way be
construed as an eviction of Tenant or cause or permit an abatement,
reduction or setoff of rent, or operate to release Tenant from any of
Tenant's obligations hereunder. Notwithstanding anything to the contrary
contained in this Paragraph 7(e) if: (i) Landlord ceases to furnish any
service in the Building for a period in excess of five (5) consecutive
business days after Tenant notifies Landlord of such cessation; (ii) such
cessation does not arise as a result of an act or omission of Tenant; (iii)
such cessation is not caused by a fire or other casualty (in which case
Article 15 shall control); (iv) the restoration of such service is
reasonably within the control of Landlord; and (v) as a result of such
cessation, the Premises, or a material portion thereof, is rendered
untenantable (meaning that Tenant is unable to use the Premises or such
portion in the normal course of its business) and Tenant in fact ceases to
use the Premises, or material portion thereof, then Tenant, as its sole
remedy, shall be entitled to receive an abatement of Base Rent and any
Operating Expense Differential payable hereunder during the period
beginning on the sixth (6th) consecutive business day of such cessation and
ending on the day when the service in question has been restored. In the
event the entire Premises has not been rendered untenantable by the
cessation in service, the amount of abatement that Tenant is entitled to
receive shall be prorated based upon the percentage of the Premises so
rendered untenantable and not used by Tenant.
(f) Whenever heat generating machines or equipment are used by Tenant
in the Premises which affect the temperature otherwise maintained by the
air conditioning system, Landlord reserves the right to install
supplementary air conditioning units in the Premises in the event
Landlord's independent consulting engineer determines same are necessary as
a result of Tenant's use of lights or equipment which generate heat loads
in excess of those for which the HVAC system is designed and the cost
therefor, including the cost of installation, operation and maintenance
thereof, shall be paid by Tenant to Landlord upon demand by Landlord.
(g) In the event that Tenant has any special or additional electrical
or mechanical requirements related to its use of the Premises, any such
electrical or mechanical equipment must be located within the Premises.
Such electrical or mechanical requirements, for the purposes hereof, shall
include by way of example, but not limitation, any internal telephone
system. The foregoing shall in no way be construed as granting to Tenant
additional rights to use any such special or additional electrical or
mechanical equipment in its Premises without the prior written consent of
Landlord. Any additional cost or expense related to or resulting from such
electrical or mechanical requirements shall be the sole obligation of
Tenant.
(h) If Tenant requires HVAC service beyond Ordinary Business Hours
(hereafter "After Hours Usage"), such service shall be metered and Tenant
shall reimburse Landlord on a monthly basis, as Additional Rent, for all
costs and expenses for Tenant's After Hours Usage including Landlord's
actual cost for electric service without markup.
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<PAGE>
8. Quiet Enjoyment. Subject to the provisions of this Lease, Landlord
---------------
covenants that Tenant on paying the rent and performing the covenants of this
Lease on its part to be performed shall and may peacefully and quietly have,
hold and enjoy the Premises for the Term of this Lease. Landlord shall not be
responsible for the acts or omissions of any other tenant or third party which
may interfere with Tenant's use and enjoyment of the Premises.
9. Maintenance and Repairs; Building Management:
--------------------------------------------
(a) Notwithstanding any other provisions of this Lease, Landlord
shall repair and maintain the structural portions of the Building,
including the elevators, plumbing, air conditioning, heating and electrical
systems installed or furnished by Landlord, except to the extent such
maintenance and repairs are caused by the act, neglect, fault or omission
of Tenant, its agents, servants, employees, licensees or invitees, in which
case Tenant shall pay to Landlord, on demand, the cost of such maintenance
and repairs less the amount of any insurance proceeds received by Landlord
on account thereof, if applicable. Landlord shall also maintain and keep in
good order and repair the Building roof; the curtain wall, including all
glass connections at the perimeter of the Building; all exterior doors,
including any exterior plate glass within the Building; the Building
ventilating systems; elevators; escalators; Building telephone and
electrical closets; public portions of the Building or Building Complex,
including but not limited to the balconies, landscaping, walkways, upper
floor lobbies and corridors, the parking garage and interior portions of
the Building above and below grade which are not covered by leases.
Landlord or its property manager shall manage the Building in a first class
manner and shall use its reasonable efforts to do so in a cost effective
and competitive manner while still maintaining the quality of the Building.
(b) Tenant, at Tenant's sole cost and expense, except for services
furnished by Landlord pursuant to Paragraph 7 hereof, shall maintain, in
good order, condition and repair, the Premises, including the interior
surfaces of the ceiling (if damaged or discolored due in whole or in part
to the act, neglect, omission or fault of Tenant), walls and floors, all
doors, interior glass partitions of glass surfaces (not exterior windows)
and pipes, electrical wiring, switches, fixtures and other special items,
subject to the provisions of Paragraph 15 hereof In the event Tenant fails
to so maintain the Premises in good order, condition and repair, Landlord
shall give Tenant notice to do such acts as are reasonably required to
maintain the Premises. In the event Tenant fails to promptly commence such
work and diligently pursue it to completion, then Landlord shall have the
right, but shall not be required, to do such acts and expend such funds at
the expense of the Tenant as are reasonably required to perform such work.
Landlord shall have no liability to Tenant for any damage, inconvenience or
interference with the use of the Premises by Tenant as a result of
performing any such work.
(c) Tenant and Landlord shall do all acts required to comply with all
applicable laws, ordinances, regulations and rules of any public authority
relating to their respective maintenance obligations as set forth herein.
Landlord and Tenant acknowledge that the requirements of the Americans with
Disabilities Act (ADA) are and will be subject to various and possibly
contradictory interpretations. Tenant acknowledges, therefore, that the
Landlord and its architects and contractors making Tenant Improvements to
the Building will use their best professional efforts to interpret
applicable statutes, ordinances, and regulations as they apply to the
Building. The Landlord, however, cannot and does not warrant or guarantee
that the Building complies with all interpretations to the ADA
requirements, but will use its reasonable efforts to effect such
compliance.
(d) Whenever a special HVAC System is installed in all or part of the
Premises, Tenant shall enter into a regularly scheduled preventative
maintenance and service contract, at Tenant's sole cost and expense, with
an experienced maintenance and service contractor for servicing all such
heating, air conditioning and ventilation systems and equipment, and shall
provide Landlord with a copy of the same. The contractor and contract are
both subject to Landlord's prior approval, which approval will not be
unreasonably withheld or delayed. Such contract shall include, at a
minimum, all services recommended by the equipment manufacturer and must be
effective within thirty (30) days of the Commencement Date
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<PAGE>
hereof. Landlord shall retain all manufacturers' warranty information, if
any, and will cooperate with the Tenant to the extent warranty repairs are
required.
10. Alterations and Additions:
-------------------------
(a) Tenant shall make no alterations, additions or improvements
to the Premises or any part thereof without obtaining the prior written
consent of Landlord, which consent may be withheld in Landlord's sole
discretion, provided, however, that Landlord will not unreasonably withhold
or delay its consent to alterations or improvements which do not effect the
structural, mechanical or operating components of the Building. Tenant
shall submit any such request to Landlord at least thirty (30) days prior
to the proposed commencement date of such work. Landlord may impose, as a
condition to such consent, such requirements as Landlord may deem necessary
in its reasonable judgment, including without limitation, the manner in
which the work is done, a right of approval of the contractor by whom the
work is to be performed and the times during which the work is to be
accomplished, approval of all plans and specifications and the procurement
of all licenses and permits. Landlord shall be entitled to post notices on
and about Premises with respect to Landlord's non-liability for mechanics'
liens and Tenant shall not permit such notices to be defaced or removed.
Tenant further agrees not to connect any apparatus, machinery or device to
the Building systems, including electric wires, water pipes, fire safety,
heating and mechanical systems, without the prior written consent of
Landlord. Upon completion Tenant shall furnish Landlord "as built" plans,
contractor's affidavits and full and final lien waivers and receipted bills
covering all labor and materials. Tenant shall reimburse Landlord upon
demand as Additional Rent for all sums, if any, incurred by Landlord for
examination of Tenant's architectural, mechanical, electrical and plumbing
plans and construction supervision for any such alterations, additions or
improvements.
(b) All alterations, improvements and additions to the Premises,
including, by way of illustration but not by limitation, all counters,
screens, grilles, special cabinetry work, partitions, paneling, carpeting,
drapes or other window coverings and light fixtures, shall be deemed a part
of the real estate and the property of Landlord and shall remain upon and
be surrendered with the Premises as a part thereof without molestation,
disturbance or injury at the end of the Lease term, whether by lapse of
time or otherwise; provided that Landlord, may, at its option, at the time
consent is given to the alteration, improvement or alteration, require
Tenant to remove all or any of such alterations, improvements (including
data and telephone cabling) or additions (excluding non-movable office
walls), and in such event, Tenant shall promptly remove, at its sole cost
and expense, such alterations, improvements and additions and restore the
Premises to the condition in which the Premises were prior to the making of
the same, reasonable wear and tear excepted. Any such removal, whether
required or permitted by Landlord, shall be at Tenant's sole cost and
expense, and Tenant shall restore the Premises to the condition in which
the Premises were prior to the making of the same, reasonable wear and tear
excepted. All movable partitions, machines and equipment which are
installed in the Premises by or for Tenant, without expense to Landlord,
and can be removed without structural damage to or defacement of the
Building or the Premises, and all furniture, furnishings and other articles
of personal property owned by Tenant and located in the Premises (all of
which are herein called "Tenant's Property") shall be and remain the
property of Tenant and may be removed by it at any time during the term of
this Lease. However, if any of Tenant's Property is removed, Tenant shall
repair or pay the cost of repairing any damage to the Building or the
Premises resulting from such removal, including any holes or damages to the
drywall. All additions or improvements which are to be surrendered with the
Premises shall be surrendered with the Premises, as a part thereof, at the
end of the term or the earlier termination of this Lease.
(c) If Landlord permits persons requested by Tenant to perform any
alterations, repairs, modifications or additions to the Premises, then
prior to the commencement of any such work, Tenant shall deliver to
Landlord certificates issued by insurance companies qualified to do
business in the State of Colorado evidencing that worker's compensation,
commercial general public liability insurance and property damage
insurance, all in amounts, with companies and on forms satisfactory to
Landlord, are in force and maintained by all such contractors and
subcontractors engaged by Tenant to perform such work.
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<PAGE>
All such policies shall name Landlord as an additional insured and shall
provide that the same may not be canceled or modified without thirty (30)
days prior written notice to Landlord.
(d) Tenant, at its sole cost and expense, shall cause any permitted
alterations, decorations, installations, additions or improvements in or
about the Premises to be performed in compliance with all applicable codes,
ordinances, laws (including the Americans with Disabilities Act),
regulations and requirements of governmental bodies having jurisdiction and
insurance companies insuring the Building, and in such manner as not to
interfere with, delay, or impose any additional expense upon Landlord in
the construction, maintenance or operation of the Building, and so as to
maintain harmonious labor relations in the Building.
11. Entry by Landlord:
-----------------
(a) Landlord and its agents shall have the right to enter the
Premises at all reasonable times upon reasonable notice (except in the case
of an emergency) for the purpose of examining or inspecting the same, to
supply any services to be provided by Landlord hereunder, to show the same
to prospective purchasers of the Building, to make such alterations,
repairs, improvements or additions to the Premises or to the Building as
Landlord may deem necessary or desirable, and during the last nine (9)
months of the Term to show the same to prospective tenants of the Premises.
Landlord and its agent may enter the Premises at all times and without
advance notice for the purpose of responding to an actual or apparent
emergency. Landlord may for the purpose of supplying scheduled janitorial
services and evaluating janitorial services at any time and from time to
time enter the Premises by means of a master key without liability to
Tenant and without affecting this Lease. If, during the last 60 days of the
term hereof, Tenant shall have removed substantially all of its property
from the Premises, Landlord may immediately enter and alter, renovate and
redecorate the Premises without elimination or abatement of rent or
incurring liability to Tenant for any compensation.
(b) Tenant shall be entitled to one Building access card for each
employee and two (2) sets of standard lockset keys to the Premises. In the
event Tenant needs any additional access cards or keys, such keys must be
requested from Landlord. Tenant shall pay to Landlord the actual cost of
making such additional access cards and keys.
12. Mechanic's Liens: Tenant shall pay or cause to be paid all costs for
----------------
work done by or on behalf of Tenant or caused to be done by or on behalf of
Tenant on the Premises of a character which will or may result in liens against
Landlord's interest in the Premises, Building or Building Complex and Tenant
will keep the Premises, Building and Building Complex free and clear of all
mechanic's liens and other liens on account of work done for or on behalf of
Tenant or persons claiming under Tenant. Tenant hereby agrees to indemnify,
defend and save Landlord harmless of and from all liability, loss, damages,
costs or expenses, including attorneys' fees, incurred in connection with any
claims of any nature whatsoever for work performed for, or materials or supplies
furnished to Tenant, including lien claims of laborers, materialmen or others.
Should any such liens be filed or recorded against the Premises, Building or
Building Complex with respect to work done for or materials supplied to or on
behalf of Tenant or should any action affecting the title thereto be commenced,
Tenant shall cause such liens to be released of record within twenty (20) days
after notice thereof. If Tenant desires to contest any such claim of lien,
Tenant shall nonetheless cause such lien to be released of record by the posting
of adequate security within said five (5) day period with a court of competent
jurisdiction as may be provided by Colorado's mechanic lien statutes. If Tenant
shall be in default in paying any charge for which such a mechanic's lien or
suit to foreclose such a lien has been recorded or filed and shall not have
caused the lien to be released as aforesaid, Landlord may (but without being
required to do so) pay such lien or claim and any costs associated therewith,
and the amount so paid, together with reasonable attorneys' fees incurred in
connection therewith, shall be immediately due from Tenant to Landlord as
Additional Rent.
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<PAGE>
13. Damage to Property; Injury to Persons:
-------------------------------------
(a) Tenant, as a material part of the consideration to be
rendered to Landlord under this Lease, hereby waives all claims of
liability that Tenant or Tenant's legal representatives, successors or
assigns may have against Landlord, and Tenant hereby indemnifies and
agrees to hold Landlord harmless from any and all claims of liability
for any injury or damage to any person or property whatsoever: (I)
occurring in, on or about the Premises or any part thereof, except to
the extent the same arises out of the negligence of the Landlord, its
agents, contractors or employees; and (2) occurring in, on or about
the Building Complex, to the extent such injury or damage is caused in
part or in whole by the act, neglect, fault or omission of Tenant, its
agents, contractors, employees, licensees or invitees. Tenant further
agrees to indemnify and to hold Landlord harmless from and against any
and all claims arising from any breach or default in the performance
of any obligation on Tenant's part to be performed under the terms of
this Lease, or arising from any act or negligence of Tenant, or any of
its agents, contractors, employees, licensees or invitees. Such
indemnities shall include by way of example, but not limitation, all
costs, reasonable attorneys' fees, expenses and liabilities incurred
in or about any such claim, action or proceeding.
(b) Landlord shall not be liable to Tenant for any damage by or
from any act or negligence of any co-tenant or other occupant of the
Building Complex, or by any owner or occupant of adjoining or
contiguous property. Landlord shall not be liable for any injury or
damage to persons or property resulting in whole or in part from the
criminal activities of others. To the extent not covered by normal and
customary fire and extended coverage insurance maintained by Landlord
or by prudent building owners in the Denver, Colorado area, and not
otherwise caused by the negligence of Landlord, its agents,
contractors or employees, Tenant agrees to pay for all damage to the
Building Complex, as well as all damage to persons or property of
other tenants or occupants thereof, caused by the misuse, neglect,
act, omission or negligence of Tenant or any of its agents,
contractors, employees, licensees or invitees.
(c) Neither Landlord nor its agents or employees shall be liable
for any damage to property entrusted to Landlord, its agents or
employees, or employees of the building manager, if any, nor for the
loss or damage to any property occurring by theft or otherwise, nor
for any injury or damage to persons or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water of rain
which may leak from any part of the Building Complex or from the
pipes, appliances or plumbing works therein or from the roof, street
or subsurface or from any other place or resulting from dampness, or
any other cause whatsoever; provided, however, nothing contained
herein shall be construed to relieve Landlord from liability for any
personal injury resulting from its negligence or willful misconduct or
its breach of its obligations under this Lease. Neither Landlord nor
its agents or employees shall be liable for interference with the
lights, view or other incorporeal hereditament. Tenant shall give
prompt notice to Landlord in case of fire or accidents in or about the
Premises or the Building or of defects therein or in the fixtures or
equipment located therein.
(d) In case any claim, demand, action or proceeding is made or
brought against Landlord, its agents or employees, by reason of any
obligation on Tenant's part to be performed under the terms of this
Lease, or arising from any act or negligence of Tenant, its agents or
employees, or which gives rise to Tenant's obligation to indemnify
Landlord, Tenant shall be responsible for all costs and expenses,
including but not limited to reasonable attorneys' fees incurred in
defending or prosecution of the same, as applicable.
14. Insurance:
---------
(a) Landlord agrees to secure and maintain the following
insurance during the term of this Lease and any extension hereof:
commercial general public liability insurance against claims for
bodily injury, personal injury and property damage in or about the
Premises, the Building and the Building Complex (excluding Tenant's
Property), such insurance to be in amounts sufficient to provide
reasonable protection for the Building Complex. Landlord shall also
secure and maintain "all risk" property insurance on the Building and
Building Complex. Such insurance may expressly exclude property paid
for by tenants or
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<PAGE>
paid for by Landlord for which tenants have Landlord located in or in,
or constituting a part of the Building or the Building Complex. All
such insurance shall be procured from a responsible insurance company
or companies authorized to do business in Colorado and may be obtained
by Landlord by endorsement on its blanket insurance policies.
(b) Tenant (with respect to the Premises, the Building and the
Building Complex) shall secure and maintain, at its own expense, a
policy or policies of commercial general liability insurance with the
premiums thereon fully paid in advance, protecting Tenant and naming
Landlord, its property manager and their respective agents as
additional insured against claims for bodily injury, personal injury,
advertising injury and property damaged based upon, involving or
arising out of the Tenant's use, occupancy or maintenance of the
Premises, the Building and the Building Complex. Such insurance shall
afford a combined single limit of not less than One Million Dollars
($1,000,000) per occurrence and aggregate of Two Million Dollars
($2,000,000). Any general aggregate shall apply on a per location
basis. The coverage required to be carried shall include blanket
contractual liability, personal injury liability (libel, slander,
false arrest and wrongful eviction), and broad form property damage
liability and the policy shall contain an exception to any pollution
exclusion which insures damage or injury arising out of heat, smoke or
fumes from a hostile fire. Such insurance shall be written on an
occurrence basis and contain a standard separation of insureds
provision. Tenant shall secure and maintain at its expense business
auto liability insurance which insures against bodily injury and
property damage claims arising out of the ownership, maintenance and
use of any auto with a minimum combined single limit per accident of
One Million Dollars ($1,000,000). In addition, Tenant shall secure and
maintain workers' compensation and employer's liability insurance with
limits of Five Hundred Thousand Dollars ($500,000) per accident, Five
Hundred Thousand Dollars ($500,000) per employee for bodily injury by
disease with a Five Hundred Thousand Dollar ($500,000) policy limit
for bodily injury by disease, and all such other insurance as may be
required by applicable law. Tenant shall provide Landlord with a
certificate evidencing such insurance coverage. The certificate shall
indicate that the insurance provided specifically recognizes the
liability assumed by Tenant under this Lease and that Tenant's
insurance is primary to and not contributory with any other insurance
available to Landlord, whose insurance shall be considered excess
insurance only. Not more frequently than every three years, if, in the
opinion of any mortgagee of Landlord or of the insurance broker
retained by Landlord, the amount of liability insurance coverage at
that time is not adequate, then Tenant shall increase its liability
insurance coverage as required by either any mortgagee of Landlord or
Landlord's insurance broker.
(c) Tenant shall secure and maintain, at Tenant's expense,
special form fire and extended coverage insurance on all of Tenant's
fixtures and personal property in the Premises and on any improvements
or alterations, additions or improvements made by Tenant, upon the
Premises, in an amount determined by Tenant (or such other form of
property insurance then available in the insurance market that is most
comparable or equivalent to "all risk"). Tenant shall provide Landlord
with certificates of all such insurance. The property insurance
certificate shall confirm that the waiver of subrogation required to
be obtained pursuant to Paragraph 14(g) is permitted by the insurer.
Tenant shall, at least thirty (30) days prior to the expiration of any
policy of insurance required to be maintained by Tenant under this
Lease, furnish Landlord with an "insurance binder" or other
satisfactory evidence of renewal thereof.
(d) All policies required to be carried by Tenant hereunder
shall be issued by and binding upon an insurance company licensed to
do business in the State of Colorado with a rating of at least A-
:VIII, or such other rating as may be required by a lender having a
lien on the Building as set forth in the then most current issue of
"Best's Insurance Reports." Tenant shall not do or permit anything to
be done that would invalidate the insurance policies referred to in
this Paragraph 14. Evidence of insurance provided to Landlord shall
include an endorsement showing that Landlord and its representatives
are included as additional insureds on general liability insurance,
and an endorsement whereby the insurer agrees not to cancel, non-renew
or reduce coverage of the policy without at least thirty (30) days
prior written notice to Landlord and its representatives.
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<PAGE>
(e) In the event that Tenant falls to provide evidence of
insurance required to be provided by Tenant hereunder, prior to
commencement of the Term, and thereafter during the Term, within ten
(10) days following Landlord's request therefor, and thirty (30) days
prior to the expiration date of any such coverage, Landlord shall be
authorized (but not required) to procure such coverage in the amounts
stated with all costs thereof (plus a fifteen percent [15%]
administrative fee) to be chargeable to Tenant and payable upon
written invoice therefor.
(f) The limits of insurance required by this Lease, or as
carried by Tenant, shall not limit the liability of Tenant nor relieve
Tenant of any obligation hereunder.
(g) Anything in this Lease to the contrary notwithstanding,
Landlord and Tenant each waives all rights of recovery, claim, action
or cause of action against the other, its agents (including partners,
both general and limited), trustees, officers, directors, and
employees, for any loss or damage that may occur to the Premises, or
any improvements thereto, or the Building or any personal property of
such party therein, by reason of any cause required to be insured
against under this Lease, regardless of cause or origin, including
negligence of the other party hereto and each party agrees to look
solely to its insurance coverage in the event of such loss; and each
party covenants that, to the fullest extent permitted by law, no
insurer shall hold any right to subrogation against such other party.
Tenant shall advise its insurers of the foregoing and such waiver
shall be a part of each Tenant policy maintained by which applies to
the Premises, any part of the Building or Tenant's use and occupancy
of any part thereof.
(h) Any Building employee to whom property shall be entrusted by
or on behalf of Tenant shall be deemed to be acting as Tenant's agent
with respect to such property and neither Landlord, the Building
manager, if any, nor their respective agents shall be liable for any
damage to the property of Tenant or others entrusted to employees of
the Building, nor for the loss of or damage to any such property by
theft or otherwise and Tenant shall indemnify Landlord of and from any
loss or damages, costs or actions Landlord may suffer or incur as a
result of such loss or damage to Property.
15. Damage or Destruction to Building:
---------------------------------
(a) In the event that the Premises or the Building are damaged
by fire or other insured casualty and the insurance proceeds have been
made available therefor by the holder or holders of any mortgages or
deeds of trust covering the Building, the damage shall be repaired by
and at the expense of Landlord to the extent of such insurance
proceeds available therefor cover at least 95% of the cost of repair,
provided such repairs and restoration can, in Landlord's reasonable
opinion, be made within one hundred eighty (180) days after the
occurrence of such damage without the payment of overtime or other
premiums, and until such repairs and restoration are completed, the
Base Rent and Tenant's Operating Expense Differential shall be abated
in proportion to the part of the Premises which is unusable by Tenant
in the conduct of its business, as may be reasonably determined by
Landlord and Tenant, (but there shall be no abatement of Base Rent by
reason of any portion of the Premises being unusable for a period
equal to one day or less). Landlord agrees to notify Tenant within
sixty (60) days after such casualty if it estimates that it will be
unable to repair and restore the Premises within said one hundred
eighty (180) day period. Such notice shall set forth the approximate
length of time Landlord estimates will be required to complete such
repairs and restoration. Notwithstanding anything to the contrary
contained herein, if Landlord cannot or estimates it cannot make such
repairs and restoration within said one hundred eighty (180) day
period, then Tenant may, by written notice to Landlord cancel this
Lease, provided such notice is given to Landlord within fifteen (15)
days after Landlord notifies Tenant of the estimated time for
completion of such repairs and restoration. In any event, if Landlord
is unable to complete the repairs and restoration within two hundred
ten (210) days after the casualty, Tenant may terminate this Lease by
giving Landlord written notice of cancellation within fifteen (15)
days after the expiration of the two hundred ten (210) day period.
Except as provided in this Paragraph 15, there shall be no abatement
of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business or property arising from the
making of any such repairs, alterations or improvements in or to the
Building, Premises or fixtures, appurtenances and equipment. Tenant
understands that Landlord will not carry insurance of any kind on
Tenant's property,
-16-
<PAGE>
including furniture and furnishings, or on any fixtures or equipment
removable by Tenant under the provisions of this Lease, or any
improvement installed in the Premises by or on behalf of Tenant, and
that Landlord shall not be obligated to repair any damage thereto or
replace the same.
(b) In case the Building throughout shall be so injured or
damaged, whether by fire or otherwise (though the Premises may not be
affected, or if affected, can be repaired within said 180 days) that
Landlord, within sixty (60) days after the happening of such injury,
shall decide not to reconstruct or rebuild the Building, then
notwithstanding anything contained herein to the contrary, upon notice
in writing to that effect given by Landlord to Tenant within said
sixty (60) days, this Lease shall terminate from the date of delivery
of said written notice, and both parties hereto shall be released and
discharged from all further obligations hereunder (except those
obligations which expressly survive termination of the Lease term) and
Tenant shall have a reasonable time thereafter to remove its property
from the Premises. If Landlord terminates the Lease in accordance with
this Section, Tenant shall pay the rent, properly apportioned up to
date of such casualty. A total destruction of the Building shall
automatically terminate this Lease.
16. Condemnation:
------------
(a) If the whole of the Premises or so much thereof as to render
the balance unusable by Tenant for the proper conduct of its business
shall be taken under power of eminent domain or transferred under
threat thereof, then this Lease, at the option of either Landlord or
Tenant exercised by either party giving notice to the other of such
election within thirty (30) days after such conveyance or taking
possession, whichever is earlier, shall forthwith cease and terminate
and the rent shall be duly apportioned as of the date of such taking
or conveyance. No award for any partial or entire taking shall be
apportioned and Tenant hereby assigns to Landlord any award which may
be made in such taking or condemnation, together with any and all
rights of Tenant now or hereafter arising in or to the same or any
part thereof. Notwithstanding the foregoing, Tenant shall be entitled
to seek, directly from the condemning authority, an award for its
removable trade fixtures, equipment and personal property and
relocation expenses, if any, to the extent Landlord's award is not
diminished. In the event of a partial taking which does not result in
a termination of this Lease, Base Rent and Tenant's Pro Rata Share of
the Operating Expense Differential shall be reduced in proportion to
the reduction in the size of the Premises so taken and this Lease
shall be modified accordingly. Promptly after obtaining knowledge
thereof, Landlord or Tenant, as the case my be, shall notify the other
of any pending or threatened condemnation or taking affecting the
Premises or Building.
(b) If during the Term part of the Building is so taken or
purchased as set out in Section 16(a), then:
(1) If in the reasonable opinion of Landlord,
substantial alteration or reconstruction of the Building is
necessary or desirable as a result thereof, whether or not the
Premises are or may be affected, Landlord shall have the right to
terminate this Lease by giving the Tenant at least thirty (30)
days' written notice of such termination; and
(2) If more than one-third (1/3) of the number of
square feet in the Premises is included in such taking or
purchase and such reduction in square footage of the Premises
renders the Premises unusable, in the reasonable estimation of
Landlord and Tenant, for the permitted use hereunder as conducted
by Tenant, Landlord and Tenant shall each have the right to
terminate this Lease by giving the other at least thirty (30)
days' written notice thereof.
(3) If either party exercises its right to termination
hereunder, this Lease shall terminate on the date stated in the
notice; provided, however, that no termination pursuant to notice
hereunder may occur later than sixty (60) days after the date of
such taking.
-17-
<PAGE>
17. Assignment and Subletting:
-------------------------
(a) Tenant shall not voluntarily, by operation of law, or
otherwise, assign, transfer, sublease or encumber this Lease or any
interest herein or part with possession of all or any part of the
Premises (any and all of which shall hereinafter be referred to as
"Transfer") without Landlord's prior written consent, which consent
shall not be unreasonably withheld. Landlord's consent to any Transfer
and resulting subletting or assignment shall not relieve Tenant of its
primary obligations hereunder, including the obligation for payment of
all rents due hereunder. Any Transfer without the prior written
consent of Landlord shall constitute a default hereunder and shall be
void and shall confer no rights upon any third party, notwithstanding
Landlord's acceptance of rent payments from any purported transferee.
Landlord's consent shall not be considered unreasonably withheld if;
among other things: (1) the proposed transferee's financial
responsibility does not meet the same criteria Landlord uses to select
other Building tenants; (2) the proposed transferee's business is not
suitable for the Building considering the business of the other
tenants and the Building's prestige or would result in a violation of
an exclusive right granted to another tenant in the Building; (3) the
proposed use is different than the permitted use; (4) the base rent
and additional rent to be paid by the proposed transferee for the
Premises is less than 85% of the current market rate for comparable
premises in the Building; (5) if the Building is less than 90% leased
at the time of the proposed Transfer and Landlord has comparably sized
space available for lease in the Building; (6) the proposed transferee
would impose additional obligations on Landlord or result in an
excessive amount of foot traffic to and from the Premises or an
excessive amount of people per square foot within the Premises; (7)
Tenant is in default; or (8) any portion of the Building or Premises
would become subject to additional or different governmental laws or
regulations as a consequence of the proposed Transfer and/or the
proposed transferee's use and occupancy of the Premises. Tenant
acknowledges that the foregoing is not intended as an exhaustive list
of the reasons for which Landlord may reasonably withhold its consent
to a proposed Transfer.
(b) In the event of any Transfer of this Lease (or proposed
Transfer, as the case may be) or all or any part of the Premises by
Tenant, Landlord in addition to any rights contained herein, shall
have the following options at its discretion; (1) to collect and
receive 50% of the excess of rent and other cash consolidation due to
Tenant from such sublessee or assignee over the Base Rent due
hereunder; (2) to give Tenant written notice of Landlord's intention
to terminate this Lease as to that part of the Premises which is the
subject of the proposed Transfer, on the date such notice is given or
on any later date specified therein, whereupon, on the date specified
in such notice, Tenant's right to possession of the part of the
Premises which is the subject of the proposed Transfer shall cease and
this Lease shall thereupon be terminated, except as to any uncompleted
obligations of Tenant; (3) to re-enter and take possession of the
Premises or the part thereof subject to such Transfer, and to enforce
all rights of Tenant, and receive and collect all rents and other
payments due to Tenant, in accordance with such sublet or assignment
of the Premises, or any part thereof, as if Landlord was the sublessor
or assignor, and to do whatever Tenant is permitted to do pursuant to
the terms of such sublease or assignment; or (4) Landlord, at its
option and from time to time, may collect the rent from the subtenant
or assignee, and apply the net amount collected to the rent herein
reserved. Notwithstanding the foregoing, Tenant may, at any time
within five (5) business days after the Landlord exercises any of its
rights pursuant to this subparagraph 17(b), retract its request to
Transfer by giving written notice to Landlord to that effect, in which
case the Transfer and the Landlord's exercise of its rights pursuant
to subparagraph 17(b) shall be of no further force or effect.
(c) The sale of all or a majority of the stock of Tenant to one
investor or a related group of investors, if Tenant is a corporation,
or the sale of all or a majority of the ownership interest in Tenant,
if Tenant is a partnership, or a limited liability entity, or the sale
of all or substantially all of the assets of Tenant shall constitute a
Transfer for purpose of this Lease. Notwithstanding the foregoing
sentence Tenant may assign its entire interest under this Lease or
sublet the Premises to a wholly-owned corporation, partnership, or
other legal entity or controlled subsidiary or parent of Tenant or to
any successor to Tenant by purchase including, without limitation, the
purchase of the stock of Tenant, merger, consolidation or
reorganization (hereinafter collectively referred to as "Permitted
Transfer") without the consent of Landlord, provided: (i) Tenant is
not in default under this Lease; (ii) if such proposed transferee
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<PAGE>
is a successor to Tenant by purchase, merger, consolidation or
reorganization, the continuing or surviving entity shall own
substantially all of the asset of Tenant and the net worth of the
surviving entity exclusive of good will shall equal or exceed the net
worth of the Tenant exclusive of goodwill at the date of the execution
of this Lease, and (iii) in no event shall any Transfer release or
relieve Tenant from any of its obligations under this Lease.
(d) At the time of making a request for Landlord's consent to a
Transfer and not less than fifteen (15) days prior to the proposed
effective date thereof, Tenant shall provide to Landlord such
information as Landlord, its accountants and attorneys, shall
reasonably require with respect to such proposed Transfer, including
but not limited to name and address of the proposed transferee,
description of business operations, financial information, rental rate
and material terms of the proposed Transfer and certificate of
corporate authority and good standing or partnership certificate, or
similar certificate for a limited liability entity, as applicable.
Tenant shall reimburse Landlord for its reasonable attorneys' and
accountants' fees incurred in the review of any proposed Transfer.
(e) Consent of Landlord to a Transfer shall not relieve Tenant
from seeking consent to any subsequent Transfers.
(f) Subletting or assignments by subtenants or assignees shall
not be permitted under any circumstances, nor shall Tenant be
permitted to further assign this Lease or sublet all or any part of
the Premises during any period of time that all or any portion of the
Base Rent is abated or in default. Except for a Transfer referred to
in subparagraph 17(c), no option to renew or extend the term of this
Lease or to lease additional space, if any, shall be exercisable by
any subtenant or assignee.
(g) All subleases or assignments shall be in writing and a copy
thereof provided to Landlord within ten (10) days of its effective
date. All subleases shall further contain an express provision that in
the event of any default by Tenant under this Lease and upon notice
thereof to the subtenant from Landlord, all rentals payable by the
subtenant shall be paid directly to Landlord, for the Tenant's
account, until subsequent notice from Landlord that such default has
been cured. Notwithstanding the foregoing, receipt by Landlord of rent
directly from the subtenant shall not be considered a waiver of the
default on the part of Tenant, nor an acceptance of such subtenant.
(h) No sublease or assignment shall be effective until approved
in writing by Landlord.
(i) Tenant shall pay to Landlord a non-refundable processing fee
in the amount of five hundred and no/l00 dollars ($500.00) plus
reasonable attorney's fees for preparation and review of the
documentation in connection with each proposed Transfer.
18. Estoppel Certificate: Tenant further agrees at any time and from
time to time on or before fifteen (15) days after written request by Landlord,
to execute, acknowledge and deliver to Landlord an estoppel certificate
certifying (to the extent it believes the same to be true) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified, and stating the
modifications), that there have been no defaults thereunder by Landlord or
Tenant (or if there have been defaults, setting forth the nature thereof), the
date to which the rent and other charges have been paid, if any, Tenant claims
no present charge, lien, claim or offset against rent (or specifying the nature
of any such claims), and such other matters as may be reasonably required by
Landlord, Landlord's mortgagee, or any potential purchaser of the Building, it
being intended that any such statement delivered pursuant to this Paragraph may
be relied upon by any prospective purchaser of all or any portion of Landlord's
interest herein, or a holder of any mortgage or deed of trust encumbering any
portion of the Building Complex. Tenant's failure to deliver such statement
within such time shall be a default under this Lease. Notwithstanding the
foregoing, in the event that Tenant does not execute the statement required by
this paragraph, Tenant hereby grants to Landlord a power of attorney coupled
with an interest to act as Tenant's attorney in fact for the purpose of
executing such statement or statements required by this Paragraph.
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<PAGE>
(a) The following events (herein referred to as an "event of
default") shall constitute a default by Tenant hereunder;
(1) Tenant shall fail to pay when due any installment of
Base Rent, Additional Rent or any other amounts payable
hereunder; provided that Tenant shall be entitled to one (1) five
(5) day grace period during every calendar year during which
period if the Tenant pays the amounts due it shall not be in
default and no late charges shall be assessed.
(2) Tenant shall fail to perform any of the other non-
monetary agreements, terms, covenants or conditions hereof on
Tenant's part to be performed, and such nonperformance shall
continue for a period of fifteen (15) days after notice thereof
by Landlord to Tenant; provided, however, that if Tenant cannot
reasonably cure such nonperformance within fifteen (15) days,
Tenant shall not be in default if it commences cure within said
fifteen (15) days and diligently and continuously pursues the
same to completion, with completion occurring in all instances
within seventy-five (75) days;
(3) This Lease or the estate of Tenant hereunder shall be
transferred to or shall pass to or devolve upon any other person
or party in violation of the provisions of this Lease;
(4) This Lease or the Premises or any part thereof shall be
taken upon execution or by other process of law directed against
Tenant, or shall be taken upon or subject to any attachment at
the instance of any creditor or claimant against Tenant, and said
attachment shall not be discharged or disposed of within fifteen
(15) days after the levy thereof;
(5) Tenant shall file a petition in bankruptcy or
insolvency or for reorganization or arrangement under the
bankruptcy laws of he United States or under any insolvency act
of any state, or shall voluntarily take advantage of any such law
or act by answer or otherwise, or shall be dissolved or shall
make an assignment for the benefit of creditors;
(6) Involuntary proceeding under any such bankruptcy law or
insolvency act or for the dissolution of Tenant shall be
instituted against Tenant, or a receiver or trustee shall be
appointed of all or substantially all of the property of Tenant,
and such proceedings shall not be dismissed or such receivership
or trusteeship vacated within sixty (60) days after such
institution or appointment;
(7) Tenant shall fail to take possession of the Premises
within thirty (30) days of the Commencement Date;
(8) Tenant shall abandon or permanently vacate the Premises
for ten (10) consecutive days;
(9) Tenant shall fail to obtain a release of any mechanic's
lien or post a bond, as required herein within twenty (20) days
after notice of the filing of the notice of intent to lien;
(10) A guarantor of this Lease, if any, or a general partner
of Tenant (if Tenant is a general or limited partnership),
becomes a debtor under any state or federal bankruptcy
proceedings, or becomes subject to receivership or trusteeship
proceedings, whether voluntary or involuntary; except in the case
of a guarantor, Tenant shall not be in default if a substitute
guarantor, with acceptable creditworthiness and financial
abilities in light of the responsibilities of Tenant hereunder,
and otherwise acceptable to Landlord, is provided to Landlord
within fifteen (15) days; and
-20-
<PAGE>
(11) All or any part of the personal property of Tenant is
seized, subject to levy or attachment, or similarly repossessed
or removed from the Premises, or a receiver is appointed for all
or substantially all of Tenant's assets.
(b) Upon the occurrence of an event of default, Landlord shall
have the right, at its election, then or at any time thereafter and
while any such event of default shall continue, to pursue any one or
more of the following remedies without notice or demand whatsoever:
(1) Except as otherwise provided in C.R.S. ss. 13-40-
104(l)(e) and (e.5), as amended, give Tenant written notice of
Landlord's intent to terminate this Lease on the date of such
notice or on any later date as may be specified herein, whereupon
Tenant's right to possession of the Premises shall cease and this
Lease, except as to Tenant's liability, shall be terminated.
In the event this Lease is terminated in accordance with the
provisions of this Paragraph, Tenant shall remain liable to
Landlord for damages in an amount equal to the Base Rent,
Additional Rent and other sums which would have been owing by
Tenant hereunder for the balance of the Term had this Lease not
been terminated, less the net proceeds, if any, of any reletting
of the Premises by Landlord subsequent to such termination,
deducting from such proceeds all Landlord's expenses including,
without limitations, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees, expenses of
employees, alteration and repair costs and expenses of
preparation for such reletting. Landlord shall be entitled to
collect such damages from Tenant monthly on the days on which the
Base Rent and other charges would have been payable hereunder if
this Lease had not been terminated. Alternatively, at the option
of the Landlord, in the event this Lease is so terminated,
Landlord shall be entitled to recover forthwith against Tenant as
damages for loss of the bargain and not as a penalty an aggregate
sum, which at the time of such termination of this Lease,
represents the excess, if any, of the aggregate of the Base Rent,
Additional Rent and all other charges payable by Tenant hereunder
that would have accrued for the balance of the Term over the
aggregate fair market rental value of the Premises (such rental
value to be computed on the basis of Tenant paying not only a
Base Rent and Additional Rent to Landlord for the use and
occupation of the Premises, but also such other charges as are
required to be paid by Tenant under the terms of this Lease) for
the balance of such Term, both discounted to present worth at the
rate of four percent (4%) per annum.
(2) Reenter and take possession of the Premises or
any part thereof, and repossess the same as of Landlord's former
estate and expel Tenant and those claiming through and under
Tenant, and remove the effects of both or either, using such
force for such purposes as may be necessary, without being liable
for prosecution thereof, without being deemed guilty of any
manner of trespass, and without prejudice to any remedies for
arrears of Base Rent, Additional Rent and other charges payable
or preceding breach of covenants or conditions. Should Landlord
elect to reenter as provided in this subparagraph, or should
Landlord take possession pursuant to legal proceedings or
pursuant to any notice provided for by law, Landlord from time to
time, without terminating this Lease, relet the Premises or any
part thereof in Landlord's or Tenant's name, but for the account
of Tenant, for such term or terms (which may be greater or less
than the period which would otherwise have constituted the
balance of the Term of this Lease) and on such conditions and
upon other terms (which may include concessions of free Base Rent
and alteration and repair of the Premises) as Landlord, in its
sole discretion, may determine, and Landlord may collect and
receive the Base Rents therefor. Landlord shall in no way be
responsible or liable for any failure to relet the Premises, or
any part thereof, or for any failure to collect any Base Rent due
upon such reletting. No such reentry or taking possession of the
Premises by Landlord shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice
of such intention is given to Tenant. No notice from Landlord
hereunder or under a forcible entry and detainer statute or
similar law shall constitute an election by Landlord to terminate
this Lease unless such notice specifically so states. Landlord
reserves the right following any such reentry
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<PAGE>
and/or reletting to exercise its right to terminate this Lease by
giving Tenant such written notice, in which event the Lease will
terminate as specified in said notice.
In the event that Landlord does not elect to terminate this
Lease but takes possession as provided for in this subparagraph,
Tenant shall pay to Landlord (i) the Base Rent, Additional Rent
and other charges as herein provided which would be payable
hereunder if such repossession had not occurred, less (ii) the
net proceeds, if any, of any reletting of the Premises after
deducting all Landlord's reasonable expenses including, without
limitation, all repossession costs, brokerage commissions, legal
expenses, attorneys' fees, expenses of employees, alteration and
repair costs and expense of preparation for such reletting.
Tenant shall pay such Base Rent, Additional Rent and other sums
to Landlord monthly on the days on which the Base Rent would have
been payable hereunder if possession had not been retaken.
(c) No failure by Landlord to insist upon the strict performance
of any agreement, term, covenant or condition hereof or to exercise
any right or remedy consequent upon a breach thereof, and no
acceptance of full or partial rent during the continuance of any such
breach, shall constitute a waiver of any such breach of such
agreement, term, covenant or condition. No agreement, term, covenant
or condition hereof to be performed or complied with by either
Landlord or Tenant, and no breach thereof, shall be waived, altered or
modified except by written instrument executed by the other party. No
waiver of any breach shall affect or alter this Lease, but each and
every agreement, term, covenant and condition hereof shall continue in
full force and effect with respect to any other then existing or
subsequent breach thereof. Notwithstanding any unilateral termination
of this Lease, this Lease shall continue in force and effect as to any
provisions hereof which require observance or performance of Landlord
or Tenant subsequent to termination.
(d) Any rents or other amounts owing to Landlord hereunder which
are not paid within ten (10) days of the date they are due, shall
thereafter bear interest from the due date at the rate of four percent
(4%) over the prime rate of interest charged by Wells Fargo Bank of
Denver (or its successor) ("Interest Rate") until paid. Similarly, any
amounts paid by Landlord to cure any default of Tenant or to perform
any obligation of Tenant, shall, if not repaid by the Tenant within
five (5) days of demand by Landlord, thereafter bear interest from the
date paid by Landlord at the Interest Rate until paid. In addition to
the foregoing, Tenant shall pay to Landlord whenever any Base Rent,
Additional Rent or any other sums due hereunder remain unpaid more
than ten (10) days after the due date thereof, a late charge equal to
ten percent (10%) of the amount due. Further, in the event of default
by Tenant, in addition to all other rights and remedies, Landlord
shall be entitled to receive from Tenant all sums, the payment of
which may previously have been waived or abated by Landlord, or which
may have been paid by Landlord pursuant to any agreement to grant
Tenant a rental abatement or other monetary inducement or concession,
including but not limited to any tenant finish allowance, moving
allowance, and leasing commissions, together with interest thereon
from the date or dates such amounts were paid by Landlord or would
have been due from Tenant but for the abatement, at the Interest Rate,
until paid; provided, that Landlord may only recover for such amounts
to the extent they have not otherwise been amortized over the Term of
the Lease prior to the default or as part of any future Base Rent
awarded to Landlord. It is understood and agreed that such concession
or abatement was made on the condition and basis that Tenant fully
perform all obligations and covenants under the Lease for the entire
term.
(e) Each right and remedy provided for in this Lease shall be
cumulative and shall be in addition to every other right or remedy
provided for in this Lease now or hereafter existing at law or in
equity or by statute or otherwise, including, but not limited to,
suits for injunctive or declaratory relief and specific performance.
The exercise or commencement of the exercise by Landlord of any one or
more of the rights or remedies provided for in this Lease now or
hereafter existing at law or in equity or by statute or otherwise
shall not preclude the simultaneous or subsequent exercise by Landlord
of any or all other rights or remedies provided for in this Lease, or
now or hereafter existing at law or in equity or by statue or
otherwise. All costs incurred by Landlord in connection with
collecting any amounts and damages owing by Tenant pursuant to the
provisions of this Lease or to enforce any provision of this Lease,
including by
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<PAGE>
way of example, but not limitation, reasonable attorneys' fees from
the date any such matter is turned over to an attorney, shall also be
recoverable by Landlord from Tenant. Landlord and Tenant agree that
any action or proceeding arising out of this Lease shall be heard by a
court sitting without a jury and thus hereby waive all rights to a
trial by jury.
(f) The Tenant and Landlord each hereby expressly, irrevocably,
fully and forever release, waive and relinquish any and all right to
trial by jury and all right to receive punitive, exemplary and
consequential damages from the other (or any past, present or future
director, officer, member, partner, employee, agent, representative,
or advisor of the other) in any claim, demand, action, suit,
proceeding or cause of action in which the Tenant and Landlord are
parties, which in any way (directly or indirectly) arises out of,
results from, or relates to, any of the following, in each case
whether now existing or hereafter arising and whether based on
contract or tort or any other legal basis: this Lease; any past,
present or future act, omission, conduct or activity with respect to
this Lease; any transactions, event or occurrence contemplated by this
Lease; the performance of any obligation or the exercise of any right
under this Lease; or the enforcement of this Lease. The Tenant and
Landlord each agree that this Agreement constitutes written consent
that trial by jury shall be waived in any such claim, demand, action,
suit, proceeding or other cause of action and agree that the Tenant
and Landlord each shall have the right at any time to file this Lease
with the clerk or judge of any court in which any such claim, demand,
action, suit, proceeding or other cause of action may be pending as
written consent to waiver of trial by jury.
/s/ /s/
---------------- ---------------
Landlord Tenant
20. Landlord's Lien: Intentionally Deleted
---------------
21. Uniform Commercial Code: Intentionally Deleted
-----------------------
22. Removal of Tenant's Property: All movable furniture and personal
----------------------------
effects of Tenant not removed from the Premises upon the vacation or abandonment
thereof or upon the termination of this Lease for any cause whatsoever shall
conclusively be deemed to have been abandoned and may be appropriated, sold,
stored, destroyed or otherwise disposed of by Landlord without notice to Tenant
and without obligation to account therefor, and Tenant shall reimburse Landlord
for all expenses incurred in connection with the disposition of such property.
23. Holdover: Should Tenant, without Landlord's consent, holdover
--------
after the termination of this Lease and continue to pay rent, Tenant shall
become a tenant from month to month only upon each and all of the terms herein
provided as may be applicable to such month to month tenancy and any such
holdover shall not constitute an extension of this Lease. During such holdover,
without Landlord's consent, Tenant shall pay monthly Base Rent equal to two
hundred percent (200%) of the Base Rent and Additional Rent due for the last
month of the Term of the Lease, plus the other monetary charges as provided
herein. In the event of Tenant holdover after the termination of this Lease with
Landlord's consent all other terms of this Paragraph 23 shall apply, however,
Tenant shall pay Landlord monthly Base Rent in the amount agreed upon by
Landlord and Tenant or, in the absence of an agreement an amount equal to one
hundred fifty percent (150%) of the Base Rent and Additional Rent due for the
last month of the Term of the Lease. Such tenancy (whether with or without
Landlord's consent) shall continue until terminated by Landlord, as provided by
law, or until Tenant shall have given to Landlord at least thirty (30) days
written notice prior to the last day of the calendar month intended as the date
of termination of such month to month tenancy.
24. Common Areas: Except as otherwise specifically provided herein,
------------
all access roads, courtyards, and other areas, facilities or improvements
furnished by Landlord are for the general and nonexclusive use in common of all
tenants of the Building, and those persons invited upon the land upon which the
Building is situated and shall be subject to the exclusive control and
management of Landlord, and Landlord shall have the right, without obligation to
establish, modify and enforce such rules and regulations, which the Landlord may
deem reasonable and/or necessary.
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25. Surrender and Notice: Upon the expiration or earlier termination
--------------------
of this Lease, Tenant shall promptly quit and surrender to Landlord the Premises
broom clean, in good order and condition, ordinary wear and tear and loss by
fire or other casualty excepted, and Tenant shall remove all of its movable
furniture and other effects and such alterations, additions and improvements as
Landlord shall require Tenant to remove pursuant to Paragraph 10 hereof. In the
event Tenant fails to so vacate the Premises on a timely basis as required,
Tenant shall be responsible to Landlord for all costs and damages, including but
not limited to any amounts required to be paid to third parties who were to have
occupied the Premises, incurred by Landlord as a result of such failure, plus
interest thereon at the Interest Rate on all amounts not paid by Tenant within
five (5) days of demand, until paid in full.
26. Sales; Conveyance and Assignment: Nothing in this Lease shall
--------------------------------
restrict the right of Landlord to sell, convey, assign or otherwise deal with
its interest in the Building subject only to the rights of Tenant under this
Lease. In the event Landlord conveys its interest in the Building to an
affiliate of Landlord, Tenant shall, if requested by Landlord, execute an
Estoppel Certificate for the benefit of the new owner.
27. Subordination; Non-Disturbance and Attornment:
---------------------------------------------
(a) This Lease is and shall be subject and subordinate in all
respects to any and all mortgages and deeds of trust now or hereafter
placed on the Building, the Building Complex or the land on which it
is situated, and to all renewals, modifications, consolidations,
replacements and extensions thereof.
(b) Subject to subparagraph (c) and receipt from the Landlord's
mortgagee of the non- disturbance agreement provided for in
subparagraph 27(f), if the interest of Landlord is transferred to any
person (herein called ("Purchaser") by reason of foreclosure or other
proceedings for enforcement of any mortgage or deed of trust, or by
delivery of a deed in lieu of such foreclosure or other proceedings,
Tenant shall immediately and automatically attorn to Purchaser.
(c) No attornment by Tenant to the holder of any mortgage or
deed of trust which would be subordinate to this Lease but for the
provisions of subparagraph (a) shall be effective unless Purchaser
delivers to Tenant written undertaking that this Lease and Tenant's
rights hereunder shall continue undisturbed while Tenant is not in
default, despite such enforcement proceedings and transfer.
(d) Upon attornment under subparagraph (b), this Lease shall
continue in full force and effect as a direct Lease between Purchaser
and Tenant, upon all of the same terms, conditions and covenants as
are set forth in this Lease except that, after such attornment,
Purchaser shall not be liable for any act of omission of any previous
Landlord.
(e) The subordination and attornment provisions of this
Paragraph 27 shall be self-operating and except as set out in
subparagraph (c), no further instrument shall be required.
Nevertheless Tenant, on request by and without cost to Landlord or any
successor in interest, shall execute and deliver any and all
reasonable instruments further evidencing such subordination and
(where applicable hereunder) attornment. Tenant hereby irrevocably
appoints Landlord as attorney-in-fact of Tenant to execute, delivery
and record any such documents and instruments in the name and on
behalf of Tenant if Tenant fails to do so.
(f) Landlord agrees that substantially concurrent with the
execution of this Lease by both Landlord and Tenant, that it will
deliver to Tenant a non-disturbance agreement from Landlord's
mortgagee, which non- disturbance agreement shall be on the
mortgagee's standard form.
28. Payments After Termination: No payments of money by Tenant to
--------------------------
Landlord after the termination of this Lease, in any manner, or after giving of
any notice (other than a demand for payment of money) by Landlord to Tenant,
shall reinstate, continue or extend the term of this Lease or affect any notice
given to Tenant prior to the payment of such money, it being agreed that after
the service of notice of the commencement of a suit or other final judgement
granting Landlord possession of the Premises, Landlord may receive and collect
any sums of rent due, or any other sums of money due under the terms of this
Lease or otherwise exercise its rights and remedies hereunder.
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The payment of such sums of money, whether as rent or otherwise, shall not waive
said notice or in any manner affect any pending suit or judgement theretofore
obtained.
29. Authorities for Action and Notice:
---------------------------------
(a) Except as otherwise provided herein, Landlord may, for any matter
pertaining to this Lease, act by and through its building manager or any other
person designated in writing from time to time.
(b) All notices or demands required or permitted to be given
hereunder shall be in writing, and shall be deemed duly served when received, if
hand delivered or delivered by facsimile transmission or overnight courier, or
three (3) days after deposited in the United States mail, with proper postage
prepaid, certified or registered, return receipt requested, addressed to:
Landlord: Centennial Venture I, LLC
Attn: Randy Nichols
1200 17th Street, Suite 890
Denver, Colorado 80202
cc: Jones Lang, LaSalle, Inc.
Attn: Linda Kaboth
950 Seventeenth Street, Suite 2000
Denver, Colorado
Tenant: Prior to the Commencement Dat
Webb Interactive Services, Inc.
1800 Glenarm, Suite 600
Denver, Colorado 80202
After the Commencement Date
Webb Interactive Services, Inc.
1899 Wynkoop, Suite 600
Denver, Colorado 80202
Either party shall have the right to designate in writing, served as
above provided, a different address to which notice is to be provided. The
foregoing shall in no event prohibit notice from being given as provided in Rule
4 of the Colorado Rules of Civil Procedure, as the same may be amended from time
to time.
30. Liability of Landlord: Landlord's liability under this Lease
shall be limited to Landlord's estate and interest in the Building (or to the
proceeds thereof) and no other property or other assets of Landlord shall be
subject to levy, execution or other enforcement procedure for the satisfaction
of Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder or Tenant's use and occupancy of the Premises.
Nothing contained in this Paragraph shall be construed to permit Tenant to
offset against rents due a successor landlord, a judgement (or other judicial
process) requiring the payment of money by reason of any default of a prior
landlord, except as otherwise specifically set forth herein.
31. Brokerage: Landlord and Tenant each represents and warrants that
---------
it has dealt only with Fuller and Company as agent for Tenant ("Tenant's
Broker") and Cushman Realty Corporation as agent for Landlord (the "Landlord's
Broker") in the negotiation of this Lease. Landlord shall make payment of the
brokerage fee due to Landlord's Broker pursuant and in accordance with
Landlord's separate agreement with Landlord's Broker. Landlord's Broker shall
pay Tenant's Broker pursuant to and in accordance with a separate coop agreement
with Tenant's Broker. Landlord and Tenant hereby agree to indemnify, defend and
hold the other harmless of and from any and all loss, costs, damages or expenses
(including, without limitation, all attorneys' fees and disbursements) by
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reason of any claim of or liability to any other broker or person claiming
through Landlord and Tenant, respectively, and arising out of or in connection
with the negotiation, execution and delivery of this Lease. Additionally, Tenant
acknowledges and agrees that Landlord shall have no obligation for payment of
any brokerage fee or similar compensation to any person with whom Tenant has
dealt or may in the future deal with respect to leasing of any additional or
expansion space in the Building or renewals or extensions of this Lease. Tenant
further acknowledges that Landlord's Broker is the exclusive broker for the
Landlord and that it has no fiduciary duties to Tenant.
32. Tenant's Taxes:
--------------
(a) Tenant shall be liable for and shall pay at least ten (10)
days before delinquency and Tenant hereby agrees to indemnify and hold
Landlord harmless from and against any liability in connection with,
all taxes levied against any personal property, fixtures, machinery,
equipment, apparatus, systems and appurtenances placed by or on behalf
of Tenant in or about or utilized by Tenant in, upon or in connection
with the Premises ("Equipment Taxes"). If any Equipment Taxes are
levied against Landlord or Landlord's property or if the assessed
value of Landlord's property is increased by the inclusion therein of
a value placed upon such personal property, fixtures, machinery,
equipment, apparatus, systems or appurtenances of Tenant, and if
Landlord, after written notice to Tenant, pays the Equipment Taxes or
taxes based upon such an increased assessment (which Landlord shall
have the right to do regardless of the validity of such levy, but
under proper protest if requested by Tenant prior to such payment and
if payment under protest is permissible), Tenant shall pay to Landlord
upon demand, as Additional Rent hereunder, the taxes so levied against
Landlord or the proportion of such taxes resulting from such increase
in the assessment; provided, however, that in any such event, Tenant
shall have the right, on behalf of Landlord and with Landlord's full
cooperation, but at no cost to Landlord, to bring suit in any court of
competent jurisdiction to recover the amount of any such tax so paid
under protest, and any amount so recovered shall belong to Tenant
(provided Tenant has previously paid such amount to Landlord).
Notwithstanding the foregoing to the contrary, Tenant shall cooperate
with Landlord to the extent reasonable necessary to cause the
fixtures, furnishings, equipment and other personal property to be
assessed and billed separately from the real property of which the
Premises form a part, and Landlord shall use reasonable efforts to
treat all other Tenants on the same basis.
(b) Tenant shall pay to Landlord, as Additional Rent, any
excise, sales, privilege, gross receipts or other tax, assessment or
other charge (other than income or franchise taxes) imposed, assessed
or levied by any governmental or quasi-governmental authority or
agency upon Landlord on account of this Lease, the rent or other
payments made by Tenant hereunder, any other benefit received by
Landlord hereunder, Landlord's business as a lessor hereunder, or
other in respect of or as a result of the agreement or relationship of
Landlord and Tenant hereunder.
33. Substitution of Premises: Prior to the commencement of
------------------------
construction of the Leasehold Improvements on the sixth (//6//th) floor,
Landlord shall have the right to relocate the Premises to either Floor 5 or 7 in
accordance with the following: (a) the new Premises shall be substantially the
same in size, dimensions, configuration, decor, and nature as are the Premises
described in this Lease, and shall be placed in substantially that condition by
Landlord at its cost; (b) the physical relocation of the Premises shall be
accomplished by Landlord at its cost; (c) Landlord shall give Tenant written
notice of landlord's intention to relocate the Premises; (d) all reasonable
costs incurred by Tenant as a result of the relocation, including, without
limitation, costs incurred in changing addresses on stationery, business cards,
directories, advertising, and other reasonable items, shall be paid by Landlord;
(e) if the relocated Premises are smaller than the Premises as they existed
before the relocation, Annual Base Rent shall be reduced pro-rata; and, (f) the
parties hereto shall immediately execute an amendment to this Lease stating the
relocation of the Premises and the reduction of rent, if any. Once the Leasehold
Improvements on Floor 6 have been commenced, this Paragraph 33 shall be null and
void.
34. Rights Reserved to Landlord:
---------------------------
(a) All portions of the Building are reserved to Landlord except
the Premises and the inside surfaces of all walls, windows and doors
bounding in the Premises, but including exterior building walls,
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core corridor walls and doors and any core corridor entrance. Landlord
also reserves any space in or adjacent to the Premises used for
shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other
utilities, sinks or other building facilities, and the use thereof, as
well as the right to access thereto through the Premises for the
purposes of operation, maintenance and repair, upon reasonable notice,
except in the event of emergencies or apparent emergencies, when no
prior notice shall be required.
(b) Landlord shall have the following rights without liability
to Tenant for damage or injury to property, person or business (all
claims for damage being hereby waived and released), and without
effecting an eviction or disturbance of Tenant's use or possession of
the Premises or giving rise to any claim for setoffs or abatement of
rent:
(1) To enter the Premises as more fully provided in this
Lease.
(2) To install and maintain signs on the exterior and
interior of the Building, except within the Premises, provided
the signs do not block either completely or partially the
exterior windows of the Premises.
(3) To have pass keys to the Premises.
(4) To decorate, remodel, repair, alter or otherwise
prepare the Premises for reoccupancy during the last sixty (60)
days of the term hereof if, during or prior to such time, Tenant
has vacated the Premises, or at any time after Tenant abandons
the Premises.
35. Force Majeure Clause: Except as provided in subparagraphs 2(c)(6)
---------------------
and 7(e), wherever there is provided in this Lease a time limitation for
performance by Landlord of any obligation, including but not limited to
obligations related to construction, repair, maintenance or service, the time
provided for shall be extended for as long as and to the extent that delay in
compliance with such limitation is due to an act of God, governmental control or
other factors beyond the reasonable control of Landlord.
36. Signage:
-------
(a) No sign, advertisement or notice shall be inscribed, painted
or affixed on any part of the inside or outside of the Building unless
of such color, size and style and in such place upon or in the
Building as shall be first designated by Landlord, but there shall be
no obligation or duty on Landlord to allow any sign, advertisement or
notice to be inscribed, painted or affixed on any part of the inside
or outside of the Building. A directory in a conspicuous place, with
the names of Tenant, not to exceed one (1) name per every 2000
rentable square feet of the Premises, shall be provided by Landlord on
a one time basis. Any necessary revision to such directory shall be
made by Landlord, at Tenant's expense, within a reasonable time after
written notice from Tenant of the change making the revision
necessary. Landlord shall have the right to remove all nonpermitted
signs without notice to Tenant and at the expense of Tenant.
(b) Tenant shall only be permitted to install building standard
signs and logos, subject to Landlord's prior written consent and
criteria as to size, design, materials and location.
37. Attorneys' Fees: In the event of any dispute hereunder, or any
---------------
default in the performance of any term or condition of this Lease, the
prevailing party shall be entitled to recover all costs and expenses associated
therewith, including reasonable attorneys' fees.
38. Miscellaneous:
-------------
(a) The rules and regulations attached hereto as Exhibit E, as
well as such rules and regulations as may hereafter be adopted by
Landlord for the safety, care and cleanliness of the Premises and the
Building and the preservation of good order thereon, are hereby
expressly made a part hereof, and Tenant agrees to obey all such rules
and regulations. The violation of any of such rules and regulations by
Tenant
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<PAGE>
shall be deemed a breach of this Lease by Tenant affording Landlord
all the remedies set forth herein. Landlord shall not be responsible
to Tenant for the nonperformance by any other tenant or occupant of
the Building of any of said rules and regulations. Landlord reserves
the right from time to time to amend and modify the rules and
regulations. Such amendments or modifications shall be effective upon
delivery to Tenant.
(b) The term "Landlord" as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, shall
be limited to mean and include only the owner or owners of the
Building at the time in question, and in the event of any transfer or
transfers of the title thereto. Except for the Landlord's obligation
to construct and deliver the Base Building and the Leasehold
Improvements and the warranty associated with the Leasehold
Improvements, Landlord herein named (and in the case of any subsequent
transfers or conveyances, the then grantor) shall be automatically
released from and after the date of such transfer or conveyance of all
liability in respect to the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter
to be performed and relating to events occurring thereafter; provided
that any funds in the hands of Landlord or the then grantor at the
time of such transfer in which Tenant has an interest shall be turned
over to the grantee, and any amount then due and payable to Tenant by
Landlord or the then grantor under any provisions of this Lease shall
be paid to Tenant.
(c) This Lease shall be construed as though the covenants herein
between Landlord and Tenant are independent and not dependent and
Tenant shall not be entitled to any setoff of the rent or other
amounts owing hereunder against Landlord, if Landlord fails to perform
its obligations set forth herein, except as herein specifically set
forth; provided, however, the foregoing shall in no way impair the
right of Tenant to commence a separate action against Landlord for any
violation by Landlord of the provisions hereof so long as notice is
first given to Landlord and any holder of a mortgage or deed of trust
covering the Building Complex or any portion thereof whose address
Tenant has been notified in writing and so long as an opportunity has
been granted to Landlord and such holder to correct such violation as
provided in subparagraph (g) hereof.
(d) If any clause or provision of this Lease is illegal, invalid
or unenforceable under present or future laws effective during the
term of this Lease, then and in that event, it is the intention of the
parties hereto that the remainder of this Lease shall not be affected
thereby, and it is also the intention of the parties to this Lease
that in lieu of each clause or provision of this Lease that is
illegal, invalid or unenforceable, there shall be added as a part of
this Lease a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable, provided such addition does not increase
or decrease the obligations of or derogate from the rights or powers
of either Landlord or Tenant.
(e) The captions of each paragraph are added as a matter of
convenience only and shall be considered of no effect in the
construction of any provision or provisions of this Lease.
(f) Except as herein specifically set forth, all terms,
conditions and covenants to be observed and performed by the parties
hereto shall be applicable to and binding upon their respective heirs,
administrators, executors, successors and assigns. The terms,
conditions and covenants hereof shall also be considered to be
covenants running with the land.
(g) Except as otherwise specifically provided herein, in the
event Landlord shall fail to perform any of the agreements, terms,
covenants or conditions hereof on Landlord's part to be performed, and
such nonperformance shall continue for a period of thirty (30) days
after written notice thereof, from Tenant to Landlord, or if such
performance cannot be reasonably had within such thirty (30) day
period, and Landlord shall not in good faith have commenced such
performance within such thirty (30) day period and proceed therewith
to completion, it shall be considered a default of Landlord under this
Lease. Tenant shall give written notice to Landlord in the matter
herein set forth and shall afford Landlord a reasonable opportunity to
cure any such default. In addition, Tenant shall send notice of such
default by certified or
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registered mail, with proper postage prepaid, to the holder of any
mortgages or deeds of trust covering the Building Complex or any
portion thereof of whose address Tenant has been notified in writing
and shall afford such holder a reasonable opportunity to cure any
alleged default on Landlord's behalf.
(h) If there is more than one entity or person which or who are
the Tenants under this Lease, the obligations imposed upon Tenant
under this Lease shall be joint and several.
(i) No act or thing done by Landlord or Landlord's agent during
the term hereof, including but not limited to any agreement to accept
surrender of the Premises or to amend or modify this Lease, shall be
deemed to be binding upon Landlord unless such act or things shall be
by an officer of Landlord or a party designated in writing by Landlord
as so authorized to act. The delivery of keys to Landlord, or
Landlord's agent, employees or officers shall not operate as a
termination of this Lease or a surrender of the Premises. No payment
by Tenant or receipt by Landlord of a lesser amount than the monthly
rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment as rent
be deemed an accord and satisfaction and Landlord may accept such
check or payment without prejudice to Landlord's right to recover the
balance or such rent or pursue any other remedy available to Landlord.
(j) Landlord shall have the right to construct other buildings
or improvements in any plaza or any other area designated by Landlord
for use by tenants or to change the location, character or make
alterations of or additions to any of said plazas or other areas.
Landlord, during the entire term of this Lease, shall have the right
to change the number and name of the Building at any time without
liability to Tenant.
(k) Tenant acknowledges and agrees that it has not relied upon
any statements, representations, agreements or warranties, except such
as are expressed in this Lease.
(l) Time is of the essence hereof.
(m) (n) The word "Holidays" as used herein shall mean those days
celebrated each calendar year as New Year's Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving, and Christmas and such
other recognized national holidays to the extent office buildings are
generally closed in the Denver metropolitan area.
(n) Tenant and Landlord and the party executing this Lease on
behalf of each of them represent to each other that such party is
authorized to do so by requisite action of the board of directors,
members or partners, as the case may be, and agree upon request to
deliver to each other a resolution or similar document to that effect.
(o) This Lease shall be governed by and construed in accordance
with the laws of the State of Colorado.
(p) This Lease, together with Exhibits A. B. C. D and E,
-------------------------
attached hereto, contains the entire agreement of the parties and may
not be amended or modified in any manner except by an instrument in
writing signed by both parties. Tenant shall not record this Lease or
a memorandum hereof.
(q) In the event Landlord makes available any area in the
Building Complex for use as a health facility, Tenant agrees that
Landlord shall not be liable for any injury or damage to persons or
property arising out of the use of such health facility by Tenant, its
employees or invitees, and further agrees to indemnify, defend and
hold Landlord harmless against any claims, demands or damages
associated therewith, including claims for personal injury and death.
Tenant further agrees to execute and deliver to Landlord upon request,
and indemnification agreement, in form acceptable to Landlord, as a
condition precedent to use of any such health facility by Tenant and
its employees and invitees.
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<PAGE>
(r) Tenant shall not use the name of the Building, the Building
Complex or the development in which the Building is situated as part
of its legal or trade name, nor for any purpose other than as an
address for the business to be conducted by Tenant in the Premises.
(s) The submission or delivery of this document for examination
and review does not constitute an option, an offer to lease space in
the Building or an agreement to lease. This document shall have no
binding effect on the parties unless and until executed by both
Landlord and Tenant.
39. Hazardous Materials:
-------------------
(a) Tenant shall at all times and in all respects comply with
all federal, state and local laws, ordinances, rules and regulations
("Hazardous Materials Laws") relating to industrial hygiene,
environmental protection or the use, analysis, generation,
manufacture, storage, presence, disposal or transportation of any
Hazardous Materials (as hereinafter defined).
(b) Except for normal and customary types and quantities of
products which are used in the operation of a business office and
which may be considered to be Hazardous Materials, Tenant shall not
cause or permit any Hazardous Materials to be brought upon, kept,
stored, generated, treated, manufactured, produced, disposed of,
discharged, released, spilled or used in, on or about the Premises by
Tenant or Tenant's affiliates, agents, employees, contractors,
invitees, sublessees or assignees (collectively, the "Tenant
Parties"). If Tenant or any Tenant Party breaches the obligation
stated in the preceding sentence or if the presence of Hazardous
Materials on the Premises caused or permitted by Tenant results in
contamination of the Premises, the Building or any adjacent property,
then Tenant shall indemnify, defend and hold harmless Landlord from
and against any and all claims, judgments, actions, damages,
penalties, fines, forfeitures, costs, expenses, liabilities or losses
(including, without limitation, diminution in value of the Premises,
the Building and/or adjacent property, damages for the loss or
restriction on use of rentable or usable space of any amenity of the
Premises, the building and/or adjacent property, damages arising from
any adverse
(c) impact on marketing of the Premises, the Building and/or
adjacent property, and sums paid in settlement of claims, attorneys'
fees, consultant fees and expert fees and court costs) which arise
during or after the Lease Term or any extension hereof, as a result of
such breach. This indemnification of Landlord by Tenant includes,
without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local governmental
agency or political subdivision because of any Hazardous Material
present in the soil or ground water on or under the Premises, the
Building and/or adjacent property. Without limiting the foregoing, if
the presence of any Hazardous Material on the Premises caused or
permitted by Tenant or any of the Tenant Parties results in any
contamination of the Premises, the Building and/or adjacent property,
Tenant shall promptly take all actions at its sole cost and expense as
are necessary to return the Premises, the Building and/or adjacent
property to the condition existing prior to the introduction of any
such Hazardous Material to the Premises, the Building and/or adjacent
property; provided that Tenant shall not take any remedial action in
or about the Premises or the Building, nor enter into any settlement
agreement, consent decree or other compromise with respect to any
claims relating to Hazardous Materials in any way connected with the
Premises or the Building, without first notifying Landlord of Tenant's
intention to do so and affording Landlord the opportunity to appear,
intervene or otherwise appropriately assert and protect Landlord's
interest with respect thereto.
(d) As used in this Lease, the term "Hazardous Material" means
any flammable item, explosive, radioactive material, hazardous or
toxic substance, material or waste or related materials, including any
substance defined as or included in the definition of "hazardous
substances", "hazardous wastes", "infectious wastes", "hazardous
materials" or "toxic substances" now or subsequently regulated under
any federal, state or local laws, regulations or ordinances including,
without limitation, oil, petroleum-based products, paints, solvents,
lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, chemicals known to cause cancer
or reproductive toxicity, asbestos,
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<PAGE>
polychlorinated biphenyls (PCBs) and similar compounds, and including
any other products and materials which are subsequently found to have
adverse effects on the environment or the health and safety of
persons.
(e) Tenant immediately shall notify Landlord in writing of: (i)
any spill, release, discharge or disposal of any Hazardous Material
in, on, under, around or about the Premises, the Building or any
portion thereof of which Tenant has knowledge; (ii) any enforcement,
cleanup, removal or other governmental or regulatory action
instituted, contemplated, or threatened pursuant to any Hazardous
Materials Laws and relating to the Premises or the Building of which
Tenant has knowledge; (iii) any claim made or threatened by any person
against Tenant, any of the Tenant Parties, the Premises, or the
Building relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from or claimed to result from
any Hazardous Materials of which Tenant has knowledge; and (iv) any
reports made to any governmental agency or entity arising out of or in
connection with any Hazardous Materials in, on, under, around or about
or removed from the Premises or the Building of which Tenant has
knowledge, including any complaints, notices, warnings, reports or
asserted violations in connection therewith. Tenant also shall supply
to Landlord as promptly as possible, and in any event within five (5)
business days after Tenant first receives or sends the same, copies of
all claims, reports, complaints, notices, warnings or asserted
violations relating in any way to the Premises, the Building or the
use or occupancy thereof by Tenant or any of the Tenant Parties. Upon
any termination of this Lease, whether by lapse of time, cancellation
pursuant to an election provided for herein, forfeiture or otherwise,
Tenant shall immediately surrender possession of the Premises (and all
improvements to the Premises which Tenant is not required to remove
from the Premises pursuant to this Lease) to Landlord in full
compliance with all Hazardous Materials Laws free of any Hazardous
Material.
(f) Any material failure of Tenant to comply with the provisions
of this Section 39 shall be a material default under this Lease.
(g) Landlord shall defend, indemnify and hold Tenant harmless
from and against any and all losses, costs, (including reasonable
attorney fees) liabilities and claims arising from any violations of
Hazardous Materials Laws by Landlord and/or the existence of Hazardous
Materials that are now or hereinafter become located in or on or under
the Building Complex as a result of Landlord acts or negligence and
shall assume responsibility and cost to remedy such violations and/or
the existence of such Hazardous Materials provided that such
violations or the existence of Hazardous Materials is not caused
solely by Tenant.
(h) The provisions of this Paragraph 39 shall survive the
expiration or earlier termination of the Lease Term.
40. Parking: Subject to Tenant's execution of a separate parking
-------
agreement with the operator of the Building Parking Garage, Landlord agrees to
provide Tenant with the opportunity during the Term of this Lease to lease up to
forty-two (42) parking spaces in the Building Parking Garage. The allocation of
spaces between reserved and unreserved shall be subject to availability and
shall be arranged by Tenant with the garage operator prior to the Commencement
Date. The cost of such spaces shall be the prevailing market rates for
comparable parking spaces in the vicinity of the Building. During the Term of
the Lease, Tenant may reduce or increase the number of parking spaces up to the
maximum of forty-two (42), but in order to increase the number of spaces it must
give the garage operator at least sixty (60) days prior written notice of its
decision to lease additional parking spaces and any additional increase will be
subject to availability. Tenant acknowledges and agrees that during the baseball
season on days which baseball games commence after 5:30 p.m. that all of
Tenant's parking spaces shall be vacated prior to 5:30 p.m.; provided, however,
Tenant may purchase from the garage operator special game day parking privileges
for up to twelve (12) parking spaces, the cost of which shall be determined by
the garage operator, but shall not be more than that charged to other Building
tenants.
41. Right to Renew: Landlord hereby grants to Tenant one (1) option
--------------
to renew this Lease for between a three (3) or five (5) year term (at the option
of Tenant) at the then prevailing market rate for comparable office
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<PAGE>
space in the downtown Denver, Colorado market area. The option to renew shall be
exercisable by Tenant only if Tenant is not in default of any material provision
under this Lease or in default of any monetary provision of this Lease, unless
the default is cured within the allowed time period. Tenant must give written
notice to Landlord of its intent to exercise the option and the length of the
term selected at least nine (9) months prior to the expiration of the then
current Term. If Tenant fails to provide such notice in accordance with this
paragraph, the option shall lapse and thereafter be null and void. As used
herein the prevailing term market rate shall mean the rate which Landlord or
other landlords have leased within the prior twelve (12) months for comparable
terms of comparable space in the Building and other comparable Class A buildings
in the central business district of Denver, Colorado. Upon exercising the
option, all terms and conditions during such extension period shall remain the
same as those set forth in the Lease, except that Annual Base Rent and Operating
Expenses. Within thirty (30) days after Landlord's receipt of Tenant's exercise
notice, Landlord shall provide Tenant with Landlord's reasonable opinion of
prevailing market rate. Upon Landlord's written notice of prevailing market rate
to Tenant, Tenant shall have fifteen (15) days to accept or reject such current
market rate in writing. If Tenant rejects Landlords opinion of the prevailing
market rate, the Landlord and Tenant shall have forty-five (45) days thereafter
to reach an agreement. If within said period Landlord and Tenant are unable to
agree this option to renew shall lapse and thereafter be null and void. In the
event Landlord and Tenant agree on the prevailing market rate, they shall
execute an amendment to the Lease providing for the renewal and the new Annual
Base Rent.
42. Letter of Credit: Tenant at its expense shall deposit with Landlord
----------------
within two (2) weeks of Lease execution, as additional security to guaranty the
performance of Tenant under the terms of this Lease, an irrevocable letter of
credit in favor of Landlord in the amount of Seventy-Five Thousand and 00/100
Dollars ($75,000) in a form and from a bank recognized and acceptable to
Landlord. Provided that the base building improvements are sufficiently complete
to allow for the commencement of construction of the tenant improvements for the
Premises on or before January 10, 2000, Tenant shall as of December 15, 1999,
increase the letter of credit to a total of $525,000 (an additional $450,000).
In the event the base building improvements have not been sufficiently completed
by December 15, 1999, to allow for commencement of the tenant improvement by
January 3, 2000, the date to deliver the increased letter of credit shall be
extended by one day for each day of delay after December 15, 1999. Except as
provided below, the letter of credit shall remain on deposit with the Landlord
for the Term of the Lease. On each anniversary date of the Commencement Date, if
Tenant is not in material default under the terms of the Lease, the letter of
credit shall be reduced by the amounts and have the remaining balances indicated
below:
Anniversary Date Reduction BALANCE
1st $ 50,000 $475,000
2nd $ 50,000 $425,000
3rd $200,000 $225,000
4th $112,500 $112,500
5th $112,500 $ 0.00
Notwithstanding the foregoing, if at anytime after the thirty-sixth (36th) month
of the Lease, Tenant is able to demonstrate to Landlord, in Tenant's audited
financial statements, that it has maintained working capital of $5,000,000 or
more, as determined under generally accepted accounting principals, for a period
of twelve (12) consecutive months, the letter of credit shall be returned to
Tenant in exchange for the Security Deposit provided for in Paragraph 4 hereof.
If the letter of credit is to be renewed at any time during the Term of the
Lease, it shall be renewed not less than thirty (30) days prior to its
expiration. If for any reason the letter of credit is not renewed, other than
the expiration of the Lease, Landlord shall be entitled to draw on the entire
letter of credit. At the expiration of the Lease, if Tenant is not in default
under the terms of the Lease, Landlord shall return the letter of credit to
Tenant. Notwithstanding notice provisions contained elsewhere in this Lease, if
an event of default has occurred and the Landlord does not have sufficient time
to give notice to Tenant prior to the expiration of the letter of credit, the
Landlord shall be entitled to draw the letter of credit to the extent the amount
of the default claimed. The letter of credit shall be retained by Landlord as
security for payment by Tenant of the rents, all other payments herein agreed to
be paid by Tenant, the reimbursement of Landlord for the cost of tenant
improvements and leasing commissions, and for the faithful performance by Tenant
of the terms, provisions and conditions of this Lease. It is
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<PAGE>
agreed that Landlord may, at Landlord's option, at any time after a default by
Tenant under any of the terms, provisions, covenants or conditions of this
Lease, make one or more draws on the letter of credit to the extent of the
amount of the default and apply said sum or any part thereof towards the payment
of the rents and all other sums accrued and payable by Tenant under this Lease
(including, but not limited to, the cost of tenant improvement and leasing
commissions), which shall thereby be discharged only pro tanto; that Tenant
shall remain liable for any amounts that such letter of credit shall be
insufficient to pay; and that Landlord may exhaust any or all rights and
remedies against Tenant before resorting to said letter of credit, but nothing
herein contained shall require or be deemed to require Landlord to so do. The
letter of credit contemplates that in the event of multiple defaults, Landlord
shall be entitled to make multiple draws on the letter of credit. Nothing
contained in this paragraph shall be deemed or construed to constitute a
liquidated damages provision.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
LANDLORD:
CENTENNIAL VENTURE I, LLC
By: /s/
-----------------------------------------
Title: General Manager
--------------------------------------
TENANT:
WEBB INTERACTIVE SERVICES, INC.
By: /s/ Lindley S. Branson
-----------------------------------------
Title: Ex. V.P. and General Counsel
--------------------------------------
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<PAGE>
EXHIBIT A TO LEASE
------------------
DESCRIPTION OF PREMISES
This Exhibit supplements that certain Lease dated and executed concurrently
herewith by and between CENTENNIAL VENTURE I, LLC ("Landlord") and WEBB
INTERACTIVE SERVICES, INC. ("Tenant"), regarding Suite 600 consisting of
approximately 21,398 rentable square feet on the 6th floor of the Building as
depicted on the floor plan of the Building attached hereto as Exhibit A-1:
A-1
<PAGE>
EXHIBIT A-l TO LEASE
21,398 RSF
[DIAGRAM OF FLOOR PLAN OF OFFICE SPACE]
A-2
<PAGE>
EXHIBIT B TO LEASE
------------------
LEGAL DESCRIPTION
Vacant Land Parcel:
- ------------------
A portion of Block "D," East Denver and Block "D" Hoyt & Robinson Addition to
Denver being a part of Section 28 and Section 33, Township 3 South, Range 68
West of the 6th Principal Meridian, being a part of the City and County of
Denver, State of Colorado, more particularly described as follows:
Lots 23 to 30, Inclusive, Block "D," partly in East Denver and partly
in Hoyt & Robinson's Addition to Denver, lying southeasterly of a line
parallel with and 62.5 feet distant southeasterly, measured along the
northeasterly line of said Block "D" of Hoyt & Robinson's Addition
from the most northerly corner thereof, together with that certain
16.0 feet wide alley vacated by Ordinance No. 475-1985 of the City and
County of Denver adjoining said lots containing in all an area of
25,437 square feet.
and
Parking Condominium Parcel:
- --------------------------
Parking Condominium Unit C-1 to The Ice House Condominiums, according to
Condominium Map thereof, recorded April 1, 1997 under Reception No. 9700040664,
and Amended and Restated Condominium Map recorded December 12, 1997 under
Reception No. 9700168487, and Second Amendment to Amended and Restated
Condominium Map recorded November 18, 1998, in the records of the Clerk and
Recorder of the City and County of Denver, State of Colorado.
B-1
<PAGE>
EXHIBIT C TO LEASE
------------------
COMMENCEMENT DATE AGREEMENT
THIS COMMENCEMENT DATE AGREEMENT ("Agreement") is given by WEBB INTERACTIVE
SERVICES, INC. ("Tenant") to CENTENNIAL VENTURE I, LLC ("Landlord"), with
respect to that certain Lease Agreement dated _____, 1999 ("Lease"), under which
Tenant has leased from Landlord certain premises known as Suite _____
("Premises") in 1899 Wynkoop Building at 1899 Wynkoop Street, Denver, Colorado
("Building").
In consideration of the mutual covenants and agreements stated in the
Lease, and intending that this Agreement may be relied upon by Landlord and any
prospective purchaser or present or prospective mortgagee, deed of trust
beneficiary or ground lessor of all or a portion of the Building certifies as
follows:
1. The Commencement Date of this lease is __________, 2000.
2. The Expiration Date of the Lease is _______________, 20____.
3 The Premises contain 21,398 rentable square feet of space.
4. The Expense Stop is $6.50.
5. The Base Rent for the Premises is:
MONTHLY ANNUAL
PERIOD BASE RENT BASE RENT
Months 1-2 $46,362.33 See Paragraph 3
Months 3-36 $46,362.33 $556,348.00
Months 37-62 $49,928.67 $599,144.00
Executed this _________ day of _____________, 20____.
TENANT:
WEBB INTERACTIVE SERVICES, INC.
By: ____________________________________
Printed Name:___________________________
Title:__________________________________
C-1
<PAGE>
EXHIBIT D TO LEASE
------------------
1899 WYNKOOP
WORK LETTER
1. Conflicts; Terms. If there is any conflict or inconsistency between
----------------
the provisions of the Lease and those of this Exhibit D ("Work Letter"), the
provisions of this Work Letter will control. Except for those terms expressly
defined in this Work Letter, all initially capitalized terms will have the
meanings stated for such terms in the Lease.
(a) "Scheduled Commencement Date" means May 1, 2000.
(b) "Landlord's Representative" means Randy Nichols.
(c) "Tenant's Representative" means Doug WuIf.
(d) "Schematic Plan Approval Date" means November 12, 1999.
(e) "Budget Pricing" means the estimate of the Total Cost based
upon the Tenant's Pricing Plans.
(f) "Budget Pricing and Pricing Plan Approval Date" means
November 30, 1999.
(g) "Working Drawings and Final Pricing Approval Date" means
December 30, 1999.
(h) "Landlord's Allowance" means $25.50 per rentable square foot
of the Premises (a total of $545,649.00) to be used solely for
Leasehold Improvements to the Premises including Schematic Plans,
Construction Documents, permit fees, construction supervision fee,
construction of work above the ceiling grid and all slab to slab
improvements to the Premises (i.e. HVAC, sprinklers, lighting, ceiling
grid and acoustical tiles, etc.). Tenant acknowledges and agrees that
Landlord may, in its discretion, allocate the Landlord's Allowance
towards the payment of certain of the Leasehold Improvements, which
allocation shall be made in the construction contract.
(i) "Base Building" means those items listed on Exhibit D-1
which shall be constructed by Landlord at its sole cost and expense
and shall not be charged against the Landlord's Allowance.
(j) "Leasehold Improvements" means all alterations, leasehold
improvements and installations to be constructed or installed by
Landlord or Tenant in the Premises according to this Work Letter other
than Base Building Improvements.
(k) "Schematic Plans" means space plans and general
specifications for the Leasehold Improvements.
(l) "Construction Documents" means complete space plans, working
drawings, construction plans and specifications for the Leasehold
Improvements, which shall be prepared at Landlord's sole cost and
expense. The preparation of mechanical, plumbing and electrical
drawings shall be coordinated through Landlord's architect. All
engineered drawings shall be prepared by the Landlord's engineers.
(m) "Total Cost" means the total cost of obtaining all Schematic
Plans, Construction Documents, necessary permits, constructing and
installing the Leasehold Improvements in the Premises, and providing
any Building services required during construction (such as
electricity and other utilities, refuse removal and housekeeping).
D-1
<PAGE>
2. Landlord's Obligations. Landlord will proceed to complete the Base
----------------------
Building and the Premises according to this Work Letter and tender possession of
the Premises to Tenant when Base Building and the Leasehold Improvements have
been completed to the extent that only punch list items, which would not
materially interfere with Tenant's use and enjoyment of the Premises, require
completion or correction. Tenant will accept the Premises when Landlord tenders
possession, provided that the Premises has been made ready for occupancy.
Landlord and Tenant agree that all alterations, improvements and additions made
to the Premises according to this Work Letter, whether paid for by Landlord or
Tenant, will, without compensation to Tenant, become Landlord's property upon
installation and will remain Landlord's property at the expiration or earlier
termination of the Term.
3. Representatives. Landlord appoints Landlord's Representative to act
---------------
for Landlord in all matters covered by this Work Letter. Tenant appoints
Tenant's Representative to act for Tenant in all matters covered by this Work
Letter. All inquiries, requests, instructions, authorizations and other
communications with respect to the matters covered by this Work Letter will be
made to Landlord's Representative or Tenant's Representative, as the case may
be. Tenant will not make any inquiries of or requests to, and will not give any
instructions or authorizations to, any other employee or agent of Landlord,
including Landlord's architect, engineers and contractors or any of their agents
or employees, with regard to matters covered by this Work Letter. Either party
may change its Representative under this Work Letter at any time by 3 days prior
written notice to the other party.
4. Construction Schedule. Attached hereto as Exhibit D-2 is the schedule
---------------------
for construction of the Leasehold Improvements (the "Construction Schedule").
The Tenant has reviewed and approved the Construction Schedule and acknowledges
that delays in meeting the scheduled dates, if caused by Tenant, will result in
the inability of the contractor to complete the Leasehold Improvements by the
Scheduled Commencement Date and that each day of delay caused by Tenant's
actions or omissions shall result in a day for day extension of Landlord's
obligations and responsibilities under the Lease and this Exhibit D, including
Landlord's obligations under subparagraph 2(c)(6) of the Lease.
5. Schematic Plans. Tenant will cooperate with Landlord and W. E. Kieding
---------------
("Kieding") and submit all information necessary for preparation of the
Schematic Plans. Subject to Tenant's cooperation in the preparation of the
Schematic Plans, at least three (3) business days prior to the Schematic Plan
Approval Date, Kieding shall deliver to Tenant for its approval a copy of the
Schematic Plans for the Premises. Within three (3) business days after receipt
of the Schematic Plans, but not later than the Schematic Plan Approval Date,
Tenant will either approve the same in writing or notify Landlord in writing of
how the proposed Schematic Plans are inconsistent with the design information
supplied by Tenant and how the Schematic Plans must be changed in order to
overcome Tenant's objections. Each day following the later of the third (3rd)
business day after the Tenant's receipt of the Schematic Plans or the Schematic
Plan Approval Date until Tenant approves them shall be a day of Tenant's delay.
Upon receipt of Tenant's notice of objections, W. E. Kieding shall prepare
revised Schematic Plans according to such notice and submit the revised
Schematic Plans to Tenant. Upon submittal to Tenant of the revised Schematic
Plans, and upon submittal of any further revisions, the procedures described
above will be repeated. If the revised Schematic Plans, or any further
revisions, are consistent with the design information and all requirements
identified in Tenant's prior notice(s) of objections, then each day following
Landlord's receipt of Tenant's notice of any additional objections until the day
on which Landlord receives Tenant's written approval of the Schematic Plans will
be a day of Tenant's delay. Landlord and Tenant acknowledge and agree that they
have each approved the Schematic Plan within the time deadlines set forth in
this Paragraph 5.
6. Budget Pricing. At such time as Schematic Plans have been approved in
--------------
writing by Tenant, Kieding will prepare Pricing Plans for submission to the
contractor in order to obtain Budget Pricing. On or before three (3) business
days prior to the Budget Pricing and Plan Approval Date, Kieding shall deliver
to Tenant the Budget Pricing and Pricing Plan for Tenant's approval. If the
Budget Pricing is less than or equal to Landlord's Allowance, then Tenant will
be deemed to have approved the Budget Pricing and Pricing Plan. If the Budget
Pricing is greater than Landlord's Allowance, then Tenant, at Tenant's option,
may either approve the Budget Pricing in writing or elect to eliminate or revise
one or more items shown on the Pricing Plans so as to reduce the Budget Pricing
and then approve in writing the reduced Budget Pricing (based on the revised
Pricing Plans). If the original Budget Pricing is greater than Landlord's
Allowance, then each day following the later of three (3) business days after
Tenant's receipt of such Budget Pricing and Pricing Plan or the Budget Pricing
and Pricing Plan Approval Date
D-2
<PAGE>
until the day Landlord receives Tenant's written approval of the Budget Pricing
(as the same may have been revised) and the Pricing Plan will be a day of
Tenant's delay.
7. Construction Documents; Final Pricing. At such time as the Budget
-------------------------------------
Pricing and Pricing Plan have been approved (or deemed approved) by Tenant,
Landlord will cause its architect and engineer to prepare the Working Drawings
based strictly on the approved Pricing Plans. At such time as the Working
Drawings have been prepared, Landlord will obtain bids from its general
contractor (The Neenan Company) for the construction or installation of the
Leasehold Improvements according to the Working Drawings. Each trade shall be
bid by a minimum of three (3) subcontractors unless otherwise approved by
Tenant. The Neenan Company may select its mechanical, electrical, plumbing and
fire/safety contractors working on the Building Complex to complete the
Leasehold Improvements; provided that such contractors bids must be for amounts
which are comparable to third party bids obtained by The Neenan Company. At
least three (3) business days before the Working Drawings and Final Pricing
Approval Date, Landlord shall cause to be delivered to Tenant the Working
Drawings and Final Pricing for Tenant's approval. If the Final Pricing is less
than or equal to the Budget Pricing approved by Tenant, then Tenant will be
deemed to have approved the Final Pricing and the Working Drawings. If the Final
Pricing is greater than the Budget Pricing approved by Tenant, then Tenant, at
Tenant's option, may either approve the Final Pricing in writing or elect to
eliminate or revise one or more items shown on the Working Drawings so as to
reduce the Final Pricing and then approve in writing the reduced Final Pricing
(based on the revised Working Drawings). If the Final Pricing approved or deemed
approved by Tenant is greater than Landlord's Allowance, then Tenant will
immediately deposit with Landlord an amount ("Construction Deposit") equal to
the difference between Landlord's Allowance and the approved Final Pricing. Each
day following the later of the third (3rd) business day after Tenant's receipt
of the Final Pricing and Working Drawings or the Working Drawings and Final
Pricing Approval Date until the day on which Landlord has received Tenant's
written approval of the Working Drawings, Final Pricing (if required) and
Landlord has received the Construction Deposit (if required) will be a day of
Tenant's delay. Notwithstanding the provisions of Paragraphs 5 and 6 of this
Work Letter, if Tenant Approves the Working Drawings and Final Pricing by the
Working Drawings and Final Pricing Approval Date, the days of Tenant's delay
accumulated prior to such date shall be disregarded.
8. Building Permit; Construction of Leasehold Improvements. At such time
-------------------------------------------------------
time as Tenant has approved (or is deemed to have approved) the Working Drawings
and Final Pricing, has made any required Construction Deposit, and the Building
Permit has been received, Landlord will cause the Leasehold Improvements to be
constructed or installed in the Premises in a good and workmanlike manner and
according to the Construction Documents and all Laws. Upon substantial
completion of the construction and installation of the Leasehold Improvements
and prior to Tenant's occupancy of the Premises, Tenant will pay to Landlord the
amount, if any, by which the Total Cost exceeds the sum of the Landlord's
Allowance and the Construction Deposit. Tenant will not be entitled to any
credit if Landlord's Allowance exceeds the Total Cost. Neenan's fees shall be 7%
for general conditions and 5% for overhead and profit. Landlord or its
affiliates shall receive a construction supervision fee equal to three percent
(3%) of the Total Cost which amount shall be paid from the Landlord's Allowance.
9. Change Orders. Tenant's Representative may authorize changes in the
-------------
work during construction only by written instructions to Landlord's
Representative on a form approved by Landlord. All such changes will be subject
to Landlord's prior written approval according to Paragraph 12 below. Prior to
commencing any change, Landlord will prepare and deliver to Tenant, for Tenant's
approval, a change order ("Change Order") identifying any additional time
required to complete the Leasehold Improvements, and the effect on the Scheduled
Commencement Date and the total cost or cost savings resulting from such change,
which will include associated architectural, engineering and construction
contractor's fees, and an amount sufficient to reimburse Landlord for overhead
and related expenses incurred in connection with the Change Order. If Tenant
fails to approve and pay for such Change Order within three (3) business days
after delivery by Landlord, Tenant will be deemed to have withdrawn the proposed
change and Landlord will not proceed to perform the change. Upon Landlord's
receipt of Tenant's approval and payment, Landlord will proceed to perform the
change.
10. Additional Tenant Work. If Tenant desires any work in addition to
----------------------
the Leasehold Improvements to be performed in the Premises ("Additional Tenant
Work"), Tenant, at Tenant's
D-3
<PAGE>
expense, will cause plans and specifications for such work to be prepared either
by Landlord's architect or engineer or by consultants of Tenant's own selection.
All plans and specifications for Additional Tenant Work will be subject to
Landlord's approval according to Paragraph 12 below. If Landlord approves
Tenant's plans and specifications for any Additional Tenant Work, Landlord will,
subject to the following terms and conditions, grant to Tenant and Tenant's
agents a license to enter the Premises prior to the Commencement Date in order
that Tenant may perform or cause to be performed the Additional Tenant Work
according to the plans and specifications previously approved by Landlord:
(a) Tenant will give Landlord not less than three (3) business days
prior written notice of the request to have such access to the Premises,
which notice must contain or be accompanied by: (i) a description and
schedule for the work to be performed by those persons and entities for
whom such early access is being requested; (ii) the names and addresses of
all contractors, subcontractors and material suppliers for whom such access
is being requested; (iii) the approximate number of individuals, itemized
by trade, who will be present in the Premises; (iv) copies of all contracts
pertaining to the performance of the work for which such early access is
being requested; (v) copies of all licenses and permits required in
connection with the performance of the work for which such access is being
requested; (vi) certificates of insurance and instruments of
indemnification against all claims, costs, expenses, damages, suits, fines,
penalties, actions, causes of action and liabilities which may arise in
connection with such work; (vii) assurances of the availability of funds
sufficient to pay for all such work, if such assurances are requested by
Landlord; and (viii) if requested by Landlord full lien waivers from all
contractors and material men employed by Tenant. Each of such matters will
be subject to Landlord's approval, which approval will not be arbitrarily
withheld.
(b) Such early access is subject to scheduling by Landlord.
(c) Tenant's agents, contractors, workers, mechanics, suppliers and
invitees must work in harmony and not interfere with Landlord and
Landlord's agents in doing work in the Premises and in other premises and
Common Areas of the Building, or the general operation of the Building. If
at any time such entry causes or threatens to cause disharmony or
interference, including labor disharmony, Landlord may immediately withdraw
Tenant's license for access.
(d) If Landlord's work in the Premises and Tenant's work in the
Premises (under such license granted by Landlord) progress simultaneously,
Landlord will not be liable for any injury to person or damage to property
of Tenant, or of Tenant's employees, licensees or invitees, from any cause
whatsoever occurring upon or about the Premises, and Tenant will indemnify
and save Landlord harmless from any and all liability and claims arising
out of or connected with any such injury or damage.
(e) Tenant agrees that it is liable to Landlord for any damage to the
Premises or any portion of the work in the Premises caused by Tenant or any
of Tenant's employees, agents, contractors, workers or suppliers.
11. Punch List. Unless otherwise agreed to by Landlord and Tenant or as
----------
to any latent defects of which Tenant notifies Landlord in writing within nine
(9) months after the Commencement Date, Tenant's taking possession of any
portion of the Premises at the time as the Premises are ready for occupancy will
be conclusive evidence that the Premises is in good order and satisfactory
condition when Tenant took possession; except as to any items requiring
correction or completion identified on a punch list prepared and signed by
Landlord's Representative and Tenant's Representative after an inspection of the
Premises by both such parties prior to Tenant taking possession (the
"Preliminary Punch List") and such other items as are identified on a final
punch list prepared and signed by Landlord's Representative and Tenant's
Representative within seven (7) business days after the Premises are delivered
to Tenant for occupancy (the "Final Punch List"). Final Punch List items shall
not include items which were damaged during Tenant's move into the Premises or
painting which should have been specified on the Preliminary Punch List. It is
intended that the Final Punch List will be for items which Tenant could not have
reasonably been expected to discover prior to moving into the Premises.
Landlord's general contractor will, within 10 days after execution of each punch
list, begin correction or completion of any items specified on such punch list
and will complete such work in a prompt and diligent manner. Landlord will not
be responsible for any items of damage caused by Tenant, its agents, independent
contractors or suppliers. No promises to alter, remodel
D-4
<PAGE>
or improve the Premises or Building and no representations concerning the
condition of the Premises or Building have been made by Landlord to Tenant other
than as may be expressly stated in the Lease (including this Work Letter).
12. Landlord's Approval. All Schematic Plans, Construction Documents and
-------------------
Change Orders; and any drawings, space plans, plans and specifications for any
Additional Tenant Work or any other improvements or installations in the
Premises, are expressly subject to Landlord's prior written approval. Landlord
may withhold its approval of any such items that require work which:
(a) exceeds or adversely affects the capacity or integrity of
the Building's structure or any of its heating, ventilating, air
conditioning, plumbing, mechanical, electrical, communications or other
systems;
(b) is not approved by the holder of any encumbrance;
(c) would not be approved by a prudent owner of property similar
to the Building;
(d) violates any agreement which affects the Building or binds
Landlord;
(e) Landlord reasonably believes will increase the cost of
operating or maintaining any of the Building's systems;
(f) Landlord reasonably believes will reduce the market value of
the Premises or the Building at the end of the Term;
(g) does not conform to applicable building code or is not
approved by any governmental authority having jurisdiction over the
Premises;
(h) does not meet or exceed Building Standard; or
(i) Landlord reasonably believes will infringe on the
architectural or historical integrity of the Building.
13. Tenant's Delays. Except as provided in Paragraph 2 of the Lease,
---------------
the Term of the Lease (and therefore Tenant's obligation for the payment of Base
Rent) will not commence until the Premises are delivered to Tenant for
occupancy; provided, however, that if Landlord is delayed in substantially
completing such work as a result of:
(a) any Tenant delays described in Paragraphs 4, 5, 6, 7, or 8
above;
(b) Tenant's request for materials or installations as a part of
the Leasehold Improvements that are other than Building Standard materials
or installations;
(c) any Change Orders or changes in any drawings, plans or
specifications requested by Tenant;
(d) Tenant's failure to review or approve in a timely manner any
item requiring Tenant's review or approval;
(e) performance of any Additional Tenant Work or any failure to
complete or delay in completion of such work; or
(f) any other act or omission of Tenant or Tenant's architects,
engineers, contractors or subcontractors (all of which will be deemed to be
delays caused by Tenant);
D-5
<PAGE>
then the Commencement Date will be adjusted as provided in Paragraph 2 of
the Lease and Landlord's obligations and responsibilities shall be extended as
provided in Paragraph 4 of this Exhibit D.
14. General. No approval by Landlord or Landlord's architect or engineer
-------
of any drawings, plans or specifications which are prepared in connection with
construction of improvements in the Premises will constitute a representation or
warranty by Landlord as to the adequacy or sufficiency of such drawings, plans
or specifications, or the improvements to which they relate, for any use,
purpose or condition, but such approval will merely be the consent of Landlord
to the construction or installation of improvements in the Premises according to
such drawings, plans or specifications. Failure by Tenant to pay any amounts due
under this Work Letter will have the same effect as failure to pay Base Rent
under the Lease, and such failure or Tenant's failure to perform any of its
other obligations under this Work Letter will constitute a Default under
Paragraph 19 of the Lease, entitling Landlord to all of its remedies under the
Lease as well as all remedies otherwise available to Landlord.
15. Construction Warranty. Landlord warrants to Tenant that the Leasehold
---------------------
Improvements will be completed in a good and workmanlike manner in accordance
with the Construction Documents and (subject to subparagraph 10(c) of the Lease)
all laws, and that, upon completion of the Leasehold Improvements, the same
shall be free from material defect arising out of defects in design or materials
or improper workmanship for a period of one year from the Commencement Date. In
addition, in the event that in connection with the portions of the Leased
Premises which are the responsibility of the Tenant to maintain, repair and/or
replace, any contractors, subcontractors, or suppliers that make any warranties
with respect to workmanship or materials which extend beyond the period of the
Landlord's warranty set forth above in this paragraph, Landlord shall make the
same available to Tenant upon the expiration of the warranty period. Without
limiting the generality of the foregoing, if, within one (1) year after the date
of substantial completion of the Leasehold Improvements, any part of the
Leasehold Improvements is found to be not in accordance with the requirements of
this Lease or the Construction Documents or laws, Landlord shall correct it
promptly after receipt of written notice from Tenant to do so. This obligation
under this paragraph shall survive acceptance of such work. Landlord partially
shall bear the cost of correcting destroyed or damaged construction, whether
completed or completed, caused by Landlord's correction or removal of the work
which is not in accordance with the requirements of this Lease, the Construction
Documents or laws. In order to cause Landlord to honor the warranty contained in
this paragraph Tenant must give written notice to Landlord specifying the defect
within thirteen (13) months after the Commencement Date, after which date this
warranty shall lapse.
Landlord further warrants to Tenant that the Base Building will be
completed in a good and workmanlike manner in accordance with the plans and
specifications described on Exhibit D-1 and all laws.
Landlord: Tenant:
CENTENNIAL VENTURE I, LLC WEBB INTERACTIVE SERVICES, INC.
By: /s/ By: /s/ Lindley S. Branson
--------------------------------- -------------------------------
Title: General Manager Title: Ex. V.P. and General Counsel
------------------------------ ----------------------------
D-6
<PAGE>
LEASEHOLD IMPROVEMENTS STANDARDS
Scope of Work Definition Base Building vs. Tenant Improvement Work
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM BASE BUILDING TENANT IMPROVEMENTS
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ceilings a. No requirement in Tenant Premises a. Furnish and install 2' x 4'
acoustical ceiling grid Chicago Metallic
White 15/16" intermediate weight throughout
Tenant's Premises. Furnish and install 2' x
4' acoustical ceiling tile (not yet
selected) equal to Armstrong's Second Look
II on each floor at a height of 9'0".
b. Core and shell shall provide b. No. requirement.
drywall ceilings in restroom areas and
decorative drywall ceilings in tenant
lobby areas.
c. No requirement. c. Provide upgraded ceiling systems as
required by tenant's space plan.
Core Service Areas a. Elevators, toilet rooms, a. No requirements.
telephone, electrical rooms, stairwells,
janitor closets, service entry and
mechanical rooms are to be provided
complete.
Doors, Frames and a. Furnish and install oak, birch or a. T.I. will include any required
Hardware maple veneer doors (3'-0" x 8'-10") in corridor construction, including corridor
hollow metal welded frames at all public doors.
building areas (painted to match standard
tenant door frame colors). Service core
doors will be 3' x 9' solid core set in
welded hollow metal frames. Building
entry and service core doors will be
equipped with mortise locks. All locks
should have removable cores. Ground floor
service core doors to be hollow metal
doors in painted hollow metal frames.
b. No requirement. b. Furnish, install and finish solid
core natural finish flush honey colored
maple doors (3'0" x 9'0" nominal), aluminum
metal frames as required by tenant's space
plan. Polished chrome hardware with lever
handled and cylindrical locks or passage
sets.
c. No requirement. c. Furnish and install solid core
natural finished flush honey colored maple
tenant entry door (3'0" x 9'0"), per code,
in aluminum metal frames with sidelights
extending the full door height and glass is
16" in width. Satin bronze finish on all
</TABLE>
D-7
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM BASE BUILDING TENANT IMPROVEMENTS
<S> <C> <C>
door hardware. Provide and install lever
handle, mortise licks and closers on all
tenant entry doors. All locks to have
removable cores. Manufacturer of locks must
be compatible with Landlord's locking system
for the base building
d. Furnish and install proximity d. No requirement. At Tenant's
type card access, electric locks for after expense; Tenant may tie into Landlord's card
hour security at each of the building access system.
entrances. (per allowance in contract).
Electrical a. Furnish and install a complete a. No requirement.
244/480 volt, 3 phase, 4 wire building power
distribution system.
2.0 watt per SF allocated for lighting
7.0 watts per SF allocated for office
equipment loads (including HVAC)
b. Furnish and install on 277 volt b. Lighting circuits and switching
lighting panel in the central electrical distributed from central panel to tenant
room on each floor. fixtures.
c. No requirement. c. Furnish and install light fixtures
as required by tenant's space plan.
Fluorescent fixtures are to be 2' x 4',
18 cell 3" deep parabolic and equipped with
three (3) T8 lamps and electronic ballast.
Fixture density at 1:80 RSF (minimum). Furnish
and install connection to J-box, switching and
accent lighting.
d. Furnish and install lighting in d. No requirement.
base building rooms and all common areas.
e. Furnish and install (1) step down e. Furnish and install branch circuits
transformer and one 120/208 v. panel at for 120V power to tenant spaces from Elec.
each floor for tenant power circuits. Rooms. Furnish and install convenience
outlets (power poles not permitted) as
desired along with any additional
distribution panels or step down
transformers.
f. Furnish and install all code f. Furnish and install code required
required exit and emergency lighting for exit and emergency lighting for all tenant
all public areas. areas. Same or Landlord specs.
g. Furnish and install adequate g. Furnish and install3/4" conduit for
telephone chases to the telephone rooms on horizontal distribution from telephone
each floor and from the main telephone closet on each floor to accessible ceiling
room at ground level. Provide 4' x 8' x space in each tenant space.
3/4" plywood phone board in all telephone
rooms.
</TABLE>
D-8
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
ITEM BASE BUILDING TENANT IMPROVEMENTS
<S> <C> <C>
h. Furnish and install fire h. Fire management provisions, if any,
management systems as required by code, in addition to code requirements.
including horn and strobe devices on each
floor.
i. Furnish exterior building accent i. No requirements.
lighting per allowance as stated in
contract.
Elevators a. Furnish and install four electric a. No requirement.
traction passenger elevators with a speed
of 350' per minute. One of the cabs will
be a dual service cab also serving as a
freight elevator. All passenger elevators
will have a 3,500 lb. capacity.
b. Furnish and install custom b. No requirement.
interior cab wall ceiling and floor
finishes per allowance incl. in contract
in office elevators and standard cab
finishes in the parking elevators.
c. Two (2) hydraulic elevators with c. No requirements.
2,500 lb. capacity two service the parking
garage. These cabs will have a speed of
150' per minute.
Fire Protection a. Furnish and install complete fire a. Relocate or add sprinkler for
Sprinkler System protection system per NFPA re-requirements proper coverage as dictated by the tenant's
for office occupancy space plan.
Floor Covering a. Furnish and install all stone, a. Furnish and install all stone,
carpet and tile flooring per design and carpet, tile flooring, ceilings, all light
allowances in contract at ground floor and fittings, and all wall finishes in upper
restrooms. Upper elevator lobby walls to elevator lobbies.
have drywall prepared for painting.
b. Provide smooth trowelled concrete b. Furnish and install floor coverings
slabs ready for finish. for all Tenant areas. Carpet shall be
Mannington Belwede II, 32 oz. for cut pile
and Manning ton
Aspects II for level loop upgrade, or
Landlord approved equal.
HVAC a. The cooling ratio is approx. 425 a. Furnish and install separate air
GSF/ton and is based on calculations using conditioning on air handling units for
the building envelope and internal loads, nonstandard loads (i.e. computer room).
as described in the mechanical systems
narrative provided for the Schmatic
Design. The cooling tower has spare
capacity for 20 tons/floor of additional
tenant cooling on Floors Two through
Nine. The HVAC systems will meet ASHRAE
</TABLE>
D-9
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM BASE BUILDING TENANT IMPROVEMENTS
<S> <C> <C>
standards for ventilation, indoor air
quality, heating and cooling. The core
and shell design will accommodate 1,100
s.f. tenant improvement zones. After
hours cooling will be available for all
tenants on a floor-by-floor basis. the
central plant will modulate to meet the
requirements of the after-hours part load
operation.
b. There will be a primary trunk b. No requirement.
duct from the air handlers to the vicinity
of each zone.
c. Furnish and install base building c. Provide modifications as required
energy management system with DDC by tenant's space plan. Provide DDC
temperature control system. temperature control connection to all
terminal devices.
d. The only exhaust systems being d. There is no general exhaust system
provided in the core and shell are toilet planned in the core and shell for such
exhaust, life safety exhaust and parking spaces as conference rooms, etc. since this
garage exhaust, as required for the facility is a non-smoking facility, it is
applicable codes. our assessment that a general exhaust system
is unnecessary. If additional air flow is
required in spaces such as conference rooms,
then transfer fans can be installed and
discharge the air into the return air plenum
to be cooled by air handling unit cooling
coil.
Interior Columns a. To be framed with metal studs. a. Furnish and install 5/8" gypsum
board to columns. Tape and sand smooth.
Apply paint/wall covering and base.
Interior Partitions a. No requirement. a. Construct gypsum board partitions
consisting of 5/8" sheetrock on 3-5/8" metal
studs set 24" O.C. on center, as required by
tenant's space plan. Finish as desired.
Apply paint/wall covering and base.
Partitions shall run to the acoustical
ceiling except in areas approved by Landlord.
b. No requirement. b. Construct required building
corridor walls to underside of structure
with gypsum wall board both sides (rated - 1
hour). 5/8" sheetrock on 3 5/8" metal studs
set at 24" on center.
Perimeter Walls a. Provide a framed & insulated a. Furnish and install 5/8" gypsum
surface ready to receive gypsum board. board walls at exterior, taped and sanded
smooth. Apply paint/wall covering and
</TABLE>
D-10
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM BASE BUILDING TENANT IMPROVEMENTS
<S> <C> <C>
base.
b. No window sills are provided in b. Provide sills.
core & shell scope of work. Framing at
perimeter wall included.
c. Furnish and install building c. No requirement.
directory (per allowance in contract
d. Furnish and install glass d. No requirement.
entrance doors.
e. Furnish and install security desk e. No requirement.
(per allowance in contract).
Plumbing a. Furnish and install complete a. No requirement.
plumbing in core service areas. Ladies
room to have four water closets and two
sinks and the men's room a combination of
four water closets and urinals and two
sinks.
b. Furnish and install (2) electric b. No requirement.
water coolers adjacent to public toilet
rooms at each floor 2-9.
c. Furnish (2) two tenant wet stub c. Furnish and install convenience
groups, one at each side of core near sinks, water supply to coffee/vending areas,
restroom block on each office floor. Each etc., as needed.
stub group shall have a cold water, hot
water, 4" waste and a vent line.
Signage a. Furnish and install general a. Furnish and install identification
identification/ directional signage at signage at tenant entrances.
toilet rooms and exit stairwells.
b. Furnish and install upper b. No requirement.
elevator lobby
c. Furnish and install exterior c. No requirement.
signage for building identification (per
allowance in contract)
Stairs a. Furnish and install painted metal a. No requirement.
pan and riser with poured concrete.
Painted metal stringer and railings.
b. Paint stair walls. Furnish and b. No requirement.
install surface-mounted lighting at stair
landings.
Structure a. Structural steel frame and a. No requirement.
composite steel and concrete floor
structure (fire resistant to code
requirements).
b. Supported live load capacity of b. No requirement.
50 lbs. per SF and a partition load of
20 lbs.
</TABLE>
D-11
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ITEM BASE BUILDING TENANT IMPROVEMENTS
<S> <C> <C>
per SF have been allowed which will
provide additional areas located near the
core with 250 lbs. loading capacity in
these selected areas.
c. Building shell shall meet ADA c. No requirement.
code requirements.
d. Roof: A single ply membrane d. No requirement.
insulated roof with R19 Rigid
Insulation.
Toilet Floors a. Furnish and install ceramic tile a. No requirement.
on floor and full height wet walls. Paint
and/or vinyl shall be used on remaining
walls.
b. Furnish and install stone b. No requirement.
(granite or marble) vanity top with apron
and decorative mirrors.
c. Furnish and install ceiling c. No requirement.
mounted baked enamel toilet partitions
with full height pilasters..
d. Furnish and install wall-mount, d. No requirement.
flush valve water closets and wall-hung
urinals to meet all code requirements.
d. Fully ADA compliant restrooms. e. No requirement.
Window Blinds a. No window coverings are included a. Provide building standard blinds,
in the core & shell contract. 1" aluminum horizontal blinds by Levalor,
Riviera Delux with dust-guard and color
to be determined.
</TABLE>
D-12
<PAGE>
EXHIBIT D-2 TO LEASE
--------------------
Webb Interactive
The Neenan Company
Classic Schedule Layout
<TABLE>
<CAPTION>
Activity Orig
- -------- ----
ID Activity Description Dur Early Start Early Finish
- -- -------------------- --- ----------- ------------
<S> <C> <C> <C> <C>
100 Initial Schematic Design 3 04OCT99 13OCT99
105 Review and Sign Off by Webb 0 15OCT99
110 Start Pricing Plans 5 22NOV99 29NOV99
120 Neenan Pricing 6 30NOV99 07DEC99
115 Review & Sign Off Pricing Plan with Tenant 4 07DEC99 10DEC99
125 Architectural Working Plans 8 10DEC99 21DEC99
195 Preconference Meeting with City 1 10DEC99 10DEC99
130 Backgrounds to engineers & Engineers drawings 7 13DEC99 21DEC99
140 Print and Log into Building Department 2 23DEC99 27DEC99
155 Building Department Review 35 23DEC99 27DEC99
135 Final Working Drawings Complete 1 22DEC99 22DEC99
145 Neenan Final Pricing 5 23DEC99 30DEC99
150 Fin.Review and Signoff Plans and Pricing by Webb 4 27DEC99 30DEC99
165 Layout Wall 3 28JAN99 01FEB99
170 Rough Mech and Fire 10 02FEB00 15FEB00
175 Frame Interior Walls 8 16FEB00 25FEB00
180 Finish Interiors 45 28FEB00 28APR00
185 Tenant Move In 3 01MAY00 03MAY00
</TABLE>
D-13
<PAGE>
EXHIBIT E TO LEASE
------------------
RULES AND REGULATIONS
Landlord and Tenant agree that the following Rules and Regulations shall be
and hereby are made a part of this Lease, and Tenant agrees that Tenant's
employees and agents, or any others permitted by Tenant to occupy or enter the
Premises, will at all times abide by said Rules and Regulations:
1. The sidewalks, entries, passages, corridors, stairways and elevators
of the Building Complex shall not be obstructed by Tenant, or Tenant's agents or
employees, or used for any purpose other than ingress to and egress from the
Premises.
2. Furniture, equipment or supplies will be moved in or out of the
Building only upon the elevator designated by Landlord and then only during such
hours and in such manner as may be prescribed by Landlord and upon no less than
forty-eight (48) hours prior notice to Landlord. Landlord shall have the right
to approve or disapprove the movers or moving company employed by Tenant. Tenant
shall cause its movers to use only the loading facilities and elevator
designated by Landlord. In the event Tenant's movers damage the elevator or any
part of the Building Complex, Tenant shall forthwith pay to Landlord the amount
required to repair said damage.
3. No safe or articles, the weight of which may in the opinion of
Landlord constitute a hazard or damage to the Building or Building's equipment,
shall be moved into the Premises; provided, that Landlord acknowledges that
Tenant's general office furniture, equipment, files and portable safe, if any,
if approved as part of the initial Leasehold Improvements will not violate this
provision.
4. No sign, advertisement or notice shall be inscribed, painted or
affixed on any part of the inside or outside of the Building unless of such
color, size and style and in such place upon or in the Building, as shall be
first designated and approved in writing by Landlord, provided, however, there
shall be no obligation or duty on Landlord to allow any sign, advertisement or
notice to be inscribed, painted or affixed on any part of the inside or outside
of the Building except as otherwise provided in the Lease. No furniture shall be
placed in front of the Building or in any lobby or corridor, without the prior
written discretionary consent of Landlord. Landlord shall have the right to
remove all non-permitted signs and furniture, without notice to Tenant, and at
the expense of Tenant.
5. Tenant shall not do or permit anything to be done in the Premises, or
bring or keep anything therein which would in any way increase the rate of fire
insurance on the Building or on property kept therein, constitute a nuisance or
waste, or obstruct or interfere with the rights of other tenants, or in any way
injure or annoy them, or conflict with any of the rules or ordinance of the Fire
Department or of the Department of Health of the City and County where the
Building is located.
6. Tenant shall not employ any person or persons other than the janitor
of Landlord for the purpose of cleaning or taking care of the Premises, without
the prior written consent of Landlord. Landlord shall be in no way responsible
to Tenant for any loss of property from the Premises, however occurring, or for
any damage done to Tenant's furniture or equipment by the janitor or any of
janitor's staff, or by any other person or persons whomsoever; provided,
however, that the janitorial staff is bonded. The janitor of the Building may at
all times keep a pass key, and other agents of Landlord shall at all times be
allowed admittance to the Premises.
7. Water closets and other water fixtures shall not be used for any
purpose other than that for which the same are intended, and any damage
resulting to the same from misuse on the part of Tenant, Tenant's agents or
employees, shall be paid for by Tenant. No person shall waste water by tying
back or wedging the faucets or in any other manner.
8. Except for animals assisting disabled persons, no animals shall be
allowed in the offices, halls, corridors and elevators in the Building. No
person shall disturb the occupants of this or adjoining buildings or
<PAGE>
premises by the use of any radio, sound equipment or musical instrument or by
the making of loud or improper noises.
9. No vehicles, including bicycles, shall be permitted in the offices,
halls, corridors, and elevators in the Building nor shall any vehicles be
permitted to obstruct the sidewalks or entrances of the Building.
10. No additional lock or locks shall be placed by Tenant on any door in
the Building unless written consent of Landlord shall first have been obtained.
A reasonable number of keys to the toilet rooms if locked by Landlord will be
furnished by Landlord, and neither Tenant, Tenant's agents or employees shall
have any duplicate keys made. At the termination of this tenancy, Tenant shall
promptly return to Landlord all keys to offices, toilet rooms or vaults.
11. No window shades, blinds, screens, draperies or other window coverings
will be attached or detached by Tenant without Landlord's prior written consent.
Tenant agrees to abide by Landlord's rules with respect to maintaining uniform
curtains, draperies and/or linings at all windows and hallways.
12. No awnings shall be placed over any window by Tenant.
13. Tenant shall not install or operate any steam or gas engine or boiler,
or carry on any mechanical operation in the Premises. The use of oil, gas or
inflammable liquids for heating, lighting or any other purpose is expressly
prohibited. Explosives or other articles deemed extra hazardous shall not be
brought into the Building Complex.
14. Except as permitted by Landlord in conjunction with the initial
Leasehold Improvements, and except for normal office decorating, Tenant shall
not mark upon, paint signs upon, cut, drill into, drive nails or screws into, or
in any way deface the walls, ceilings, partitions or floors of the Premises or
of the Building, and any defacement, damage or injury caused by Tenant,
Tenants's agents or employees, shall be paid for by Tenant.
15. Tenant shall not obstruct or interfere with the rights of other
tenants of the Building, or of persons having business in the Building, or in
any way injure or annoy such tenants or persons.
16. Tenant shall not commit any act or permit anything in or about the
Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business or
operation being carried on in or about the Building or for any other reason.
17. Tenant shall not use the Building for lodging, sleeping, cooking
(other than customary cooking operations related to employee meals and catered
events for Tenant's business), or for any immoral or illegal purpose or for any
purpose that will damage the Building, or the reputation thereof, or for any
purposes other than those specified in the Lease.
18. Canvassing, soliciting, and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent such activities.
19. Tenant shall not use the building for manufacturing or for the storage
of goods, wares or merchandise, except as such storage may be incidental to the
use of the Premises for general office purposes and except in such portions of
the Premises as may be specifically designated by Landlord for such storage.
20. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building except in the refuse
containers provided therefore. Tenant shall not introduce into the Building any
substance which might add an undue burden to the cleaning or maintenance of the
Premises of the Building. Tenant shall exercise its best efforts to keep the
sidewalks, entrances, passages, courts, lobby areas, garages or parking areas,
elevators, escalators, stairways, vestibules, public corridors and hall in and
about the Building clean and free from rubbish.
<PAGE>
21. Tenant shall use the Common Areas only as a means of ingress and
egress, and Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building are not
for the use of the general public, and Landlord shall, in all cases, retain the
right to control or prevent access thereto by all persons whose presence in the
judgment of the Landlord, shall be prejudicial to the safety, character,
reputation or interests of the Building and its tenants. Tenant shall not enter
the mechanical rooms, air conditioning rooms, electrical closets, or similar
areas or go upon the roof of the Building without the express prior written
consent of Landlord.
22. Tenant shall cooperate with Landlord in obtaining maximum
effectiveness of the cooling system of the Building by closing drapes and other
window coverings when the sun's rays fall upon the windows of the Premises.
Tenant shall not obstruct, alter or in any way impair the efficient operation of
Landlord's heating, ventilating, air conditioning, electrical, fire, safety, or
lighting systems, nor shall Tenant tamper with or change the setting of any
thermostat or temperature control valves in the Building.
23. Subject to applicable fire or other safety regulations, all doors
opening into Common Area and all doors upon the perimeter of the Premises shall
be kept closed and, during nonbusiness hours, locked, except when in use for
ingress or egress. If Tenant uses the Premises after regular business hours or
on nonbusiness days, Tenant shall lock any entrance doors to the Building or to
the Premises used by Tenant immediately after using such doors.
24. Tenant shall not permit its employees or agents to smoke in any lobby,
hallway or restroom within the Building Complex or in any other areas of the
Building Complex posted as a non-smoking area.
25. Tenant shall not permit any employee, agent, or invitee to bring or
carry guns, weapons, firearms, or the like (including concealed weapons), into
the Premises or the Building Complex.
<PAGE>
Exhibit 10.7
INTERNET/BUSINESS SITE & HOST AGREEMENT
This Agreement ("AGREEMENT") is entered into and effective this _____ day
of January, 2000 by and between RE/MAX International, Inc. ("RE/MAX"), a
Colorado corporation with its principal place of business at 8390 East Crescent
Parkway, Suite 600, Greenwood Village, CO 80111 and Webb Interactive Services,
Inc. ("Webb"), a Colorado corporation (formerly known as Online System Services,
Inc.) with its principal place of business at 1800 Glenarm Place, Denver, CO
80202.
WHEREAS, RE/MAX is interested in maintaining for itself and providing to
its affiliates a private site on the World Wide Web ("WWW") for their use in
communicating with RE/MAX and its approved suppliers and benefiting from an
array of other service capabilities and is desirous of assuring that such site
is always competitive, if not state of the art, and regularly enhanced to take
full advantage of emerging technologies, such site being a password protected
area on the WWW using HTML documents, Active Server Pages, Databases, Forums,
Chat Rooms and other features and technologies, all combined to present a
virtual RE/MAX community which is referred to as "RE/MAX Mainstreet".
WHEREAS, in accordance with the terms and specifications set forth in the
Internet/Business Site Development & Host Agreement entered into by the parties
effective November 12, 1997 (the "Original Agreement"), Webb designed and
developed and is currently hosting RE/MAX Mainstreet;
WHEREAS, since the development of RE/MAX Mainstreet, Webb has substantially
revised and improved its community software and is currently offering and
marketing a suite of services under the name CommunityWare<-1-228>/XML, which
software utilizes a new architecture/platform (herein
"CommunityWare<-1-228>/XML") which platform is well-suited for use with RE/MAX
Mainstreet; and
WHEREAS, Webb and RE/MAX desire to replace the Original Agreement in order
to better provide for the continued hosting, maintenance and enhancement of
RE/MAX Mainstreet by basing the R/M Customized Software (as hereinafter defined)
on CommunityWare<-1-228>/XML in order to substantially reduce the amount of
customized software utilized in RE/MAX Mainstreet.
NOW THEREFORE, in consideration of the mutual covenants set forth herein,
the parties hereto agree as follows:
1. DEFINITIONS
For purposes of this AGREEMENT and their relationship, the following terms
shall have the meanings assigned to them.
a. "Host Services": That collection of services specified to be provided
by the entity acting as host of RE/MAX Mainstreet, including without
limitation, services such as security, help desk, billing, Email and
other specified ancillary services commonly or customarily performed
by a site host.
b. "Deliverables": The components of the online services and capabilities
specified for subscribers to RE/MAX Mainstreet, including without
limitation, Host Services, HTML documents, Active Server Pages,
Databases, Forums, Message Conferences, Chat, a Moderated Library and
other services and capabilities specified in this AGREEMENT.
c. "Embedded Software": Commercially available, third party software such
as Microsoft SQL Server, Microsoft Internet Information Server,
Microsoft Commerce Server and Internet Explorer 4.0 Browser, which
software is not owned by Webb, but is or may be used by Webb in its
solutions to RE/MAX's business web site objectives.
<PAGE>
d. "Developed Software": Software developed and owned exclusively by
Webb, including without limitation, that software developed using XML
or ASP Technology for highly flexible, database-driven WWW web sites
and that software developed by Webb to enhance or supplement the
CommunityWare<-1-228>/XML Interact Software and/or compliment or
integrate the Embedded Software in the creation of the R/M Customized
Software.
e. "CommunityWare<-1-228>/XML Interact Software": An integrated,
creatively interfaced combination of Developed Software and Embedded
Software which serves as Webb's basic suite of virtual community
products and upon which RE/MAX Mainstreet is and is to be based.
f. "R/M Customized Software": "CommunityWare<-1-228>/XML Interact
Software as customized, enhanced and modified by Developed Software
and Embedded Software to meet the objectives of RE/MAX for "RE/MAX
Mainstreet".
g. "RE/MAX Mainstreet": The RE/MAX highly flexible, functional,
scaleable, easy-to-use, database driven business, virtual community
web site which utilizes the R/M Customized Software and which
satisfies all criteria and specifications identified in the Original
Agreement.
h. "Residual Information": Information in non-tangible form, which may be
retained by persons within Webb's organization who have participated
in the development and delivery of the R/M Customized Software and/or
the RE/MAX Mainstreet site.
<PAGE>
2. RE/MAX MAINSTREET
Webb hereby agrees to maintain the R/M Customized Software and to migrate
the R/M Customized Software to the CommunityWare<-1-228>/XML platform that
are deemed to be in the best interests of both parties incrementally in the
year 2000, to the R/M Customized Software in order to improve its
functionality, scalability and ability to be enhanced and, utilizing such
software, to provide a fully operational, subscriber accessible, virtual
community business suite exclusively for RE/MAX and its affiliates, such
site being known as "RE/MAX Mainstreet" and which site provides all of the
Deliverables listed below, all of which have been previously developed,
tested, approved and released to production, such that each Deliverable
satisfies its corresponding specifications (See for specifications,
Exhibits "A" through "J" to the Original Agreement):
a. Message Conferences: Unlimited number of RE/MA defined collaborative
subscriber-to-subscriber messaging conferences consistent with the
specifications set forth in Exhibit A to the Original Agreement.
b. Chat Interactive Topic Discussions: Chat Lobbies and no fewer than
fifteen (15) conference rooms for each message conference to
facilitate multiple simultaneous interactive group discussions by
topic per chat room with capability for accommodating peak periods of
demand and otherwise consistent with the specifications of Exhibit B
to the Original Agreement.
c. Moderated Libraries: Libraries for each messag conference to enable
the moderated posting and retrieval of subscriber files (documents,
forms, graphics) consistent with the specifications set forth in
Exhibit C to the Original Agreement.
d. EMail Capabilities: Forwarding Email accounts handled on a proxy basis
per designated address and addressee information, i.e.,
[email protected], assigning a unique address per subscriber,
maintaining a searchable e-mail address directory online, and
otherwise consistent with the specifications set forth in Exhibit D to
the Original Agreement.
e. Flexibility for Future Expansions/Enhancements/Mobility: Design
features which assure maximum flexibility to meet future demands and
take advantage of future technologies, assure functional, scaleable,
and easy to use features which will enable RE/MAX to adapt to changing
uses or demands, consistent with the specifications set forth in
Exhibit A through F attached to the Original Agreement.
f. Linking and Bridging Capabilities: System flexibility fo creating data
entry, transfer, and retrieval and communication links to third party
service and content providers on the WWW consistent with the
specifications set forth in Exhibit E attached to the Original
Agreement.
g. Administrative Capabilities: A CommunityWare <-1-228>/XML Interact
administrator interface which provides for administering and reporting
on the subscriber accounts, structure of the conferences, chat rooms,
libraries, content (graphics and text), and other components of RE/MAX
Mainstreet and otherwise consistent with Exhibit F attached to the
Original Agreement. In addition, RE/MAX shall have file transfer
protocol access for upgrading graphics and layout content for the
RE/MAX Mainstreet site.
h. Telephone Help Desk: On call subscriber help desk and support
capabilities which will provide subscribers the ability to speak to a
technical support agent within (3) minutes of receiving the call.
Support will be available 18 hours per day, seven (7) days a week. In
addition, technical support will be accessible via Email with a
response within 24 hours and otherwise consistent with Exhibit G
attached to the Original Agreement.
3. SOFTWARE LICENSE
During the term of this AGREEMENT, on and subject to the terms and
conditions set forth below in this Paragraph 3, Webb hereby grants to
RE/MAX a limited license to use the R/M Customized Software.
<PAGE>
4. SOFTWARE UPGRADES/ENHANCEMENTS
Webb hereby agrees that included within the software license set forth
above in Paragraph 3 hereof is a commitment for the term of the license to
notify RE/MAX of upgrades and enhancements as they become known to Webb and
to give RE/MAX the option, at RE/MAX's sole cost and expense, as described
in sections 9.a and 9.b, to have those upgrades or enhancements built into
the R/M Customized Software and/or otherwise included in RE/MAX Mainstreet.
In the event RE/MAX elects to include any such upgrade or enhancement, Webb
shall acquire any rights in software required and make such modifications
in the R/M Software as are necessary to include the selected enhancement or
upgrade. In all cases, Webb modifications to software shall be accomplished
with a minimum of disruption of the Host Services and RE/MAX Mainstreet's
online availability.
Additionally, in the event RE/MAX becomes aware of any software, feature,
enhancement, or of new technology that RE/MAX believes may be advantageous
for RE/MAX Mainstreet, RE/MAX will notify Webb and Webb will endeavor to
develop a proposal to RE/MAX for the inclusion of the same in RE/MAX
Mainstreet and such proposal shall include plans, costs and terms for
maintaining such software, feature enhancements or new technology. RE/MAX
shall have the right to seek directly other bids from third parties and to
present the same to Webb. If Webb is unwilling or unable to include the
feature of interest at a cost below or not more than ten percent (10%)
above the best competing proposal, RE/MAX shall have the right to have such
feature built into the R/M Customized Software and RE/MAX Mainstreet by a
third party selected by RE/MAX. Webb agrees to cooperate with such third
party or, in the alternative, to provide such access to its documentation
and source codes as may be necessary to enable such third party to include
such feature in the R/M Customized Software and RE/MAX Mainstreet. The
function of maintaining the R/M Customized Software as modified shall still
be the responsibility of Webb and the costs thereof shall still be deemed
to be included in the monthly fee except where additional costs are
approved as part of the proposal approval process, in which case RE/MAX
shall bear such additional cost.
5. LINKS WITH THIRD PARTY SERVICE & CONTENT PROVIDERS
Webb hereby agrees that RE/MAX shall have the right to develop or require
Webb to accommodate data insertion and retrieval links and communication
links on the WWW with third party providers of services and/or content. For
example, RE/MAX shall have the right at any time during the term of this
AGREEMENT, to develop itself, or require Webb to develop, a link between
RE/MAX Mainstreet and a third party web site through which link subscribers
to RE/MAX Mainstreet could view and use that web site without leaving the
RE/MAX Mainstreet web site. Should there be costs to Webb involved in
satisfying RE/MAX's request for any such link, it is understood that such
costs shall be paid or reimbursed by RE/MAX, but only to the extent they
are reasonable and represent the published rates for any engineering or
project management time required and the actual out of pocket costs
incurred by Webb without any mark-up or surcharge and that such costs are
consistent with estimates, quotes, or proposals submitted to RE/MAX by Webb
in advance. It is further understood that RE/MAX will be solely responsible
for any subscriber fee or access fee associated with access to any such
third party provider. Furthermore, RE/MAX shall have the right to divide
any additional income generated from any such link with the third party
provider, and do so with no duty to account or disclose to Webb the details
of its relationship with such third party provider, and without sharing
with Webb any portion of the additional income.
6. HARDWARE PREVIOUSLY ACQUIRED FOR RE/MAX MAINSTREET
RE/MAX hereby transfers and assigns to Webb all of RE/MAX's right, title
and interest to the computer equipment purchased pursuant to Paragraph 7 of
the Original Agreement.
7. HOST SERVICES FOR RE/MAX MAINSTREET
Webb hereby agrees to host RE/MAX Mainstreet and to provide all services
contemplated by the role of community web site host and all services of an
administrative or ancillary nature, including without limitation,
<PAGE>
security, help desk, subscriber billing, and billing administration, online
credit card validation and/or charge authorizations, monthly, or, if
required, more frequent, ongoing, maintenance of the foregoing functions as
well as the basic functions of the RE/MAX Mainstreet web site, all
consistent with the specifications set forth in Exhibit H to the Original
Agreement. It is understood that on or around January 15, 2000, all aspects
of the current subscriber billing system will be removed from RE/MAX
Mainstreet.
8. TRANSFER OF HOST SERVICES
RE/MAX reserves the right to move RE/MAX Mainstreet to a new hosting entity
and to use the escrowed copy of the R/M Customized Software if necessary to
continue RE/MAX Mainstreet in any of the following circumstances:
a. Any failure or disruption in the business of Webb due to any
bankruptcy filing on behalf of Webb or any other event which threatens
the ability of Webb to continue to perform its obligations under this
AGREEMENT;
b. Any change in ownership or control of Webb to any entity or
organization which competes directly or indirectly with RE/MAX or its
affiliates;
c. The disruption of access by subscribers (other than planned downtime)
which causes the site to be available for less than 98% of the time
during any calendar quarter.
d. Reports to RE/MAX from the greater of (i) one percent (1%) of the
subscribers to RE/MAX Mainstreet or (ii) fifty (50) subscribers to the
effect they cannot get online or they have difficulty getting access
to RE/MAX Mainstreet, that chat rooms are not available, Email is not
functioning, security has been breached, access to the Help Desk at
RE/MAX Mainstreet is difficult, or any other similar type of problem
which continues to be reported to RE/MAX thirty (30) days after Webb
has been notified in writing of such problem.
The transfer of the Host Services function to a new entity shall
not relieve Webb of its other obligations under this AGREEMENT or
the software license set forth herein. RE/MAX understands that
because of the complexity of the hosting environment, moving
RE/MAX Mainstreet to a new hosting entity would require
significant re-engineering of many aspects of the site.
9. CONTRACT PRICE; PAYMENT TERMS
RE/MAX shall pay Webb monthly for the license and services provided
pursuant to this Agreement as follows:
a. Fixed Fee for Hosting, Maintenance of Site and Software License: A fee
of $20,000 per month shall be paid for Webb's hosting of RE/MAX
Mainstreet, for Webb's providing standard maintenance and support for
the services covered by this AGREEMENT and for the limited license
provided in accordance with Paragraph 3 of this AGREEMENT. Standard
maintenance and support includes fixing of any software problems
required to provide the services contemplated by this AGREEMENT but do
not include cosmetic changes or functional enhancements. Included with
the monthly fee is the availability to RE/MAX of forty (40) hours per
month of engineering and project management time which Webb will make
available for site enhancements, to make changes to the user
interface, to add new features or to integrate new core features of
CommunityWare<-1-228>/XML and to integrate with third-party software.
b. Variable Fee for Cost Support and Additional Site Enhancement
Services. A monthly fee equal to the greater of $3,000 or $1.20 per
minute of call support provided during each month shall be paid for
telephone support to be provided by Webb or by a third-party retained
by Webb to provide call support to the subscribers to RE/MAX
Mainstreet. In addition, Webb will provide engineering and project
<PAGE>
management services in excess of the forty (40) hours included in the
fixed monthly fee as desired by RE/MAX, such services to be provided
at Webb's published rates. Webb will provide the estimates of the time
required to complete desired enhancements if so requested by RE/MAX.
Webb may provide promotional support for RE/MAX Mainstreet and will
provide estimates of the costs required for any travel, trade show
materials, etc. that may be requested by RE/MAX. These costs will be
paid by RE/MAX for each occurrence on a pass through basis.
c. Reduction in Fixed Monthly Fee. In the event that RE/MAX shall move
RE/MAX Mainstreet to a new hosting entity in accordance with the
provisions of Paragraph 8 hereof, the fixed monthly fee provided for
in Paragraph 9(a) above shall be reduced to $17,500 per month.
d. Payment Terms. Webb shall bill RE/MAX monthly for the fixed and
variable monthly fees for the preceding month, which invoices shall be
paid within thirty (30) days of the receipt thereof.
e. These new payments are to take effect January 1 2000, with the first
invoice at January 2000 month-end.
10. OWNERSHIP OF WEBB INTELLECTUAL PROPERTY
Except for the rights under the license herein granted to RE/MAX and
otherwise specifically addressed in this AGREEMENT, it is hereby
acknowledged and agreed to by Webb and RE/MAX that all rights of any nature
whatsoever in and to the Developed Software, the CommunityWare<-1-228>/XML
Interact Software and the R/M Customized Software are retained by Webb.
11. OWNERSHIP OF WEBB PROPRIETARY TECHNOLOGY
Webb shall own all worldwide rights, title, and interest in and to the
Developed Software, including copyright right, and also in and to any software
tools, specifications, ideas, concepts, know-how, processes, and techniques used
by Webb in performing the services covered by this AGREEMENT (collectively
"Proprietary Technology"), including all Intellectual Property rights therein.
Nothing in this AGREEMENT or otherwise shall be deemed to prohibit or limit in
any way Webb's right to use the Proprietary Technology (as defined herein) or
Residual Information, in whole or in part, to develop and market any software
that is the same in any or all respects as the Developed Software, or to develop
other software products or applications for Webb customers. Webb acknowledges
and agrees that during the term of this Agreement and any renewals thereof, Webb
shall not reuse any code custom developed for RE/MAX for a real estate service
business or any other business or enterprise that directly or indirectly
competes with RE/MAX or any of its corporate affiliates, RE/MAX Broker/Owners or
RE/MAX Affiliates, including but not limited to, any business that provides real
estate brokerage or property management services, sells or markets real estate
franchises or provides corporate relocation services ("RE/MAX Competitor" or to
any company that has an ownership interest of 10% or more in a RE/MAX Competitor
or to any other person or entity.") Webb agrees to not allow its key staff
dedicated to this effort to work on other real-estate projects during the term
of this contract.
12. RE/MAX ACKNOWLEDGMENT
RE/MAX hereby acknowledges that the Documentation and Source Codes for the
R/M Customized Software may contain trade secrets and confidential
information of Webb and that providing the R/M Customized Software, in
whole or in part, to any unauthorized third parties would be harmful to the
interests of Webb. RE/MAX agrees, therefore, to use reasonable efforts to
supervise, manage and control the R/M Customized Software, and to safeguard
all copies of the same licensed under this AGREEMENT using the same degree
of care that RE/MAX uses to safeguard its own proprietary materials. RE/MAX
agrees that, except to the extent expressly authorized in this AGREEMENT or
the license contained herein, it will not sub-license, re-sell, or
otherwise authorize any other party to possess or obtain the R/M Customized
Software, or to reverse engineer the R/M Customized Software.
<PAGE>
13. RE/MAX OWNERSHIP OF DATA, CONTENT & SUBSCRIBER INFORMATION
RE/MAX shall own all worldwide rights, title, and interest in and to its
name and logos and all other components of graphical and textural content
used in, or in connection with, the promotion of RE/MAX Mainstreet and
RE/MAX shall own all rights, title, and interest in the name "RE/MAX
Mainstreet" and in the URL address selected for the site. All use of the
RE/MAX marks in connection with the web site shall inure exclusively to the
benefit of RE/MAX. RE/MAX shall also own exclusively all data entered by
subscribers and/or by RE/MAX or third parties and Webb shall periodically
create back-up tapes of such data for its safekeeping. RE/MAX shall also
own exclusively all subscriber data, including without limitation,
subscriber name, address, telephone number, FAX number, credit card numbers
and expiration dates, and all other data collected or developed in
reference to subscribers individually or collectively as a subscriber base.
In no event shall Webb disclose, sell, market, use, distribute, or provide
to any third party or governmental agency any form of name, address, phone
number, user name, Email address or other listing, either physically or
electronically, or provide any form of online solicitation rights or
opportunities to any third party or governmental agency. Webb itself shall
not solicit or communicate directly with the subscriber base for RE/MAX
Mainstreet, except with the prior written consent of RE/MAX to the subject
matter and content of such communication, and such prior written authority
shall be required of RE/MAX for each proposed communication, the overall
objective being to minimize the volume of unwanted solicitations over
RE/MAX Mainstreet. Webb and RE/MAX shall maintain a guideline for
responding to requests by subscribers, for global Email messages to all or
large groupings of subscribers, and Webb shall follow such guideline. Webb
shall periodically provide RE/MAX with a back-up tape setting forth all
subscriber information on file for safekeeping by RE/MAX.
14. WEBB ACKNOWLEDGMENT
Webb hereby acknowledges that the name "Mainstreet" for real estate
industry-related web site is unique to RE/MAX and the database, subscriber
information, and content of RE/MAX Mainstreet may contain trade secrets,
confidential information, and/or highly sensitive data and that RE/MAX
and/or its subscriber base will be irreparably damaged if such information
were disclosed, sold, or otherwise distributed or made public. Webb
acknowledges that RE/MAX is the exclusive owner of such data, content, and
information and Webb agrees not to challenge the validity of any mark owned
by RE/MAX, or RE/MAX claim to ownership to the site name, "RE/MAX
Mainstreet," or of the URL address for the site. Webb agrees, therefore, to
use its best efforts to protect and secure such data, content, and
subscriber information from third parties and to incorporate into the R/M
Customized Software such security measures as it deems reasonable and
appropriate to protect the RE/MAX Mainstreet web site from unauthorized
use, access, or invasion by third parties.
<PAGE>
15. DESIGN CHANGES
The parties hereto agree that RE/MAX shall have the exclusive right,
without consultation with or notice to Webb, at any time and from
time-to-time to modify at RE/MAX's sole cost and expense the structural,
graphical, and textural content and appearance of RE/MAX Mainstreet in
limited areas as defined by the technology and/or to change the name of the
web site to something other than RE/MAX Mainstreet. Webb agrees to provide
RE/MAX with access codes and information sufficient to enable RE/MAX to
effectuate such changes via online modifications, invisible to Webb or
subscribers.
16. LIMITATIONS ON LIABILITY
Webb makes no direct or implied guarantee regarding the response or
business which will be generated from the RE/MAX Mainstreet site nor will
RE/MAX attempt to hold Webb responsible for any economic or legal
liabilities which may result from the presence or distribution of the
material contained in the RE/MAX Mainstreet web site, provided, however,
that Webb will work with RE/MAX in maintaining guidelines for subscriber
uses and message content, and Webb, as Host Services provider, shall
exercise its best efforts to assure compliance by subscribers with such
guidelines and terminate any subscriber who refuses or fails repeatedly to
honor such guidelines. To this end, the parties hereto agree that the
subscriber agreement shall include both the obligation to honor guidelines
established, and from time-to-time amended, for RE/MAX Mainstreet. Such
subscriber agreement will also expressly recite the right to terminate
RE/MAX Mainstreet access privileges for failure to honor such guidelines.
Neither Webb nor anyone else who has been or will be involved in the
creation, production, or delivery of the RE/MAX Mainstreet web site shall
be liable for any direct, indirect, consequential or incidental damages
(including damages for Webb of business profits, business interruption,
loss of business information and the like) arising out of the use or
inability to use RE/MAX Mainstreet even if Webb has been advised of the
possibility of such damages.
17. RE/MAX INDEMNIFICATION OF WEBB
RE/MAX hereby acknowledges that Webb employees, agents, and officers have
assumed no liability or responsibility for the content generated by RE/MAX,
subscribers to RE/MAX Mainstreet or others and supplied to Webb for
mounting on Webb's servers for Password Protected access via the Internet
and World Wide Web (WWW). RE/MAX agrees to indemnify, save, and hold
harmless Webb and its directors, officers, employees, and agents from and
against any and all claims arising out of RE/MAX's publication of content
on RE/MAX Mainstreet and to pay reasonable attorney fees incurred in the
defense of any such claim, provided, however, that RE/MAX's obligation
hereunder for liability and defense costs together shall be limited
strictly by the amount for which such claim could have been settled. This
indemnification shall include any and all claims of copyright infringement,
slander, or libel, but excludes any claim to the effect that the Developed
Software, the R/M Software or RE/MAX Mainstreet as such, infringe any
copyrights or other rights of third parties. This AGREEMENT does not create
or imply and shall not be construed to create or imply an agency
relationship between Webb and RE/MAX. Webb agrees under these terms to
provide the specific development and Host Services described in this
AGREEMENT.
18. WEBB INDEMNIFICATION OF RE/MAX
Webb hereby acknowledges that neither RE/MAX nor any of its directors,
officers, employees, or agents have assumed any liability whatsoever for
the conduct, actions, or performance of Webb under this AGREEMENT, or for
Webb's performance of Host Services hereunder. Webb hereby agrees to
indemnify, save, and hold harmless RE/MAX and its directors, officers,
employees, and agents from and against any and all claims whatsoever,
including without limitation, claims arising out of the software or
software development efforts or undertakings of Webb, and claims to the
effect that any software used in the R/M Customized Software infringes the
copyrights of any third party or that Webb wrongfully obtained, is not
entitled to use, or is not the rightful owner of the Developed Software,
CommunityWare(TM)/XML Interact Software, R/M Customized
<PAGE>
Software, Residual Information, Intellectual Property, Proprietary
Technology and/or trade secrets, and confidential information as those
terms are defined herein, and claims relating in any way to Webb
relationships with any employee or independent contractor working on the
development of the RE/MAX Mainstreet web site or involved at any level in
providing Host Services under this AGREEMENT. Webb further agrees to pay
reasonable attorney fees incurred by RE/MAX in the defense of any such
claim, provided, however, that Webb's obligation hereunder for liability
and defense costs together shall be limited strictly by the amount for
which such claim could have been settled.
19. WEBB WARRANTIES
Webb hereby warrants that its Developed Software, its
CommunityWare<-1-228>/XML Interact Software and its other claimed
proprietary tools and residual information were originally developed by
Webb or rightfully and lawfully acquired, and that Webb has the rights
therein to enter into this AGREEMENT, to enter into and license the R/M
Customized Software in accordance with the license contained herein, to
provide the Deliverables contemplated, and perform the Host Services agreed
to, and that in doing so, Webb will not be violating the rights of privacy,
the copyrights or any other rights of any third party and that its
performance of its obligations hereunder will not place it in breach of any
other contract or commitment. Webb does not warrant the license or the
reliability of work conducted by any third party.
20. SECURITY MEASURES & PASSWORD ACCESS
Access to RE/MAX Mainstreet shall be restricted to individuals affiliated
in good standing with RE/MAX International, Inc. and who have executed and
returned a current form subscriber agreement. Each such individual shall
have a unique user name and a confidential password. Such names and
passwords will be assigned in accordance with the procedure outlined in
Exhibit J attached to the Original Agreement. Access to RE/MAX Mainstreet
will require the use of industry standard encrypted and secure
communication protocols for those portions of the subscriber's access, file
transfers, messaging, or other activities which contain content which is
deemed to be sensitive by RE/MAX and, more specifically, those involving
the transfers of billing, credit card or other sensitive data and
information exchange. On site system security will be provided by hardware,
protocol, and Windows-NT based security consistent with specifications set
forth on Exhibit J attached to the Original Agreement.
21. DATA & CONTENT BACK-UP
Webb shall provide to RE/MAX a monthly copy of the database, which may
include such information as forums messages, subscriber identity data,
subscriber payment history information with billing address, subscriber
Email address and password information residing on the servers allocated to
providing access to RE/MAX Mainstreet. Such back-up copy shall be
maintained by RE/MAX for the benefit of itself and Webb should the software
and web site become corrupted or inoperable for any reason.
22. MINIMUM PERFORMANCE STANDARDS
In the performance of its obligations under this AGREEMENT, Webb shall
demonstrate to RE/MAX that access to RE/MAX Mainstreet will satisfy the
minimum performance standards of simultaneous use by 10, 25, 50, 75, and
100 concurrent users performing a mixture of chat, library downloads, and
messaging without any significant (i.e., less than 10%) degradation of
response time.
<PAGE>
23. TERM AND TERMINATION
The initial term of this AGREEMENT is two (2) years from the effective date
of this AGREEMENT. RE/MAX may terminate this AGREEMENT at any time in the
event Webb fails to meet or satisfy the Minimum Performance Standards
established by Paragraph 22 hereof. Either party may terminate this
contract in the event that the other party breaches this AGREEMENT provided
that the breach has not been cured, notwithstanding that the non-breaching
party has given the breaching party written notice of the alleged breach
and thirty (30) days to cure. This AGREEMENT will automatically renew for
successive two (2) year terms, commencing at the conclusion of the initial
two (2) year term, unless written notice of intent not to renew is provided
by either party one hundred eighty (180) days prior to the expiration of
the then current term.
24. NOT ASSIGNABLE
This AGREEMENT is uniquely between Webb and RE/MAX and is based in large
measure on the trust, confidence, mutual respect, and unique attributes of
the parties. This AGREEMENT shall not be assignable by either party without
the express written consent of the other, and such written consent may be
withheld for any reason whatsoever. Notwithstanding the foregoing, RE/MAX
shall have the right to assign this AGREEMENT to any new corporation formed
or any existing corporation to oversee, own and/or manage RE/MAX Mainstreet
so long as the same group of individuals who own a majority of shares in
RE/MAX also control such new or existing corporation.
25. CHOICE OF LAW
This AGREEMENT shall be construed and interpreted in accordance with the
laws of the state of Colorado and of the United States of America.
26. INCORPORATION BY REFERENCE
Exhibits A through J attached to the Original Agreement are hereby
incorporated herein by reference.
27. ARBITRATION
In the event of any dispute between the parties hereto regarding duties or
responsibilities under this AGREEMENT, or any other claim by one party
against the other arising out of their relationship under this AGREEMENT,
or their performance of any duty or obligation relating to this AGREEMENT,
or its subject matter, or the RE/MAX Mainstreet web site, such dispute
shall be submitted to binding arbitration in accordance with the Federal
Arbitration Act and shall be arbitrated by the American Arbitration
Association in accordance with its rules and procedures for commercial
arbitration.
28. NO WAIVER
Any failure by either party hereto to enforce at any time any term or
condition of this AGREEMENT shall not be considered a waiver of that
party's right thereafter to enforce that same term or condition or any
other term or condition of this AGREEMENT.
29. ENTIRE AGREEMENT
This AGREEMENT constitutes the entire agreement between RE/MAX and Webb
regarding the subject matter hereof, and this AGREEMENT may not be amended,
altered, or changed except by a written agreement signed by both parties
hereto. Except as expressly incorporated herein by reference, the Original
Agreement is hereby terminated and of no further force and effect.
<PAGE>
30. HEADINGS
The headings used in this AGREEMENT are used solely for convenience and are
not an aid in the interpretation of this AGREEMENT or a limitation to the
application of any term or condition hereof.
IN WITNESS WHEREOF, RE/MAX International, Inc. and Webb Interactive
Services, Inc. have executed this AGREEMENT.
Webb Interactive Services, Inc. RE/MAX International, Inc.
- --------------------------- ----------------------------
By By
- --------------------------- ----------------------------
Title Title
- --------------------------- -----------------------------
Date Date
<PAGE>
Exhibit 21
Subsidiaries of Webb Interactive Services, Inc.
Durand Communications, Inc., a California corporation.
NetIgnite2, LLC, a Colorado limited liability company.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Form 10-KSB of our report dated February 25, 2000, included
in Registration Statement File No. 333-13983 on Form S-8, Registration Statement
File No. 333-83103 on Form S-8, Registration Statement File No. 333-03282-D on
Form S-3, Registration Statement File No. 333-58653 on Form S-3, Registration
Statement File No. 333-69477 on Form S-3, Registration Statement File No. 333-
71503 on Form S-3, Registration Statement File No. 333-86465 on Form S-3,
Registration Statement File No. 333-87887 on Form S-3, Registration Statement
File No. 333-67509. It should be noted that we have not audited any financial
statements of the company subsequent to December 31, 1999, or performed any
audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Denver, Colorado
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-30-1999
<CASH> 4,164,371
<SECURITIES> 0
<RECEIVABLES> 111,132
<ALLOWANCES> 4,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,115,265
<PP&E> 3,754,647
<DEPRECIATION> 1,402,158
<TOTAL-ASSETS> 22,624,534
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0
1,020,295
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<CHANGES> (4,588,917)
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</TABLE>
