<PAGE>
FORM 10-QSB - Quarterly
Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of l934.
For the period ended March 31, 2000.
---------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ___________________ to ____________________.
Commission File Number 0-28462.
----------------
WEBB INTERACTIVE SERVICES, INC.
- -------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-1293864
- ------------------------------------------------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization Identification No.)
1899 WYNKOOP, SUITE 600, DENVER, CO 80202
- -----------------------------------------------------
(Address of principal executive offices) (Zipcode)
(303) 296-9200
- --------------
(Registrant's telephone number, including area code)
1800 GLENARM PLACE, SUITE 700, DENVER, CO 80202
- -----------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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.
[ X ] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 3, 2000, Registrant had 9,104,226 shares of common stock
outstanding.
- -----------------------
<PAGE>
WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES
Index
-----
<TABLE>
<CAPTION>
Page
------
<S> <C> <C>
Part I. Financial Information
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations for the three months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 5-6
Notes to Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-29
Part II. Other Information
Item 1, 3 and 5. Not Applicable 30
Item 2. Changes in Securities and Use of Proceeds 30
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31-32
Signatures 33
</TABLE>
----------------------------
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended, and is subject to the safe harbors created
by those sections. These forward-looking statements are subject to significant
risks and uncertainties, including those identified in the section of this Form
10-QSB entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Factors That May Affect Future Operating Results,"
which may cause actual results to differ materially from those discussed in such
forward-looking statements. The forward-looking statements within this Form 10-
QSB are identified by words such as "believes," "anticipates," "expects,"
"intends," "may," "will" and other similar expressions. However, these words are
not the exclusive means of identifying such statements. In addition, any
statements which refer to expectations, projections or other characterizations
of future events or circumstances are forward-looking statements. The Company
undertakes no obligation to publicly release the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances occurring subsequent to the filing of this Form 10-QSB with the
Securities and Exchange Commission ("SEC"). Readers are urged to carefully
review and consider the various disclosures made by the Company in this report
and in the Company's other reports filed with the SEC that attempt to advise
interested parties of the risks and factors that may affect the Company's
business.
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,595,899 $ 4,164,371
Accounts receivable, net of allowance of doubtful accounts of $4,000 623,736 107,132
Prepaid expenses 272,214 399,217
Short-term deposits 923,374 444,545
------------ ------------
Total current assets 19,415,223 5,115,265
Property and equipment, net of accumulated depreciation of $1,635,800 and $1,402,158,
respectively 2,763,600 2,352,489
Intangible assets, net of accumulated amortization of $4,560,606 and
$2,523,351, respectively 20,480,277 12,503,047
Deferred financing costs 153,115 2,649,517
Other assets 4,216 4,216
------------ ------------
Total assets $ 42,816,431 $ 22,624,534
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capital leases payable $ 100,057 $ 108,525
Accounts payable and accrued liabilities 1,187,109 841,440
Accrued salaries and payroll taxes payable 836,032 1,059,338
Accrued interest payable 95,892 126,028
Customer deposits and deferred revenue 183,266 227,882
------------ ------------
Total current liabilities 2,402,356 2,363,213
Capital leases payable 88,282 115,493
10% convertible note payable, net of discount of $444,039 and
$947,710, respectively 2,055,961 4,052,290
Commitments and contingencies
Stockholders' equity
Preferred stock, no par value, 5,000,000 shares authorized:
Series B convertible preferred stock, 12,500 and none shares issued and outstanding,
respectively 12,500,000 -
10% redeemable, convertible preferred stock, 10% cumulative return; none and 85,000
shares issued and outstanding, respectively, including dividends payable of none
and $170,295, respectively - 1,020,295
Common stock, no par value, 20,000,000 shares authorized, 9,058,539 and 7,830,028
shares issued and outstanding, respectively 73,722,923 49,513,769
Warrants and options 13,302,943 8,612,322
Deferred compensation (348,225) (412,707)
Accumulated deficit (60,907,809) (42,640,141)
------------ ------------
Total stockholders' equity 38,269,832 16,093,538
------------ ------------
Total liabilities and stockholders' equity $ 42,816,431 $ 22,624,534
============ ============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets.
3
<PAGE>
WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
<S> <C> <C>
2000 1999
------------ -----------
Net revenues $ 1,009,822 $ 288,282
Cost of revenues 762,924 187,826
------------ -----------
Gross margin 246,898 100,456
------------ -----------
Operating expenses:
Sales and marketing expenses 484,767 509,859
Product development expenses 1,144,579 598,840
General and administrative expenses 1,791,948 1,484,545
Depreciation and amortization 2,207,043 108,229
------------ -----------
5,628,337 2,701,473
------------ -----------
Loss from operations (5,381,439) (2,601,017)
Interest income 161,887 50,301
Equity loss in subsidiary - (21,949)
Interest expense (174,990) (4,159)
------------ -----------
Net loss (5,394,542) (2,576,824)
Preferred stock dividends (373,126) (46,013)
Accretion of preferred stock to redemption value (12,500,000) (3,000,000)
Accretion of preferred stock for guaranteed return in excess
of redemption value - (1,158,563)
------------ -----------
Net loss available to common stockholders $(18,267,668) $(6,781,400)
============ ===========
Loss per share, basic and diluted $(2.11) $(1.28)
============ ===========
Weighted average shares outstanding, basic and diluted 8,667,640 5,313,368
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
4
<PAGE>
WEBB INTERACTIVE SERVICES, Inc. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(5,394,542) $(2,576,824)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,270,898 108,229
Accrued interest income on advances to DCI - (22,050)
Reduction in note receivable for services received from DCI - 272,276
Stock and stock options issued for services 175,170 140,229
Equity loss in subsidiary - 21,949
Amortization of 10% convertible note payable discount 50,381 -
Amortization of 10% convertible note payable financing costs 24,480 -
Changes in operating assets and liabilities:
Increase in accounts receivable (516,604) (38,638)
Decrease in inventory - 25,933
Decrease in prepaid expenses 127,003 34,260
Increase in short-term deposits and other assets (478,829) (18,072)
Increase (decrease) in accounts payable and accrued liabilities 280,669 (346,738)
Decrease in accrued salaries and payroll taxes payable (223,306) (68,516)
Decrease in accrued interest payable (30,136) -
(Decrease) increase in customer deposits and deferred revenue (44,616) 264,400
----------- -----------
Net cash used in operating activities (3,759,432) (2,203,562)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (598,822) (224,883)
Cash advances to DCI - (349,579)
Payment of acquisition costs - (1,031)
Investment in subsidiary - (27,620)
----------- -----------
Net cash used in investing activities (598,822) (603,113)
----------- -----------
Cash flows from financing activities:
Payments on capital leases (35,679) (8,543)
Proceeds from exercise of stock options and warrants 6,165,461 1,012,633
Proceeds from issuance of series B preferred stock and warrants 12,500,000 -
Proceeds from issuance of series C preferred stock - 3,000,000
Stock offering costs (840,000) (244,500)
----------- -----------
Net cash provided by financing activities 17,789,782 3,759,590
----------- -----------
Net increase in cash and cash equivalents 13,431,528 952,915
Cash and cash equivalents, beginning of period 4,164,371 698,339
----------- -----------
Cash and cash equivalents, end of period $17,595,899 $ 1,651,254
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
5
<PAGE>
WEBB INTERACTIVE SERVICES, INC.
CONSOLIDATED Statements of Cash Flows (Continued)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 130,265 $ 4,519
Supplemental schedule of non-cash investing and financing activities:
Common stock and warrants issued in business combinations $ 9,995,417 $ -
Accretion of preferred stock to redemption value 12,500,000 3,000,000
Accretion of preferred stock for guaranteed return in excess of
redemption value - 1,158,563
Preferred stock dividends paid or to be paid in common stock 373,126 469,013
Preferred stock and dividends converted to common stock 1,023,028 5,686,707
Common stock warrants issued for offering costs 2,311,475
10% note payable converted to common stock 1,886,263 -
Capital leases for equipment - 35,000
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WEBB INTERACTIVE SERVICES, INC. AND SUBSIDIARIES
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITIED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
include the accounts of Webb Interactive Services, Inc. and its wholly-owned
Subsidiaries (collectively "Webb" or the "Company"). All significant
intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements have been prepared without audit pursuant
to rules and regulations of the Securities and Exchange Commission and reflect,
in the opinion of management, all adjustments, which are of a normal and
recurring nature, necessary for a fair presentation of the financial position
and results of operations for the periods presented. The preparation of
financial statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities as well as
disclosure of contingent assets and liabilities at the date of the accompanying
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire year. The interim financial statements should be
read in connection with the financial statements included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1999 filed with the
Securities and Exchange Commission.
NOTE 2 - 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 is
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 of 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 maintenance and support agreements is recognized on a
straight-line basis over the life of the related agreement.
7
<PAGE>
The Company follows the interpretations of EITF 00-3, "Application of AICPA
SOP 97-2, "Software Revenue Recognition," to Arrangements That Include the Right
to Use Software Stored on Another Entity's Hardware," for hosting arrangements.
Under the EITF consensus, if the customer has the contractual right to take
possession of the software at anytime during the hosting period without
significant penalty and it is feasible for the customer to either run the
software on its own hardware or contract with another party unrelated to the
vendor to host the software, then the software portion of the arrangement is
accounted for under SOP 97-2. If the customer does not have this right, then
the fee for the entire arrangement is recognized on a straight-line basis over
the life of the related arrangement.
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.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101
provides interpretive guidance on the recognition, presentation and disclosure
of revenue in financial statements. The accounting impact of SAB 101 is
required to be determined no later than the Company's second fiscal quarter of
2000. If the Company determines that its revenue recognition policies must
change to be in compliance with SAB 101, the implementation of SAB 101 will
require the Company to restate its first quarter 2000 results to reflect a
cumulative effect of a change in accounting principle as if SAB 101 had been
implemented on January 1, 2000. The Company is currently reviewing SAB 101 to
determine what impact, if any, the adoption of SAB 101 will have on its
financial position and results of operations.
The Company believes its current revenue recognition policies and practices
are consistent with the provisions of SOP 97-2, as amended by SOP 98-4 and SOP
98-9, which were issued by the American Institute of Certified Public
Accountants as well as other authoritative literature. Implementation
guidelines for these standards, as well as potential new standards, including
SAB 101, could lead to unanticipated changes in the Company's current revenue
recognition policies. Such changes could affect the timing of the Company's
future revenue and results of operations.
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.
Net revenues are comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
---------- --------
<S> <C> <C>
Net revenues:
Licenses $ 681,727 $ 48,020
Service bureau application provider service fees 82,069 58,309
Services 246,026 64,444
Hardware and third party software - 117,509
---------- --------
Total net revenues $1,009,822 $288,282
========== ========
</TABLE>
NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 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 measures those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards 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 financial quarters and financial years beginning after June
15, 2000. The Company does not typically enter into arrangements that would
fall under the scope of Statement No. 133 and thus, management believes that
SFAS 133 will not significantly affect the Company's financial condition and
results of operations.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No. 44"). The
Interpretation clarifies the application of APB No. 25 for certain issues
related to equity based instruments issued to employees. FIN No. 44 is
effective on July 1, 2000,
8
<PAGE>
except for certain transactions, and will be applied on a prospective basis.
Management believes that FIN No. 44 will not have a significant impact on its
financial statements.
NOTE 4 - 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.
Total consideration for the merger is as follows:
<TABLE>
<S> <C>
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
===========
</TABLE>
(a) 49,704 options issued, valued using the Black-Scholes option pricing model
using the following assumptions:
<TABLE>
<S> <C>
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%
</TABLE>
The purchase price was allocated to the assets acquired based on their fair
market values as follows:
<TABLE>
<S> <C>
Acquired property and equipment $ 45,932
Developed technologies, goodwill and other intangibles 10,014,485
-----------
Total assets acquired $10,060,417
===========
</TABLE>
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.
NOTE 5 - GOODWILL
Goodwill is 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 warrant revision or that the remaining
balance of goodwill may not be recoverable. When factors indicate that goodwill
should be evaluated for possible impairment, the Company uses an estimate of the
undiscounted net income or cash flows, as appropriate, over the remaining life
of the goodwill in measuring whether the goodwill is recoverable. The Company
recorded $2,037,255 and none of goodwill amortization expense for the three
months ended March 31, 2000 and 1999, respectively. As of March 31, 2000,
$7,365,415 of the Company's intangible assets consisted of goodwill.
None of the businesses acquired by the Company were profitable prior to
their acquisition. Accordingly, and due to other risks and uncertainties
discusses herein, it is possible that an analysis of these long-lived assets in
future periods could result in a conclusion they are impaired, and the amount of
impairment could be substantial.
9
<PAGE>
NOTE 6 - 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 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>
March 31,
------------------------------
2000 1999
--------- ---------
<S> <C> <C>
Stock options 3,365,691 1,755,015
10% convertible note payable 248,262 -
Warrants and underwriter options 785,682 1,190,612
Series B preferred stock 625,000 -
10% preferred stock - 95,596
Series C preferred stock - 40,651
--------- ---------
Total 5,024,635 3,081,874
========= =========
</TABLE>
The number of shares excluded from the earning per share calculation
because they are anti-dilutive, using the treasury stock method, were 3,899,383
and 1,817,248 for the three months ended March 31, 2000 and 1999, respectively.
NOTE 7 - 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 a potential reset. The conversion price will be
reset on November 11, 2000 at which time the conversion price is fixed at the
lower of $20.00 or the average closing bid price of the Company's common stock
for 10 days ending on November 10, 2000 or the closing bid price of the
Company's common stock on November 10, 2000.
The terms of the10% convertible note payable agreement, issued on August
25, 1999, 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. As this transaction was consummated to facilitate
the sale of the Company's series B preferred stock, the Company recorded the
fair value of the warrant totalling $2,311,475 as offering costs related to the
series B preferred stock.
The Company also issued 343,750 common stock purchase warrants with the
series B preferred stock, valued at $6,913,568 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 every 90 days commencing May 15, 2000 until January
20, 2003. If the current exercise price is higher than the current market price
(the lower of the average closing bid prices for the 10-day period ending on
such date or the closing bid price on such date), the exercise price will be
reset to the market price.
10
<PAGE>
The warrant was valued utilizing the Black-Scholes option pricing model
using the following assumptions:
<TABLE>
<S> <C>
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 6.7%
Discount rate 0%
</TABLE>
Due to the conversion feature associated with the series B preferred stock,
the Company accounted for a beneficial conversion feature (a "Guaranteed
Return") as an 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 totalled $2,434,957, and was 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 was accreted on the date of issuance, 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 difference between the stated redemption value of $1,000 per share and
the recorded value on February 18, 2000, totalling $12,500,000, was accreted as
a charge to income available to common stockholders on the date of issuance (the
date on which the series B preferred stock is first convertible) and was
comprised of the following:
<TABLE>
<S> <C>
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
===========
</TABLE>
NOTE 8. - 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.
NOTE 9. - ISSUANCE OF COMMON STOCK
On March 16, 2000, the Company executed a two-month consulting agreement
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 agreement, the Company issued 3,000 restricted shares of its
common stock for services provided and recorded expense totalling $110,688
valued at the fair market value on the day the services were provided. The
Company also issued an additional 12,000 restricted shares of its common stock
during April 2000 related to this agreement (See Note 13 for services rendered
subsequent to March 31, 2000).
NOTE 10 - EXERCISE OF COMMON STOCK WARRANTS
During the three months ended March 31, 2000, holders of warrants exercised
their right to purchase 492,217 shares of the Company's common stock resulting
in net proceeds to the Company totalling $5,374,416, after deducting $93,707 in
commissions, as summarized in the following table:
11
<PAGE>
<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 35,000 $15.00 35,000 $ 525,000
IPO representative warrants 101,870 8.10 99,870 736,047
Warrants issued in connection
with the DCI merger 111,828 6.61 to 10.16 110,166 944,049
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 1,468,070
------------- -------------- ---------------
492,217 488,555 $5,374,416
============= ============== ===============
</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 9,000 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.
NOTE 11 - CONVERSION OF 10% PREFERRED STOCK
During the three months ended March 31, 2000, 85,000 shares of the 10%
preferred stock, including accrued dividends payable of $173,028, were converted
into 102,302 shares of the Company's common stock at conversion prices of $10.00
as summarized in the following table:
<TABLE>
<CAPTION>
Number of Shares
-------------------------------------------- Common Stock
10% Preferred Common Conversion
Conversion Date Stock Stock Price per Share
- ---------------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C>
January 11, 2000 80,000 96,240 $10.00
February 14, 2000 5,000 6,062 10.00
------------------ -------------------
85,000 102,302
================== ===================
</TABLE>
NOTE 12 - 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 three reportable business segments: Local Commerce, e-Banking and
Jabber.com.
Local Commerce consists of XML based 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.
12
<PAGE>
Jabber.com consists of XML based open source Internet application products
which incorporates instant messaging as a key application for commerce-oriented
dialogs between businesses and consumers. At March 31, 2000, the Company had
not earned any revenues in connection with this business segment.
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.
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
----------------- -----------------
<S> <C> <C>
Assets
- --------------------------------------------------------------------
Local commerce $ 2,187,785 $ 1,651,481
e-Banking 743,301 714,216
Jabber.com 16,290 -
Corporate activities 39,869,055 20,258,837
------------------ -----------------
Total $42,816,431 $22,624,534
================= =================
Property and Equipment, net
- -------------------------------------------------------------------
Local commerce $1,646,759 $1,378,408
e-Banking 643,357 683,890
Jabber.com 16,289 -
Corporate activities 457,195 290,191
------------------ -----------------
Total $2,763,600 $2,352,489
================== =================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Net Revenues
- --------------------------------------------------------------------
Local commerce $ 812,553 $215,835
e-Banking 197,269 72,447
------------------ -----------------
Total net sales $1,009,822 $288,282
================= =================
$(1,235,720)
Net Loss
- --------------------------------------------------------------------
Local commerce $(1,648,086) $(1,235,720)
e-Banking (40,589) (107,645)
Jabber.com (63,249) -
Corporate activities (3,642,618) (1,233,459)
------------------ ------------------
Net loss $(5,394,542) $(2,576,824)
================= =================
Depreciation and Amortization
- --------------------------------------------------------------------
Local commerce $ 62,259 $ 44,073
e-Banking 41,014 35,247
Jabber.com 276 -
Corporate activities 2,103,494 28,909
------------------ ------------------
Total $2,207,043 $108,229
================= ==================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Property and Equipment Additions
- --------------------------------------------------------------------
Local commerce $346,343 $ 80,945
e-Banking - 114,754
Jabber.com 16,565 -
Corporate activities 235,914 29,184
------------------ -----------------
Total $598,822 $224,883
================== =================
</TABLE>
NOTE 13 - SUBSEQUENT EVENTS
On April 17, 2000, the Company loaned an officer $100,000 and issued a
demand promissory note with stated interest of 8% per annum. Monthly interest
only payments commence July 1, 2000 until the note is paid in full.
During April, 2000, the Company granted 12,000 restricted shares of its
common stock to a financial consulting firm representing the remainder of its
commencement bonus related to the two-month consulting agreement the Company
entered into on March 16, 2000. The Company will record $136,203 of expense in
April, 2000 for the issuance of the common stock, which was valued at the fair
market value on the day the agreement was completed.
14
<PAGE>
Item 2. 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
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.
During the first quarter of 2000, we acquired the assets of privately held
Update Systems, Inc. See Note 4 to Consolidated Financial Statements.
On February 18, 2000, we completed a private placement of 12,500 shares of
our series B preferred stock and two five-year warrants representing the right
to acquire 343,750 cumulative shares of our common stock at an exercise price of
$20.20 per share in consideration for which we received $12,500,000 in gross
proceeds. The series B preferred stock is convertible at any time from the date
of issuance at $20.00, subject to certain reset provisions. The conversion price
will be reset on November 11, 2000 at which time the conversion price is fixed
at the lower of $20.00 or the average closing bid price of the Company's common
stock for 10 days ending on November 10, 2000 or the closing bid price of the
Company's common stock on November 10, 2000. The common stock purchase warrants
are exercisable initially at $20.20 per share and are also subject to reset
provisions. The exercise price for the warrants is subject to being reset based
upon future market prices for the Company's common stock every 90 days
commencing May 15, 2000 until January 20, 2003. If the current exercise price is
higher that the current market price (the lower of the average closing bid
prices for the 10-day period ending on such date or the closing bid price on
such date), the exercise price will be reset to the market price.
We have incurred losses from operations since inception. At March 31,
2000, we had an accumulated deficit of approximately $60.9 million. The
accumulated deficit at March 31, 2000, included approximately $35.1 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, interest expense on the 10% convertible
15
<PAGE>
note payable and amortization of assets acquired in consideration for the
issuance of our securities. Based on applicable current accounting standards, we
estimate that we will be required to record a non-operating expense of
approximately $189,000 in the remainder of 2000, $251,000 in 2001 and $158,000
in 2002 in connection with the issuance of our 10% convertible note, unless it
is converted to common stock prior to its maturity date. We also recorded
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. 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, during the first quarter of 2000, we recorded a non-cash charge
for preferred stock dividends of approximately $373,000 and non-cash interest
expense of approximately $75,000 in connection with the sale of our 10%
convertible note payable.
Loss from operations, net loss, net loss available to common stockholders
and loss per share, were overstated in our press release for the first quarter
due to an overstatement by approximately $511,000 in our general and
administrative expenses for the quarter. The preliminary results and the actual
results for these items are as follows:
<TABLE>
<CAPTION>
Preliminary
Reported
Numbers Actual
------------- ------------
<S> <C> <C>
Loss from operations $ (5,893,251) $ (5,381,439)
Net loss (5,906,354) (5,394,542)
Net loss available to common stock holders (18,779,480) (18,267,668)
Loss per share, basic and diluted $ (2.17) $ (2.11)
</TABLE>
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101
provides interpretive guidance on the recognition, presentation and disclosure
of revenue in financial statements. The accounting impact of SAB 101 is
required to be determined no later than the second fiscal quarter of 2000. If
we determine that our revenue recognition policies must change to be in
compliance with SAB 101, the implementation of SAB 101 will require us to
restate our first quarter 2000 results to reflect a cumulative effect of a
change in accounting principle as if SAB 101 had been implemented on January 1,
2000. We are currently reviewing SAB 101 to determine what impact, if any, the
adoption of SAB 101 will have on our financial position and results of
operations.
16
<PAGE>
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.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
---------------------------------------------
2000 1999
------------------ ------------------
<S> <C> <C>
Net revenues:
Licenses 67.5% 17.8%
Service bureau fees 8.1% 20.2%
Services 24.4% 21.2%
Hardware and software sales - 40.8%
Total net sales 100.0% 100.0%
------------------ ------------------
Cost of revenues:
Cost of licenses 29.2% 115.9%
Cost of service bureau revenues 54.3% 20.8%
Cost of services 208.4% 40.1%
Cost of hardware and software - 80.1%
Total cost of revenues 75.6% 65.2%
------------------- -------------------
Gross margin 24.4% 34.8%
------------------- -------------------
Operating expenses:
Sales and marketing expenses 48.0% 176.9%
Product development expenses 113.3% 207.7%
General and administrative expenses 177.5% 515.0%
Depreciation and amortization expenses 218.6% 37.5%
------------------- -------------------
Total operating expenses 557.4% 937.1%
Loss from operations (533.0)% (902.3)%
------------------- -------------------
Net loss (534.2)% (893.9)%
Preferred stock dividends (37.0)% (16.0)%
Accretion of preferred stock to redemption value (1237.8)% (1040.6)%
Accretion of preferred stock for guaranteed return in excess of
redemption value - (401.9)%
------------------- -------------------
Net loss available to common stockholders (1809.0)% (2352.3)%
=================== ===================
</TABLE>
17
<PAGE>
REVENUES:
Local Commerce:
Components of net revenues and cost of revenues from Local Commerce are as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
Net revenues:
Licenses $681,727 $ 48,020
Services 130,826 50,306
Hardware and third party software - 117,509
-------- --------
Total net revenues 812,553 215,835
-------- --------
Cost of revenues:
Cost of licenses 199,226 55,664
Cost of services 446,586 13,326
Cost of hardware and third party software - 94,155
-------- --------
Total cost of revenues 645,812 163,145
-------- --------
Gross margin $166,741 $ 52,690
======== ========
</TABLE>
License revenues represent fees earned for granting customers licenses to
use our AccelX software products and services which we began to sell in the
second half of 1999. During the three months ended March 31, 2000 we recognized
$438,900 from the sale of software licenses and $242,827 from recurring license
fees. The software sale revenues were primarily from a sale to Vetconnect,
Inc., a vertical portal that provides Internet services for veterinarians.
While our basic distribution model is to provide services to aggregators of
small business on a revenue share basis, thereby providing us with recurring
revenues as our distribution partners sell our services to their small business
customers, late in 1999 we began offering to sell perpetual software licenses to
those business that desire to acquire our software for integration into the
services they provide to their customers. Sales of software licenses may
continue to represent a significant portion of license revenue for at least the
next several quarters as these sales are generally for significantly larger fees
than are the initial fees paid by those distribution partners who agree to pay
us a portion of their future revenues. We estimate that it will take those
distribution partners up to one year or more after they commence distribution of
our services to develop a significant enough base of small businesses using our
services for these recurring revenues to become significant. Recurring license
revenues for the first quarter of 2000 are primarily a result of fees earned
from Switchboard, Inc. in the form of quarterly guaranteed minimum payments
required to maintain limited exclusivity for our Site Builder services in a
segment of the United States market.
Services revenues consist 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, 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 $130,826 for the three
months ended March 31, 2000, which represents an increase of 160.1% when
compared with the similar 1999 period. The increase is primarily due to
software support and maintenance fees we earned in connection with the services
being provided to Switchboard, Inc. and Remax International, Inc.
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 products and services. During the three months ended March
31, 1999, we sold equipment totalling $117,509 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.
18
<PAGE>
As of March 31, 2000, we have revenue backlog from closed contracts
totalling approximately $692,000 which we expect to recognize as revenue during
2000.
E-Banking:
Components of net revenues and cost of revenues from e-banking are as
follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
2000 1999
-------- -------
<S> <C> <C>
Net revenues:
Service bureau and hosting fees $ 82,069 $58,309
Services 115,200 14,138
-------- -------
Total net revenues 197,269 72,447
-------- -------
Cost of revenues:
Cost of service bureau and hosting fees 49,766 12,141
Cost of services 67,346 12,540
-------- -------
Total cost of revenues 117,112 24,681
-------- -------
Gross margin $ 80,157 $47,766
======== =======
</TABLE>
Service bureau and hosting revenues represent fees earned for providing
online banking application services to our e-banking customers. The 40.7%
increase in these fees in the first quarter of 2000 compared to the first
quarter of 1999 is due to revenue from a new credit union customer that went
online during the fourth quarter of 1999.
Services revenues consist of revenue derived from professional services for
the customization of our software to customer specifications. The 714.8%
increase in these fees in the first quarter of 2000 compared to the first
quarter of 1999 is primarily due to fees we earned from the CU Cooperative
Systems, Inc. which we are recognizing on a percentage of completion basis.
As of March 31, 2000, we have revenue backlog from closed contracts
totalling approximately $488,000 which we expect to recognize as revenue during
2000.
COST OF REVENUES:
Local Commerce:
Cost of revenues as a percentage of net revenues was 79.5% for the three
months ended March 31, 2000 compared to 75.6% for the similar 1999 period.
Cost of license revenues - Cost of license revenues consists 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 $199,226 or
29.2% of net license revenues for the three months ended March 31, 2000, as
compared to $55,664 or 115.9% of 1999 net license revenues for the similar
1999 period. 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 as well as costs
associated with delivering software enhancements for which we earn monthly
license fees.
Cost of service revenues - Cost of service revenues consists 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
19
<PAGE>
of costs to operate our network operating center. Cost of service revenues
were $446,586 or 341.4% of net service revenues for the three months ended
March 31, 2000, as compared to $13,326 or 26.5% of 1999 net service
revenues for the similar 1999 period. The increase in costs was primarily
due to costs incurred to operate our network operating center, which we
began operating during the second quarter of 1999, and costs associated
with delivering Internet access and content to the customers of our
distribution partners. Our network operating center has been built to
accommodate our current customer base and our contract backlog as well as
our projected growth. Consequently, the current cost to operate the network
operating center is high compared to current revenues and will remain
relatively high for at least the next several quarters as we continue to
build this business.
Cost of Hardware and third party software revenues - Cost of hardware
and software revenues consists of computer and third party software
purchased for resale to cable operators. 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.
E-Banking:
Cost of revenues as a percentage of net revenues was 59.4% for the three
months ended March 31, 2000 compared to 34.1% for the similar 1999 period.
Cost of service bureau and hosting fees - Cost of service bureau fees
consists of compensation costs for customer service, help desk fees, third
party software support agreements and Internet connectivity costs. Cost of
service bureau fees was $49,766 or 60.6% of net service bureau fees for the
three months ended March 31, 2000, as compared to $12,141 or 20.8% of 1999
net license revenues for the similar 1999 period. 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.
Cost of service revenues - Cost of service revenues consists of
compensation costs associated with performing custom programming and design
and integration services for our customers. Cost of service revenues was
$67,346 or 58.5% of net service revenues for the three months ended March
31, 2000, as compared to $12,540 or 88.7% of 1999 net service revenues for
the similar 1999 period. The increase in costs were primarily due to
continued implementation of our e-banking solution for the CU Cooperative
Systems, Inc. for which we earned slightly higher margins than for our
professional services to customers already online.
OPERATING EXPENSES:
Sales and marketing expenses consist primarily of employee compensation,
advertising, trade show expenses, and costs of marketing materials. Sales and
marketing expenses were $484,767 or 48.0% of net revenues for the three months
ended March 31, 2000, as compared to $509,859 or 176.9% of net revenues for the
similar 1999 period. The decrease in absolute dollars was primarily
attributable to (i) lower employee compensation costs in the 2000 period due to
three fewer employees and higher compensation costs incurred during the 1999
period related to costs paid to Durand Communications, Inc. prior to the
consummation of the merger; and (ii) decrease in travel and entertainment
expenses as a result of incurring more travel in the 1999 period related to
servicing our cable distribution partners. These decreases were partially offset
by increased costs associated with marketing consultants and recruiting
expenses. 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 software products and services. Product
20
<PAGE>
development expenses were $1,144,579 or 113.3% of net revenues for the three
months ended March 31, 2000 as compared to $598,840 or 207.7% of net revenues
for the similar 1999 period. During the 2000 and 1999 three-month periods, all
product development costs have been expensed as incurred. The increase in
absolute dollars was due primarily to (i) an increase in employee compensation
costs as a result of head count increasing from 27 to 50 technology personnel
and an increase in contract labor to support the continued development of our
products; and (ii) an increase in recruiting 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 $1,791,948 or 177.5% of net revenues for the three
months ended March 31, 2000, as compared to $1,484,545 or 515.0% of net revenues
for the similar 1999 period. The increase in absolute dollars was primarily
attributable to (i) an increase in employee compensation costs; (ii) increase in
non-cash expense for stock and warrants issued for investor relation and
consulting services; (iii) increases in regulatory filing fees and other costs
associated with securities filings; and (iv) increases in investor relation
expenses. In April, 2000, we entered into an agreement with Diamond Technology
Partners Inc. to assist with the development of the business plan for our
Jabber.com subsidiary. As a result, we expect to incur approximately $800,000 in
fees for these services, to be paid in a combination of cash and capital stock
in Jabber.com. We expect general and administrative expenses to decrease as a
percentage of revenues as our revenues increase.
Depreciation and amortization was $2,207,043 for the three months ended
March 31, 2000, compared to $108,229 for the similar 1999 period. We recorded
more depreciation expense in 2000 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 to support our product
development team. We also amortized the intangible assets and goodwill we
acquired in the Durand Communications, NetIgnite, and Update Systems
acquisitions and recorded $2,037,255 of amortization expense in the 2000 three-
month period. As a result of these acquisitions, we expect to record
approximately $6.1 million of such expenses in the remainder of 2000 and
approximately $8.3 million of such expenses in 2001 and approximately $5.8
million 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.
OTHER INCOME AND EXPENSE:
Interest income was $161,887 for the three months ended March 31,
2000, compared to $50,301 for the similar 1999 period. We earn interest by
investing surplus cash in highly liquid investment funds or AAA or similarly
rated commercial paper.
Interest expense was $174,990 for the three months ended March 31,
2000, compared to $4,159 for the similar 1999 period. During the 2000 three-
month period, we recorded $170,751 of interest expense related to the 10%
convertible note payable we issued in August 1999, including $95,890 of cash
interest expense and non-cash charges of $50,381 and $24,480 related to
amortization of the discount recorded for the issuance of a common stock
purchase warrant and the amortization of financing fees, respectively.
21
<PAGE>
NET LOSSES ALLOCABLE TO COMMON STOCKHOLDERS:
Net loss allocable to common stockholders was $18,267,668 for the three
months ended March 31, 2000, compared to $6,781,400 for the similar 1999 period.
We recorded non-cash expenses for the following items:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------
2000 1999
----------- ----------
<S> <C> <C>
Amortization of intangible assets and goodwill $ 2,037,255 $ -
Amortization of discount and placement fees to interest expense
related to the 10% convertible note payable 74,861 -
Stock and warrants issued for services 175,170 140,229
Preferred stock dividends 373,126 21,949
Accretion of preferred stock 12,500,000 4,158,563
----------- ----------
Total $15,160,412 $4,320,741
=========== ==========
</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.
LIQUIDITY AND CAPITAL RESOURCES:
As of March 31, 2000, we had cash and cash equivalents of $17,595,899 and
working capital of $17,012,867. We financed our operations and capital
expenditures and other investing activities during 2000 primarily through the
sale of securities (See Notes 7 and 9 of Notes to Consolidated Financial
Statements for information regarding these sales of securities).
We used $3,759,432 in cash to fund our operations for the three months
ended March 31, 2000, compared to $2,203,562 for the similar 1999 period. The
increase in net cash used resulted primarily from the following: (i) an increase
in costs paid for continued development of our XML-based AccelX products and
services and e-banking applications; (ii) higher compensation costs paid to
employees; (iii) increased direct costs and support costs associated with
increased head count; and (iv) payment of 1999 bonuses in the first quarter of
2000.
We used an additional $598,822 in cash for capital expenditures during the
three months ended March 31, 2000, compared to $603,113 during the similar 1999
period. We purchased $598,822 of property and equipment and plan to purchase an
additional $1.7 million during the balance of 2000, including computer
equipment, software and leasehold improvements for our new corporate offices.
We received $17,789,782 in operating capital from financing activities for
the three months ended March 31, 2000, compared to $3,759,590 for the similar
1999 period. During the first quarter of 2000, we received funds from the
following financing transactions:
. On February 18, 2000, we sold 12,500 shares of our series B preferred
stock with stated value of $1,000 per share, which resulted in net
proceeds of $11,660,000; and
. We received $6,165,461 in cash from the issuance of our common stock
as a result of the exercise of common stock options and warrants.
We believe that based on our cash and cash equivalents and working capital
at March 31, 2000 and anticipated revenues and expenses, we have sufficient
working capital to fund operations throughout fiscal 2001.
22
<PAGE>
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 - Financial Statements
- - Notes to the Consolidated Financial Statements" and "Item 2 - 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:
. Limited ability to respond to competitive developments;
. Exaggerated effect of unfavorable changes in general economic and
market conditions;
. Ability to attract qualified personnel;
. Ability to develop and introduce new product and service offerings;
and
. Ability to adjust the business plan to address marketplace and
technological changes.
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.
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 totalling approximately $60.9 million through March 31,
2000. 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:
. We currently intend to increase our capital expenditures and operating
expenses to expand the functionality and performance of our products
and services; and
. 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 March 31, 2000, included approximately $35.1
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, interest expense on a 10% convertible note
payable and amortization of assets acquired through the issuance of our
securities. 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 throughout fiscal
2001. However, we may discover that we have underestimated our working capital
needs, and we may need to obtain additional funds prior to 2002. There is no
assurance that we will be able to raise additional funds if required in amounts
required or upon acceptable terms. 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:
. The success of our distribution partners in marketing their products
and services; and
23
<PAGE>
. 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 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:
. The failure of the Internet's infrastructure to support Internet usage
or electronic commerce;
. 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
. 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:
. Identify new product and service opportunities; or
. 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:
. The failure of our business plan to accurately predict the rate at
which the market for Internet products and services will grow;
. The failure of our business plan to accurately predict the types of
products and services the future Internet marketplace will demand;
. Our limited experience in marketing our products and services;
. The failure of our business plan to accurately predict our future
participation in the Internet marketplace;
. The failure of our business plan to accurately predict the estimated
sales cycle, price and acceptance of our products and services;
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<PAGE>
. The development by others of products and services that renders our
products and services noncompetitive or obsolete; or
. 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:
. Reduce the average selling price of our products and services; or
. 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 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 three customers representing 72% of revenues for the three
months ended March 31, 2000, and four customers representing 93% of revenues for
the similar 1999 period. 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
25
<PAGE>
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
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:
. 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;
. 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;
. Costs associated with efforts to protect against and remedy security
breaches; or
. 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:
. Decrease the demand for our products and services;
. Increase our cost of doing business; or
. 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,
26
<PAGE>
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 $9.96 per share between January 1, 2000 and
May 3, 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:
. Price and volume fluctuations in the stock market at large that do not
relate to our operating performance;
. Fluctuations in our quarterly revenue and operating results;
. Announcements of product releases by us or our competitors;
. Announcements of acquisitions and/or partnerships by us or our
competitors; and
. 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 May 3, 2000, we had issued warrants and options to acquire 4,363,662
shares of our common stock, exercisable at prices ranging from $1.63 to $58.75
per share, with a weighted average exercise price of approximately $15.00 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 May 3, 2000,
these shares consist of:
. Approximately 310,000 shares owned by our executive officers and
directors of our outstanding common stock ("Affiliate Shares");
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. Up to 1,875,000 shares issuable upon conversion of the 10% convertible
note and series B preferred stock; and
. Approximately 4,363,662 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 May 3, 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 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 $14.00, the closing sale price for our common stock
on May 3, 2000, and at assumed market prices of 75% and 50% of the market price
on May 3, 2000, assuming that the conversion price for the 10% note is adjusted
after September 29, 2000. At May 3, 2000, the lowest potential conversion price
was $8.00 per share.
<TABLE>
<CAPTION>
Shares Issued Upon Conversion
----------------------------------------------- Total
10% Notes Series B Preferred Stock (Percentage of
Market Price Conversion Price) (Conversion Price) Outstanding)
- --------------------------------- ----------------- ------------------------ -----------------
<S> <C> <C> <C>
$14.00 (actual price at 05/03/00) 248,262 ($10.07) 625,000 ($20.00) 873,262 (8.8%)
$10.50 (75% of 05/03/00 price) 248,262 ($10.07) 1,190,476 ($10.50) 1,438,738 (13.6)
$7.00 (50% of 05/03/00 price) 312,500 ($8.00) 1,562,500 ($8.00) 1,875,000 (17.1%)
</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 60,000,000 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 $75,000 as
additional interest expense and $12.5 million of accretion expense for the three
months ended March 31, 2000, as a result of the
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issuance of our 10% convertible note and the issuance of our series B preferred
stock, respectively. We will record additional non-cash expenses of
approximately $189,000 during the remainder of 2000 and $409,000 during the two
years ending December 31, 2002 related to the issuance of the note unless it is
converted to common stock prior to its maturity date, in which case it will be
less.
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.
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PART II
OTHER INFORMATION
Items 1, 3 and 5. Not Applicable
Item 2. Changes in Securities and Use of Proceeds
On February 18, 2000, we sold 12,500 shares of our series B preferred
stock, $1,000 stated value, to two investors for $12.5 million. In connection
with this investment, the investors were granted warrants to purchase 343,750
shares of our common stock at an initial exercise price of $20.20 per share.
PaineWebber served as the placement agent for the offering and received a
$750,000 commission. See Note 7 of the Notes to Consolidated Financial
Statements for a description of the terms of the securities. The securities
were registered under the Securities Act of 1933, as amended.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's 2000 Annual Meeting of Shareholders was held on April 27,
2000. At the meeting the following five persons were elected to serve as
directors of the Company: Perry R. Evans; William R. Cullen; Robert J. Lewis;
Richard C. Jennewine; and Lindley S. Branson
Shareholders also approved the following items: (i) an increase from
25,000,000 to 65,000,000 in the number of authorized shares of capital stock and
an increase from 20,000,000 to 60,000,000 shares of common stock, no par value--
8,862,313 shares voting For such amendment, 107,005 shares voting Against and
13,528 shares Abstaining; (ii) approval of issuance of securities pursuant to
the issuance of preferred stock and warrants--2,130,835 shares voting For,
103,904 shares voting Against and 18,553 shares Abstaining (a total of 6,729,554
shares represented at the meeting were not voted with respect to this item);
(iii) an increase from 3,500,000 shares to 4,500,000 shares in the number of
shares of common stock reserved for issuance pursuant to the Company's Stock
Option Plan of 1995--2,088,811 shares voting For approval, 141,650 shares voting
Against and 22,831 shares Abstaining (a total of 6,729,554 shares represented at
the meeting were not voted with respect to this item); and (iv) the approval of
Arthur Andersen LLP as the independent auditors of the Company for the fiscal
year ending December 31, 2000--8,936,046 shares voting For, 37,340 voting
Against and 9,460 shares Abstaining.
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Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
3.1 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 (13)
10.3 Form of Change of Control Agreement between Webb and certain
employees (7)
10.4 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. (13)
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)
10.17 Master Software License Agreement, Web Site Hosting Agreement,
Maintenance and Support Agreement and Professional Services
Agreement, effective March 31, 2000, between Webb and Vetconnect,
Inc. *
10.18 Consulting Agreement, effective April 24, 2000, between Webb and
Diamond Technology Partners, Inc. *
21 Subsidiaries of Webb Interactive Services, Inc. (13)
27 Financial Data Schedule *
- -----------------------------
* Filed herewith.
(1) Filed with the Form 10-KSB Annual Report for the year ended December 31,
1997, Commission File No. 0-28462.
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<PAGE>
(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.
(13) File with the Form 10-KSB Annual Report for the year ended December 31,
1999, Commission File No. 0-28462.
(b) Reports on Form 8-K. The Company filed reports on Form 8-K during the
quarter ended March 31, 2000 as follows: (i) filed under Item 5 of
Form 8-K on January 5, 2000; (ii) filed under Item 2 of Form 8-K on
January 14, 2000; and amended on March 28, 2000; (iii) filed under
Item 5 of Form 8-k on February 25, 2000.
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Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WEBB INTERACTIVE SERVICES, INC.
Date: May 12, 2000 By /s/ William R. Cullen
---------------------
Chief Financial Officer
/s/ Stuart J. Lucko
-------------------
Controller
33
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EXHIBIT 10.17
WEBB INTERACTIVE SERVICES
MASTER SOFTWARE LICENSE AGREEMENT
THIS MASTER SOFTWARE LICENSE AGREEMENT ("Agreement"), together with the attached
Schedules, Exhibits or Addenda which are incorporated and made part of the
Agreement, is entered into by and between WEBB INTERACTIVE SERVICES ("Webb"), a
Colorado corporation with its principal offices located at 1800 Glenarm Place,
Denver Colorado, USA 80202 and the client(s) ("Client") whose name, principal
business address, and jurisdiction of incorporation are set forth below.
- --------------------------------------------------------------------------------
Client Name(s): VETCONNECT, INC.
-----------------------------------------
Address: 85 Exchange Street
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City: Portland
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State/Zip or Province/Postal Code: ME 04101
-----------------------------------------
Country: USA
-----------------------------------------
Jurisdiction of Incorporation: Delaware
- --------------------------------------------------------------------------------
1.0 License, Hosting Services and Payment.
1.1 Subject to the terms and conditions of this Agreement, Webb hereby grants
to Client a perpetual and non-transferable (except as set forth in Section 15.0)
license to (i) use, copy (for Client's internal business purposes only), and
modify the Products provided that Client may use the Community Ware/XML only on
the Number of Sites, as designated in Schedule A and (ii) use the Documentation.
The license granted herein shall include the limited exclusive rights set forth
in Schedule E. Client may use other third-party providers to host its services
provided Client shall obtain prior consent of WEBB before allowing such third
party providers access to the Products, which consent shall not be unreasonably
denied.
1.2 Client shall pay Webb the License Fees as set forth in Exhibits attached
hereto, subject to any discounts therein. All fees are exclusive of Taxes. If
applicable laws require the withholding of Taxes under this Agreement, Client
shall notify Webb, make the applicable withholding, and remit the required Tax
to the proper governmental authority.
2.0 Delivery and Installation.
2.1 Upon receipt of an executed and completed contract and purchase order from
Client, Webb shall deliver the Products to Client in a reasonably appropriate
format , including one copy of the Documentation on reasonably appropriate
media.
2.2 Except as set forth in this section or unless otherwise agreed by the
Parties in a separate written agreement, Client shall, at its expense and as
described in the Professional Services Agreement that is Schedule D, be
responsible for installation of the Products, user training, data conversion,
and other services necessary to installing and using the Products.
3.0 Definitions.
3.1 "Agreement" means this Agreement, Schedules, Exhibits and any addenda
signed by the Parties.
3.2 "Confidential Information" means all rights, information, trade secrets,
know-how, processes, software, methods, designs, documentation, customer lists,
marketing plans and the like, in whatever form or medium, relating to the
Products or the operation of Webb or specifically to Client's Internet site, or
to any information included thereon, and which have not been previously
disclosed to the general public.
3.3 "Customer" means a Client subscriber that has set up its own business web
site through the use of functionality provided by the Products.
3.4 "Documentation" means all documentation delivered by Webb with the
Products, whether in machine-readable or printed form, including any updates,
revisions, new versions, and supplements to such documentation.
3.5 "Effective Date" means the date when the Parties have executed this
Agreement as indicated at the end of this Agreement in the space marked "Date"
below each Parties' signature to this Agreement.
3.6 "Intellectual Property Rights" means all copyrights, confidentiality
rights, trade secret rights, trademark rights, patent rights and other
intellectual property rights.
3.7 "License" means the license referred to in Section 1.1.
3.8 "License Fee" means the license fee payable for a Product as set forth in
the Schedule A, Exhibit 1.
3.9 "Modifications or Enhancements" means any Upgrades, modifications,
enhancements or derivative works to the Products developed
<PAGE>
by Webb which contain or use any object code or source code developed by Webb.
3.10 "Number of Seats" means the maximum number of Customers' websites which
may have access to the functionality provided by the Products.
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3.11 "Number of Sites" means the maximum number of locations or street addresses
in the United States at which the server portion of the Products are installed.
3.12 "Parties" means Webb and Client. "Party" means either Webb or Client.
3.13 "Patent or Copyright" means the rights in any patent or copyright in the
country in which the server portion of the Products is first installed in the
United States.
3.14 "Platform Technology" means the current and future release levels of the
hosting environment designated in Exhibit A and certified by Webb for use with
the Products. Unless otherwise agreed upon in this Agreement, Webb shall not be
obligated to provide Support for any portion of the Platform Technology.
3.15 "Products" means the software products owned by Webb including the
functionality designated on the Schedule A to this Agreement.
3.16 "Product Warranty" means the warranty referred to in Section 4.0.
3.17 "Seat" means Customers' web sites which may have access to the
functionality provided by the Products.
3.18 "Site" means a location or street addresses in the United States at which
the server portion of the Products is installed.
3.19 "Taxes" means any sales, use, excise, value-added, withholding taxes or
other taxes based upon this Agreement, including taxes, interest and penalties
that are levied or assessed by a governmental authority, resulting from this
Agreement, excluding taxes based on Webb's net income.
3.20 The singular and plural shall each include the other, and this Agreement
shall be read accordingly when required by the facts.
3.21 "Upgrades" means new features, updates, upgrades, improvements, bug
fixes, and error corrections that are provided to Webb customers or added to
the Products and their respective functionality as they are made generally
available by WEBB to its clients.
4.0 Warranties and Disclaimer of Warranty
As long as Client is in compliance with all aspects of this Agreement:
4.1 Webb warrants that at the time of installation by VetConnect of the
Products, the media containing the Products shall be free of material defects.
Client's sole and exclusive remedy for breach of the Media Warranty is
replacement of the defective media if any such defect is found within three (3)
months after installation of the defective media.
4.2 Webb warrants that upon delivery, the Products shall materially or
substantially perform in accordance with the Documentation provided by Webb and
that the Products will function on the Platform Technology.
4.3 Webb hereby represents and warrants to Client that Webb has the full right,
power, legal capacity and authority to enter into this Agreement and to carry
out its terms. Webb hereby represents, warrants and covenants to Client that
Webb is under no obligation or restriction, nor will it knowingly assume any
such obligation or restriction that does or would in any way interfere or
conflict with, or that does or would present a conflict of interest concerning
this Agreement.
4.4 Webb hereby represents, warrants and covenants to Client that, except only
as specifically provided otherwise in this Agreement, Webb has full right, title
and interest in the Products and all creative materials incorporated therein.
4.5 Webb hereby represents, warrants and covenants to Client that the Products
will be free from material reproducible programming errors and from defects in
workmanship and materials and will operate in conformity with the specifications
set forth in the Appendices hereto. If material programming errors are
discovered within three (3) months after installation of the Products, Webb
shall promptly remedy them at Webb's sole expense.
4.6 Webb hereby represents, warrants and covenants to Client that except as
agreed to in writing by the Parties, no portion of the Products delivered
hereunder will contain any protection feature designed to prevent its use. Webb
further warrants that it will not impair the operation of any such Products in
any way other than by order of a court of law.
4.7 Webb hereby represents, warrants and covenants to Client that there are and
will be no liens, claims, encumbrances, and to Webb's knowledge, no legal
proceedings, restrictions, agreements or understanding that might conflict or
interfere with, limit, or be inconsistent with or otherwise affect any of the
provisions of this Agreement or the enjoyment by Client of any rights in any of
the Products or any elements thereof.
4.8 Webb hereby represents, warrants and covenants to Client that, to Webb's
knowledge, the Products do not infringe on any patents, copyrights, trademarks,
trade names, or other intellectual property rights (including trade secrets),
privacy or similar rights of any person or entity, nor has any claim of such
infringement been threatened or asserted, nor is such a claim pending against
Webb (or to the best of Webb's knowledge, any entity from which Webb has
obtained such rights).
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4.9 Webb warrants to Client that the Products provided hereunder and under any
Exhibits or Schedules attached hereto by Webb shall be performed by qualified
personnel in a good and workmanlike manner and that, during the term of this
Agreement, the Products shall be free from any operational defects that
materially interfere with the Client's use of the Product in accordance with
user documentation and the specifications set forth in Schedule A. The
foregoing warranty is made only to the Client and shall not be construed as
conferring any rights upon anyone not a Party to this Agreement. If, within
three (3) months after installation of the Products, Client discovers a defect
in the operation to the Products, it must promptly notify Webb in writing.
Within a reasonable time after such notification, Webb will correct at Webb's
expense such failure to conform to the user Documentation or to correct any
defect in workmanship. Except as otherwise provided in this Agreement, the
remedies set forth in this Section 4.9 are Client's exclusive remedies for
breach of this warranty set forth in Section 4.4 and this Section 4.9.
4.10 Webb does not warrant any production components not developed or created
by Webb, defects caused by disasters, unauthorized use or any other abuse or
misuse by Client. Client shall be solely responsible for obtaining and
maintaining, at its expense, all equipment and software at its location
necessary to use the Products. Even if Webb makes recommendations to the Client
regarding any such equipment or software, Webb shall have no responsibility or
liability to Client for any loss, claim or damage resulting from or relating to
Client's acquisition or use of such equipment or software.
4.11 THE EXPRESS LIMITED WARRANTIES IN THIS SECTION 4.0 ARE IN LIEU OF ALL
OTHER WARRANTIES AND CONDITIONS EXPRESSED OR IMPLIED, CONTRACTUAL OR STATUTORY,
INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. NOTWITHSTANDING ANY OTHER PROVISION IN THIS
AGREEMENT, WEBB DOES NOT WARRANT THAT THE USE OF THE PRODUCTS SHALL BE
UNINTERRUPTED OR ERROR FREE OR THAT ALL DEFICIENCIES OR ERRORS ARE CAPABLE OF
BEING CORRECTED.
5.0 Intellectual Property Rights.
5.1 Client acknowledges and agrees that the Products, the ideas, methods of
operation, processes, know-how, sub-systems and modules included in the Products
are proprietary materials which contain valuable trade secrets and that all
Intellectual Property Rights to the Products are owned exclusively by Webb,
subject to the License.
5.2 Client acknowledges and agrees that Webb shall retain title to all
Intellectual Property Rights related to the Products, copies of the Products,
and Upgrades, Modifications or Enhancements. If Client makes any modifications
or enhancements, Client shall assign to Webb all Intellectual Property Rights to
the modifications or enhancements provided that Client shall retain a perpetual
-------------
license to use, copy and modify any modifications for the sole purpose of
benefiting its web site. Modifications or Enhancements may be used in
conjunction with the Products only in compliance with this Agreement.
5.3 Client shall take reasonable precautions (including the precautions used
for Client's own confidential information) to prevent the unauthorized use or
disclosure of the Products, any source code provided to Client under this
Agreement or other agreement between the Parties. Except as contemplated under
the terms of this Agreement, Client shall not allow the Products to be made
available to any third party (other than an Affiliate of VetConnect (as defined
in Section 15 below) unless Webb approves such in writing and the third party
enters into a non-disclosure and non-use agreement with Client on terms
acceptable to Webb. Client shall not disassemble, decompile, decode or reverse
engineer the Software, except as expressly permitted by applicable law.
5.4 Client shall use reasonable efforts to keep the Products free and clear of
liens and security interests and may not sublicense the Products.
6.0 Inspection.
Webb shall have the right to inspect, with reasonable notice, during normal
business hours, no more than once per calendar year, any Site for the sole
purpose of auditing use of the Products.
7.0 Number of Seats.
Except as set forth in this Agreement, the number of Seats authorized to use any
Product shall not exceed the Number of Seats without the prior approval of Webb.
In the event that the Number of Seats is exceeded by the Client, Client shall
pay to Webb an additional license fee as follows: (a) $20 for each additional
Seat between 5001-10,000 Seats , (b) $15 for each additional Seat over between
10,000 and 20,000 Seats and (c) $10 for each additional Seat over 20,000.
8.0 Number of Sites.
Except as set forth in this Agreement, the Number of Sites upon or at which the
Product is installed shall not exceed the quantities specified in this Agreement
as stated in the attached Schedule A. In the event that Client in its sole
discretion desires to increase the Number of Sites, Client shall before such
increase pay a fee to Webb the then current fee charged by Webb for additional
site for customers reasonably similar to Client.
9.0 Upgrades
All Upgrades, Enhancements and Modifications to the Products developed by Webb
shall be provided by Webb to Client pursuant to the license granted in Section
1.1.
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10.0 Copies of Products and Documentation.
With Webb's prior permission only, Client may copy the Products, in object and
source code format, only for backup, archival purposes or for Client's testing
purposes. All copies of the Products must have all of the restrictive and
proprietary notices as they appear on copies of the Products provided by Webb.
11.0 Source Code and Confidential Information.
11.1 The Products, in source code format, may be used only for diagnosing
problems and developing modifications or enhancements permitted by this
Agreement. Client shall ensure that only such authorized users have access to
the Products.
11.2 Webb and Client and each of their representatives and agents shall
maintain, and cause any third party involved in the delivery, installation or
operation of the Products to maintain the Confidential Information of the other
party in the strictest confidence and trust and shall take all reasonable
measures to prevent the unauthorized use or disclosure of such Confidential
Information except with the written consent of the owner of such Confidential
Information in each instance, provided that either party may make disclosures
required by a court of law or other governmental agency. Webb and Client and
each of their representatives and agents agree to use the Confidential
Information of the other party solely for the purpose of carrying out its
obligations under this Agreement.
12.0 Infringement and Indemnity.
12.1 Webb shall, at its expense, defend any suit, claim or action brought
against Client and shall indemnify and hold Client harmless against any and all
claims, losses, damages, and liabilities whatsoever arising out of any action or
claim asserted by a third party arising from any actual or asserted infringement
of a Patent or Copyright or trade secret as a result of Client's use or a
customer of Client's use of the Products, if Client: (a) promptly notifies Webb
in writing of the suit or claim after Client receives notice; (b) gives Webb
sole authority to defend or settle the suit or claim; (c) reasonably cooperates
and assists Webb with defense of the suit or claim at Webb's expense.
12.2 If any Product becomes or in Webb's opinion is likely to become the
subject of a suit or claim of infringement of a Patent or Copyright, Webb shall
at its option and expense either (a) obtain the right for Client to use the
Product; or (b) replace or modify the Product so that it becomes non-infringing.
In the event that, after good faith best efforts by Webb, Webb is unable to
obtain the right for Client to use the Product; or replace or modify the Product
so that it becomes non-infringing, Webb may terminate the license solely for the
infringing Product to the extent it relates to the infringing Product. If Webb
terminates any portion of the license for the infringing Product under this
Section 12.2, Client shall cease use of solely the infringing portion of the
Product and shall return it to Webb and Webb shall pay Client, as Client's sole
and exclusive remedy against Webb (other than indemnification by Webb under
Section 12.1) an amount equal to the license fee paid under this Agreement for
the infringing portion of the Product less any cumulative amortization or
depreciation of that portion of the Product by Client on its financial
statements as of the date when Webb terminates the license for the infringing
portion of the Product.
12.3 Webb shall have no liability to Client under this Section 12.0 if any suit
or claim of infringement is based upon the use of the Product: (a) in a modified
state not authorized by Webb; or (b) in a manner other than for which it was
designed, if infringement would have been avoided without such use of the
Product. Webb shall not be liable to Client for any infringement claim outside
the United States or Canada.
12.4 Client, at its expense, shall defend any suit, claim or action brought
against Webb and shall indemnify and hold Webb harmless against any and all
claims, losses, damages, and liabilities whatsoever arising out of any action or
claim asserted by a third party arising from Client's use of the Products in a
manner that is inconsistent with the terms of this Agreement, provided Webb (a)
promptly notifies Clients in writing of the suit or claim after Webb receives
notice; (b) gives Client sole authority to defend or settle the suit or claim;
and (c) reasonably cooperates and assists Client with defense of the suit or
claim at Webb's expense.
13.0 Term and Termination.
13.1 The term of this Agreement shall begin upon the Effective Date, and shall
continue until terminated by either Party pursuant to the terms and conditions
of this Agreement.
13.2 Webb may terminate this Agreement and the license granted to Client if Webb
is in compliance with this Agreement and either (a) Client fails to pay Webb the
one-time license fee set forth in Section 1.2 (and specifically excluding any
fees due from Client to Webb pursuant to Exhibits B, C, and D) and such failure
to pay has not been cured within thirty (30) days after Webb gives Client
written notice describing the failure to pay, (b) Client is in material default
of any other provision of this Agreement and such default has not been cured
within thirty (30) days after Webb gives Client written notice describing the
default. Upon termination in accordance with this Section 13.2, Webb may:
(i) declare all amounts owed to Webb by Client to be immediately due and
payable;
(ii) require that Client cease any further use of the Products and
immediately return the Products and any copies to Webb; and
(iii) cease performance of all of Webb's obligations under this Agreement
without liability to Client.
13.3 Client may terminate this Agreement if Client is in compliance with this
Agreement and Webb is in material default of any provision of this Agreement and
such default has not been cured within thirty (30) days after Client gives Webb
written notice describing the default. Upon such termination:
(i) Client shall pay Webb's outstanding invoices that do not pertain to
Webb's default, but Client shall have no further payment
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obligations to Webb under this Agreement; and
(ii) Webb may require that Client cease any further use of the Products and
immediately return the Products and any copies to Webb.
13.4 Upon termination of this Agreement by Webb or Client, Sections 3.0, 5.0,
6.0, 9.2, 12.0 through 25.0 of this Agreement shall survive.
14.0 Limitations of Liability.
14.1 CLIENT'S EXCLUSIVE REMEDIES FOR PRODUCT RELATED MATTERS SHALL BE AS
DESCRIBED IN THIS AGREEMENT, SUBJECT TO THE LIMITATIONS OF SECTION 14.0.
14.2 WEBB SHALL NOT BE LIABLE FOR ANY EXPENSE OR DAMAGE ARISING OUT OF ANY
ERASURE, DAMAGE OR DESTRUCTION OF FILES, DATA OR PROGRAMS. CLIENT SHALL BE
RESPONSIBLE FOR MAKING BACKUP COPIES OF FILES, DATA, AND PROGRAMS.
14.3 IN NO EVENT SHALL WEBB OR ITS THIRD PARTIES BE LIABLE FOR SPECIAL,
INDIRECT, THIRD PARTY, OR CONSEQUENTIAL DAMAGES, INCLUDING LOST PROFITS.
NEITHER PARTY SHALL SEEK, OR OTHERWISE APPLY FOR, ANY PUNITIVE OR EXEMPLARY
DAMAGES.
14.4 EXCEPT ONLY FOR INDEMNIFICATION BY WEBB UNDER SECTION 12.1 ABOVE, WEBB'S
MAXIMUM AGGREGATE LIABILITY FOR DAMAGES TO CLIENT OR OTHERS SHALL BE LIMITED TO
ACTUAL DIRECT MONEY DAMAGES IN AN AMOUNT NOT TO EXCEED THE INITIAL LICENSE FEE
PAID BY CLIENT TO WEBB FOR THE PRODUCT IF THE CLAIM AROSE WITHIN THREE YEARS
AFTER THE EFFECTIVE DATE OF THIS AGREEMENT.
14.5 CLIENT ACKNOWLEDGES THAT THE LIMITATIONS ON LIABILITY IN THIS SECTION 14
ARE REASONABLE. THE REMEDIES PROVIDED IN THIS AGREEMENT ARE EXCLUSIVE.
15.0 Assignment.
Webb may not assign or subcontract its rights or obligations under this
Agreement, either in whole or in part, without the prior written consent of
Client, which shall not be unreasonably withheld, except that, without the
consent of Client, Webb may assign the entirety of its rights and obligations
hereunder to an acquirer of substantially all of the business or assets of Webb.
Client may not assign or subcontract its rights or obligations under this
Agreement, either in whole or in part, without the prior written consent of the
Webb, which shall not be unreasonably withheld, except that, without the consent
of Webb, Client may assign the entirety of its rights and obligations hereunder
to a) an acquirer of substantially all of the business and assets of Client or
b) an Affiliate of Client. "Affiliate" means with respect to any Party, an
individual or entity that, directly or indirectly, owns or controls, is owned or
controlled by, or is under common ownership or control with such Party.
16.0 Waiver.
No term or provision of this Agreement shall be deemed waived and no breach
shall be deemed excused, unless such waiver is in writing and signed by the
Party claimed to have waived or consented. A waiver by either of the parties of
any of the covenants, conditions or agreements to be performed by the other
hereunder shall not be construed to be a waiver of any succeeding breach
thereof.
17.0 Export.
Client shall not export the Products from the United States. If at anytime
Client desires to deploy the Products at a location outside the United States,
Client pay to Webb the then current published license fee for foreign deployment
of the Products. If the foregoing does not reasonably apply to the then current
situation at the time that Client desires to deploy the Products outside of the
United States, the Parties shall negotiate in good faith until an acceptable
license fee is mutually agreed upon by the Parties in writing.
18.0 Excusable Delay.
Neither Webb nor Client shall be deemed to be in default of any provision of
this Agreement or for any failure in performance, resulting from acts or events
beyond the reasonable control of Webb or Client, as the case may be. For
purposes of this Agreement, such acts shall include, but not be limited to, acts
of God, civil or military authority, civil disturbance, war, strikes, fires,
other catastrophes, or other such major events beyond Webb's or Client's
reasonable control. This Section 18.0 shall not delay or excuse Client's
payment obligations.
19.0 Governing Law and Dispute Resolution.
This Agreement is governed by and construed in all respects in accordance with
the laws of the State of Colorado, USA. (without regard to conflicts of laws
principles), excluding the United Nations Convention on Contracts for the
International Sale of Goods.
20.0 Relationship
The relationship of Webb and Client under this Agreement will at all times
remain independent. Neither Party is an agent, franchisee, partner or joint
venturer of the other Party. Neither Party is authorized to enter into or
execute any contract on behalf of or otherwise obligate the other Party in any
matter.
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21.0 Severance and Interpretation.
If any provision of this Agreement is found to be unenforceable, such provision
shall be deemed to be deleted or narrowly construed to such extent as is
necessary to make it enforceable and this Agreement shall otherwise remain in
full force and effect. If an ambiguity or question of intent arises, this
Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring either Party
by virtue of authorship of any of the provisions of this Agreement.
22.0 Notices.
All notices required or permitted under this Agreement and all requests for
approvals, consents, and waivers must be delivered in writing by a reasonably
acceptable method providing for proof of delivery. Any notice or request shall
be deemed to have been given on the date of delivery. Notices and requests must
be delivered to the Parties at the addresses on the first page of this Agreement
until a different address has been designated in writing by notice to the other
Party.
23.0 Non-Solicitation of Employees.
Neither Party shall directly solicit the services or employment of any employee
or agent of the other Party for a period beginning at the Effective Date and
ending twelve (12) months after the last date of initial delivery of any of the
Products as set forth in the Exhibits (as of the Effective Date).
24.0 Entire Agreement.
This Agreement and the Schedules and Exhibits listed below and referred to
herein, together with any written addenda signed by the Parties (collectively,
the "Agreement"), constitute the entire agreement between Webb and Client with
respect to the Products Services, and other subject matter of this Agreement,
and may only be modified by a written amendment or addendum signed by both Webb
and Client. No employee, agent, or other representative of either Webb or
Client has authority to bind the other with regard to any statement,
representation, warranty, or other expression unless it is specifically included
within the express terms of this Agreement or a written addendum signed by both
Webb and Client. All purchase orders, prior agreements, representations,
statements, proposals, negotiations, understandings, and undertakings with
respect to the subject matter of this Agreement are superseded by this
Agreement.
25.0 Publicity
Except as may be required by law or in a legal or administrative proceedings,
neither Party shall make any announcement regarding the existence of this
Agreement and any Exhibits or Schedules attached hereto, the relationship
between the parties or any terms of this Agreement to any third party or to the
public in general without the express, written consent of the other party, such
consent not be unreasonably withheld, provided that Client may withhold consent
in its discretion prior to the first day that Client makes the Products
functionality available to its subscribers.
26.0 Headings
The headings in this Agreement are for reference purposes only and shall not be
construed as a part of this Agreement.
27.0 Counterparts
This Agreement may be executed, either through original copies or by facsimile,
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. An executed
copy of this Agreement delivered by facsimile will constitute valid execution
and delivery of this Agreement.
For WEBB INTERACTIVE SERVICES, INC. For CLIENT (VETCONNECT)
- -------------------------------------- --------------------------------------
(Authorized Signature) (Authorized Signature)
- -------------------------------------- --------------------------------------
(Printed Name) (Printed Name)
- -------------------------------------- --------------------------------------
(Title) (Title)
- -------------------------------------- --------------------------------------
(Date) (Date)
SCHEDULES and EXHIBITS : Attached
- ---------------------- --------
1. Schedule A Product Sites and Information
Exhibit 1 License Fee and Other Charges
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2. Schedule B Maintenance and Support Agreement
Schedule C Web Site Hosting Agreement
8
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Schedule A
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Product Information
The following describes the Product suites, that Webb Interactive is licensing
to VetConnect:
Number of Seats: AccelX CRM = 5000; XML Publish = 5000
Number of Sites: CommunityWare/XML = 1
Location of Each Site: (1) ______http://www.vetconnect.com or such other site
reasonably determined by Client pursuant to the terms
hereof.
(2) ______TBD____________________
Generally Available Product Functionality
-----------------------------------------
AccelX CRM
- ------------
The suite currently known as AcceIX CRM suite is designed for small businesses
to enhance e-communications with online customers, and may be used by small
businesses to receive requests for information from customers and to send
outbound responses, promotional information or other e-marketing communication
to customers. AcceIX uses communications templates that may be tailored to a
variety of vertical industry needs. AcceIX is built to leverage a platform that
enables data structures for capturing, storing and analyzing messages.
Building and Formatting of Customer Information Templates
---------------------------------------------------------
. Predefined notification templates, or business can create own
. Page formatting and design
. Subscriber uploading, downloading, and automated list maintenance
. Demographic field modifications
. Automated email responds message modifications for subscriber
confirmation, profile change, and subscriber removal
. Text modification including error messages
Tracking Options
----------------
. Subscriber Interests
. Email response rates
. General Subscriber activity
. Subscriber demographic and psychgraphic information
Reporting Options
-----------------
. Send updates to individuals
. Send updates to whole interest group fields
. Send updates to specific queried groups that you create
. Set up auto-responders for confirmations of subscribing, unsubscribing,
and profile editing
. notifications can be delivered as text only email or HTML email and can
include attachments
Host Administration
--------------------
Quick Administration of Global Values For Accounts
--------------------------------------------------
. Predefine your pricing packages
. Set up different pricing packages with different system limits
. Set maximums for demographics and listings
. Set maximum number of subscribers for an account
. Set bandwidth limits
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. Select email attachment options
. Set pricing options
Account Management
------------------
. Quickly add new accounts
. Control account logins
. Disable delinquent accounts
. Update general information for individual accounts
CommunityWare/XML (as currently known)
- --------------------------------------
. CommunityWare/XML is a robust messaging engine based on integrated messaging
technologies.
Release 4.0
General Features
. Messages
. Post structured messages
. Post a message with HTML in the contents
. Spellchecking for posting messages
. Profanity filter for posting messages
. Messages marked as read/unread
. Erase your own posted messages
. Create a new topic (on or off--depending on moderator setup of discussion)
. Sort topics by number, name, date of last post, number of unread posts
. Hide topics from your view(e.g., not relevant to you)
. Online help
. Security
. Seamless login authentication from customer's site to Webb discussions
. User Permissions
. Moderator access
. Registered user access
. Anonymous users who can only view discussions, topics, and messages--cannot
post a message or add a topic
Administration/Moderator-exclusive Features
. Remote administration via a web browser
.
. Create, add, edit and delete public discussions
. Create message templates for discussions and topics
. Message templates are used to structure the content of message postings in a
discussion or topic
. Create, add, edit and delete moderated discussions
. In moderated discussions, all posted messages must be pre-approved by the
moderator before viewable in the discussion
. Turn on/off profanity checking
. Delete any messages
. Archive discussions
. Create, edit, delete FAQs associated with discussions
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Jabber Instant Messaging - Applet
Release 1.1
. Java Applet running within a browser
. User registration and sign-in via browser
. Create, edit and delete user profile information
. Contact list: 4 default/fixed groups-all, friends, family and work
. Send and reply to messages
. Create, delete and search on Jabber and ICQ users via the browser
. User searching on Jabber user profile information via browser
XML Publish (as currently known)
- --------------------------------
Release 2.0
. Simple online Web publishing editor that can be used via a Web browser and
integrated with your call center for Web Site Creation and Editing
. Web Site Creation and Editing includes customer information, site
characteristics, site design and page types
. Site preview: the site can be previewed at any point during the session
. Online help
. Multipage Ad Sites
. Home page, About Us, Products, Services, Special Offers (specials and
coupons)
. Published information: store hours, product and service availability, type of
payment accepted, etc.
. Webb image libraries provide a selection of images to choose from in specific
categories.
. Company logos and images can be added to the Web site
. Web site templates
. Full range of templates to find the look consistent with the business image
. XML architecture
The following describes WEBB's hosting environment as it serves many customers.
While WEBB cannot predict the capacity needs for VetConnect at the time that
VetConnect hosts the Products, it is generally recommended that the Client have
the following or similar components in their environment in order to host the
Products:
XML/Publish, CommunityWare/XML and AccelX CRMapplication servers
BEA WebLogic 4.5.1
ProLiant 5500
Windows NT
(We are moving to Solaris over the next few months)
4 Pentium II Xeon/450Mhz processors
~2 GB RAM
~8 GB hard drive space for SML/Publish server; ~18GB hard drive space for
CommunityWare/XML and AccelX CRM servers
11
<PAGE>
Oracle DB server
Sun Enterprise 3500
4 SPARC Ultra 400Mhz processors
4 GB RAM
6 9GB hard drives
Small business sites usually require (less than) 500K each; recommend about 10
GB storage space for the databases..
12
<PAGE>
EXHIBIT A-1: Business Terms
----------------------------
Software License
- ----------------
CommunityWare/XML
AccelX CRM
XML Publish
License fees = $400,000
Additional Terms
----------------
Product is to be used solely within the online animal health services industry
under the name of VetConnect or the domain name reasonably determined by
VetConnect.
13
<PAGE>
Schedule B
----------
Maintenance and Support Agreement
THIS MAINTENANCE AND SUPPORT AGREEMENT ("Agreement") between WEBB
Interactive Services, Inc. ("WEBB"), a Colorado corporation with principal
offices located at 1800 Glenarm Place, Denver, Colorado 80202 and VetConnect,
Inc. ("Client") identified in the attached Master Software License Agreement
(the "Master Agreement") dated as of ________, 2000 is effective as of ________
2000 ("Effective Date"). WEBB and Client are referred to collectively as the
"Parties".
Background
----------
WHEREAS, Client has licensed the certain Products from WEBB and Client
desires to have WEBB maintain and support the Products during the term of the
Master Agreement.
WHEREAS, WEBB is willing to offer maintenance and support for the Product
during the term of the Master Agreement, subject to the terms of this Agreement.
In consideration of the foregoing, the Parties agree as follows:
1. Definitions
-----------
Capitalized terms used but not defined in this Agreement shall have the
meanings ascribed to them in the Master Agreement.
2. WEBB's Obligations
------------------
Subject to payment by Client of the Support Fee identified in Exhibit B-1,
-----------
WEBB shall use reasonable commercial efforts to provide the following
Maintenance and Support Services for the Products.
(a) Problem reporting, tracking and monitoring and communications to
Client by electronic mail via the Internet;
(b) Maintenance of accessibility for WEBB hosted products for a minimum of
95.5% of a calendar year.
(c) Telephone support on business days (excluding observed State or
Federal holidays) for problem determination, verification and resolution on a
call-back basis during the hours of 7:00 a.m. to 4:00 p.m. Mountain Time; and
(d) Periodic Product Modifications and Upgrades or new releases publicly
offered by WEBB.
(e) Problem resolution in which Webb shall work diligently during normal
business hours (subject to Section 2(c)) above) to promptly resolve defects and
errors that have been replicated (except for Error Priority A specified below)
by or for WEBB in the Products and Documentation in accordance with the
following schedule, it being understood that the closure periods commence when
the problem has been mutually verified:
ERROR PRIORITY (1) RESPONSE (2) CLOSURE (3)
Emergency (A) 24 hours 7 days
Critical (B) 2 days 14 days
Non-Critical (C) 30 days Next Update
(1) Error Priority:
-A- Catastrophic product or module failures that do not have a
viable detour or work around available. Catastrophic failure shall be deemed to
include failures which cause an interruption of service or seriously impair the
functionality of the Products.
-B- Problems that have been substantiated as a serious
inconvenience to Client or its customers. This includes any priority A failure
for which a reasonable and viable detour or work around is available to Client.
-C- All other problems which Client or its customers can easily
avoid or detour for which there is no urgency for a resolution.
(2) Response: Response consists of providing, as appropriate, one of
the following to Client: an existing correction; a new correction; a reasonable
and viable detour or work around ; a reasonable request for more information to
complete analysis of the problem, or a reasonable plan on how the problem will
be corrected.
14
<PAGE>
(3) Closure: Closure consists of providing a final correction or
work around of the problem including Modifications of the Products and, to the
extent reasonably possible, revised or new documentation as necessary, it being
understood that documentation may, to the extent reasonable, be completed after
the applicable closure date.
(f) Shall furnish the maintenance and technical support described above,
for the current release level of the Products and the previous release level
thereof for a period up to 6 months past its date of discontinuation.
(g) WEBB shall have the right to outsource its obligations under this
Agreement to a third party, provided that WEBB shall remain responsible for its
obligations under this Agreement that are performed by such third party.
3. Client Obligations
------------------
Client agrees:
(a) that the Designated Contact person(s) identified in Exhibit B-1 (or
-----------
such other replacement individual as Client may designate) shall be the sole
contact for the coordination and receipt of the Maintenance and Support Services
set forth in Section 2 of this Agreement, which person shall be knowledgeable
---------
and trained in the Products;
(b) to maintain for the term of this Agreement, an electronic mail link-up
with WEBB via the Internet;
(c) to provide reasonable supporting data to and aid in the identification
of reported problems;
(d) to treat all periodic software Modifications created or developed by
Webb and delivered under this Agreement in accordance with the terms of the
Master Agreement between WEBB and Client under which Client obtained rights to
the Products.
4. Term and Termination
--------------------
4.1 For each Product covered by this Agreement, the Maintenance and
Support Services will begin on the Effective Date and will apply to such Product
for an initial term of twelve (12) months unless an alternative period is agreed
to in writing. The initial term or any renewal term may be extended or renewed
at Client's option for a one-year increment. Client shall give WEBB at least
60 days written notice if, during the initial term or any renewed period, Client
decides not to renew Maintenance and Support.
4.2 If either party is in default of its obligations hereunder and such
default continues for thirty (30) days following receipt of written notice from
the other party, the non-breaching party, in addition to any other remedies it
may have, may terminate this Agreement (but not the Master Agreement).
4.3 This Agreement shall automatically terminate upon the termination of
the Master Agreement. If this Agreement is terminated pursuant to this Section
4.3, the Parties will be obligated to comply with all post-termination
obligations under the Master Agreement and any outstanding Support Fees and
other charges, if any, shall become immediately due and payable, provided that
if Webb terminates this Agreement, Webb shall refund to Client a pro rata
portion of the most current annual maintenance and support fees paid by Client
to Webb under this Agreement. Client will not be entitled to any refund if
Client terminates this Agreement.
5. Charges, Taxes and Payments
---------------------------
5.1 The Support Fee set forth on Exhibit B-1 is payable upon the execution
-----------
of this Agreement or prior to the commencement of any additional one year
extension term.
5.2 The charges specified in this Agreement are exclusive of all federal,
state, local and foreign taxes, levies and assessments. Client agrees to bear
and be responsible for the payment of all such taxes, levies and assessments
imposed on Client or WEBB arising out of this Support Agreement excluding any
income tax imposed on WEBB by a governmental entity of the United States.
5.3 Client agrees that WEBB will have the right to charge in accordance
with WEBB then current policies for any services resulting from Client's
modification of the Products or Client's failure to utilize the current release
of the Products provided by WEBB.
6. Warranty, Limitation of Liability and Indemnification
-----------------------------------------------------
6.1 EXCEPT AS STATED IN THIS AGREEMENT, THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES RESPECTING THIS MAINTENANCE AND SUPPORT AGREEMENT OR THE SERVICES
PROVIDED HEREUNDER (INCLUDING THE FIXING OF ERRORS THAT MAY BE CONTAINED IN THE
APPLICABLE SOFTWARE), INCLUDING
15
<PAGE>
BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND
IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT TO SUCH SERVICES WHETHER ORAL OR
WRITTEN, EXPRESS OR IMPLIED.
6.2 WEBB WILL NOT BE LIABLE FOR ANY FAILURE OR DELAY IN PERFORMANCE DUE IN
WHOLE OR IN PART TO ANY CAUSE BEYOND WEBB'S REASONABLE CONTROL. IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR (A) ANY SPECIAL, INDIRECT,
INCIDENT OR CONSEQUENTIAL DAMAGES, OR (B) ANY DAMAGES RESULTING FROM LOSS OF
USE, DATA OR PROFITS.
6.3 Client will hold WEBB and its directors, officers, employees,
representatives and agents, (collectively, "Webb Representatives") harmless
from, and defend and indemnify WEBB and Webb Representatives against, any and
all claims, losses, damages and expenses, including reasonable attorneys' fees,
arising from a third party claim against WEBB or Webb Representatives to the
extent that such third party claim is based solely on the negligence or willful
misconduct of Client or its agents or representatives.
6.4 WEBB will hold Client and its directors, officers, employees,
representatives and agents (collectively, "Client Representatives") harmless
from, and defend and indemnify Client and Client Representatives against, any
and all claims, losses, damages and expenses, including reasonable attorneys'
fees, arising from a third party claim against Client or Client Representatives
to the extent that such third party claim is based on: (a) the negligence or
willful misconduct of WEBB or its Webb Representatives or (b) claims of
infringement of Intellectual Property Rights against Client or Client
Representatives for the authorized use of the Products.
6.5 Any indemnification obligations set forth in this Agreement shall be
subject to the following conditions: (i) the indemnified party shall notify the
indemnifying party in writing promptly upon learning of any claim or suit for
which indemnification is sought; (ii) the indemnifying party shall have control
of the defense or settlement, provided that the indemnified party shall have the
-------------
right to participate in such defense or settlement with counsel at its selection
and at its sole expense; and (iii) the indemnified party shall reasonably
cooperate with the defense, at the indemnifying party's expense. The
indemnification obligations under Sections 6.3 and 6.4 are subject to and
conditioned upon compliance with this Section 6.5 by the indemnified party.
7. General
-------
7.1 The waiver by either party of a breach of or a default under any
provision of this Agreement by the other party shall not be construed as a
waiver of any subsequent breach of the same or any other provision of this
Agreement nor shall any delay or omission on the part of either party to
exercise or avail itself of any right or remedy it has or may have hereunder
operate as a waiver of any right or remedy by such party.
7.2 This Agreement contains the full understanding of the parties with
respect to the maintenance and support of the Products and supersedes all prior
understandings and writings relating thereto. No waiver, consent modification,
amendment or change of the terms of this Support Agreement shall be binding
unless in writing and signed by WEBB and Client. If the terms and conditions of
this Agreement are inconsistent with, or contrary to, the terms and conditions
of the Client License Agreement, the terms and conditions of the License
Agreement shall be controlling.
7.3 This Agreement shall be governed by the laws of the State of Colorado.
7.4 Any notice or other communication in connection with this Maintenance
and Support Agreement shall be furnished in writing and shall be effective upon
receipt.
7.5 Neither Client nor WEBB will be deemed to be in default of any
provision of this Agreement or for any failure in performance, resulting from
acts or events beyond the reasonable control of Client or WEBB, as the case may
be including, without limitation, acts of God, civil or military authority,
civil disturbance, war, strikes, fires, other catastrophes, telecommunication
outages, equipment malfunctions or other such major events beyond Client's or
WEBB's reasonable control.
WEBB Interactive Services, Inc: Client:______________________________
By:__________________________________ By:__________________________________
Name:________________________________ Name:________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
16
<PAGE>
EXHIBIT B-1
MAINTENANCE AND SUPPORT ATTACHMENT
Support Fee(s): The Client will pay WEBB the following Support Fee:
- --------------
Annual Renewable Maintenance = $72,500 payable pursuant to Section 5.1.
Commencement Date: _____________________.
- -----------------
Client Designated Contacts:
Primary Contact: Tim Brewer
----------
Phone number: 207-856-8054
------------
E-Mail address: [email protected]
----------------------
Secondary Contact: Ted Robinson
------------
Phone number: 207-856-8114
------------
E-Mail address: [email protected]
----------------------
17
<PAGE>
Schedule C
----------
WEB SITE HOSTING AGREEMENT
THIS WEB SITE HOSTING AGREEMENT ("Agreement") between WEBB Interactive
Services, Inc. ("WEBB"), a Colorado corporation with principal offices located
at 1800 Glenarm Place, Denver, Colorado 80202 and VetConnect, Inc. ("Client")
identified in the attached Master Software License Agreement (the "Master
Agreement") dated as of March 31, 2000, is effective as of March 31, 2000
("Effective Date"). WEBB and Client are referred to collectively as the
Parties."
Background
----------
WHEREAS, Client has licensed the certain Products from WEBB and Client
desires to have WEBB host a portion of Client's web site (the "Web Site") under
the terms of this Agreement.
WHEREAS, WEBB is willing to host the Web Site under the terms of this
Agreement.
In consideration of the foregoing, the Parties agree as follows:
1. Definitions
Capitalized terms used but not defined in this Agreement shall have the
meanings ascribed to them in the Master Agreement.
2 Hosting Services
2.1 Hosting Term by WEBB. Commencing on a date specified by Client, which date
--------------------
shall be no earlier than May 15, 2000, through November 14, 2000__(Initial
Term), and subject to the terms of this Agreement and the Master Agreement, WEBB
will host on WEBB servers, operate, and allow continuing access to the WEBB
Hosting Platform (as defined in Section 2.7 below) and licensed Products by and
for the benefit of Client and Client Customers until the earlier of (a) the
expiration or termination of this Agreement or (b) the termination of the Master
Agreement. WEBB may at any time after November 14, 2000 require Client to take
over the hosting and operation of the Web Site, provided that WEBB gives Client
at least 90 days advance written notice.
2.2 Third Party Costs. Client will be responsible for the costs paid to third
-----------------
parties for third party content, technology and services that Client
specifically requests be integrated into Client's Web Site.
2.3 Optional Hosting by Client. At any time after the Initial Term, Client may
--------------------------
elect to take over the hosting of its Web Site. Promptly after making that
election, WEBB will provide Client one copy of the Object Code to the Webb
Hosing Platform to enable Client to commence and continue, at its expense, the
hosting and operation of the Web Site for use in accordance with the License
granted under the Master Agreement.
2.4 Maintenance and Support., Provided Client is in compliance with the terms
-----------------------
of this and all other agreements with Webb, upon Client's request, WEBB may
provide maintenance and support services to Client pursuant to the terms of the
Maintenance and Support Agreement attached hereto as Exhibit B.
VetConnect Post-Launch Support
- ------------------------------
After the system is accepted and live, VetConnect and Webb should
follow the following problem-reporting procedures.
Functionality Issues
--------------------
Issues and bugs should be reported to the Project Manager.
C-18
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Escalation Response
Level Time/1/ Contact Contact Number Notes
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1 2 hours Project Manager 303.296.9200
- --------------------------------------------------------------------------------------------------------------
2 Manager of Project 303.296.9200
Services
- --------------------------------------------------------------------------------------------------------------
</TABLE>
System Issues
-------------
Catastrophic failures or system outages (see Emergency Priority definition
below) should be directed to the first escalation level in the table below.
Business Hours - System Issue
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Escalation Response
Level Time/1/ Contact Contact Number Notes
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1 20 minutes Webb Primary On-Call 303.296.9200 8:30am -
Netops Contact/2/ 5:30 PM MT
- --------------------------------------------------------------------------------------------------------------
2 20 minutes Webb Secondary On-Call 303.296.9200 8:30am -
Netops Contact/2/ 5:30 PM MT
- --------------------------------------------------------------------------------------------------------------
3 20 minutes Project Manager 303.296.9200
- --------------------------------------------------------------------------------------------------------------
4 Manager of Project 303.296.9200
Services
- --------------------------------------------------------------------------------------------------------------
</TABLE>
After Hours - System Issue
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Escalation Response
Level Time/1/ Contact Contact Number Notes
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1 20 minutes Webb Answering 303.231.6692 Primary On
Service/3/ Call
- --------------------------------------------------------------------------------------------------------------
2 20 minutes Webb Answering 303.231.6692 Secondary On
Service Call
- --------------------------------------------------------------------------------------------------------------
3 Webb Answering 303.231.6692 Ray
Service Zupancic
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Webb Response and Closure
-------------------------
Functionality and system issues will be handled according to the following
timeline:
- ------------------------------
/1/ Refers to the time elapsed before escalating the issue to the next contact.
/1/ Refers to the time elapsed before escalating the issue to the next contact.
/2/ Escalation Levels 1 & 2 (Business Hours) can also be placed through the
Answering Service (303.231.6692).
/3/ In most cases, only one call needs to be placed to the Answering Service. If
necessary, they will contact Escalation Levels 2 & 3.
C-19
<PAGE>
<TABLE>
<CAPTION>
Issue Priority Initial Response Target Closure Plan Target Closure
<S> <C> <C> <C>
Emergency 1 hour 24 hours 0-7 days
Critical 12 hours 2 days 0-14 days
Non-Critical 3 days 15 days Next Update
</TABLE>
Issue Priority
. Emergency: Catastrophic product or module failures that do not have a
viable detour or work around available. Catastrophic failures shall be
deemed to include failures which cause an interruption of service or
seriously impair the functionality. Includes severity 1 bugs/issues.
. Critical: Problems that have been substantiated as a serious
inconvenience to the client or the client's customers. Includes
severity 2 bugs/issues.
. Non-Critical: All other problems which the client or the client's
customers can easily avoid or detour for which there is no urgency for
a resolution. Includes severity 3 and 4 bugs/issues.
Initial Response
The initial response will consist of an acknowledgement of the problem
and/or request for more information to complete analysis of the problem.
Target Closure Plan
The closure plan will consist of providing one of the following items to the
client:
A. An existing correction
B. A new correction
C. A viable detour or work around
D. A plan on how the problem will be corrected.
Target Closure
All reasonable efforts will be made to resolve the reported problem within the
designated time frame. This process will consist of providing a final correction
or work around of the problem, including modifications of the software and,
where appropriate and to the extent reasonably possible, revised or new
documentation.
2.5 Hosting Fee. During the term of this Agreement, Client shall pay WEBB
------------
the hosting fees described in Exhibit C-1 attached hereto. Client shall be
responsible for all fixed and cumulative charges. In addition to WEBB's other
remedies, if Client fails to pay WEBB any amounts when due under this Agreement,
Client will pay interest on that amount at the rate of 1.5 % per month or such
lesser maximum rate of interest permitted under applicable law.
C-20
<PAGE>
2.6 Reference to "Powered by" WEBB. So long as either WEBB or Client or its
------------------------------
partner is hosting and operating the WEBB Hosting Platform for the benefit of
Client or Client's Customers, (a) Client shall include a reference in the
management interfaces for Client customers that the web site management tools
are "powered by" WEBB or other mutually agreed WEBB branding; and (b) Client
shall include a WEBB icon in the area of the Client site where Client business
partners are listed.
3. Warranty and Disclaimer
Except as set forth in this Agreement or the Documentation, WEBB provides
no warranty regarding the bandwith or any information, services or products
provided through, in connection with, or located on its server or computer
systems. WEBB HEREBY DISCLAIMS ANY AND ALL WARRANTIES, INCLUDING WITHOUT
LIMITATION, (A) ANY WARRANTY AS TO BANDWITH, AVAILABILITY, ACCURACY OR CONTENT
INFORMATION; AND (B) ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. .
4. Limited Liability
Any liability of WEBB, including without limitation, any liability for
damages caused or allegedly caused by failure of performance, error, omission,
interruption, deletion, defect, delay in operation or transmission,
communication, theft or destruction of, or unauthorized access to, alteration or
use of records, whether for breach of contract, tortuous behavior, negligence,
or under any other cause of action, shall be limited to the amount paid by or on
behalf of Client to WEBB. IN NO EVENT WILL WEBB BE LIABLE FOR INDIRECT DAMAGES,
INCLUDING WITHOUT LIMITATION, CONSEQUENTIAL DAMAGES OR LOST PROFITS.
5. General
5.1 The waiver by either party of a breach of or a default under any
provision of this Agreement by the other party shall not be construed as a
waiver of any subsequent breach of the same or any other provision of this
Agreement nor shall any delay or omission on the part of either party to
exercise or avail itself of any right or remedy it has or may have hereunder
operate as a waiver of any right or remedy by such party.
5.2 This Agreement contains the full understanding of the parties with
respect to the maintenance and support of the Products and supersedes all prior
understandings and writings relating thereto. No waiver, consent modification,
amendment or change of the terms of this Support Agreement shall be binding
unless in writing and signed by WEBB and Client. If the terms and conditions of
this Agreement are inconsistent with, or contrary to, the terms and conditions
of the Client License Agreement, the terms and conditions of the License
Agreement shall be controlling.
5.3 This Agreement shall be governed by the laws of the State of Colorado.
5.4 Any notice or other communication in connection with this Hosting
Agreement shall be furnished in writing and shall be effective upon receipt.
5.5 Neither Client nor WEBB will be deemed to be in default of any
provision of this Agreement or for any failure in performance, resulting from
acts or events beyond the reasonable control of Client or WEBB, as the case may
be including, without limitation, acts of God, civil or military authority,
civil disturbance, war, strikes, fires, other catastrophes, telecommunication
outages, equipment malfunctions or other such major events beyond Client's or
WEBB's reasonable control.
C-21
<PAGE>
WEBB Interactive Services, Inc: Client:______________________________
By:__________________________________ By:__________________________________
Name:________________________________ Name:________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
C-22
<PAGE>
EXHIBIT C-1
HOSTING FEES AND CHARGES
Hosting
- -------
Webb agrees to host the CommunityWare/XML, AccelX, XML Publish software and
web sites created by Client for a period of six months (May 15, 2000 through
November 14, 2000) at Webb's standard, six months hosting fee of $21,5000
("Hosting Fee"). As a concession to Client under this Agreement, Webb has
agreed to waive, and hereby waives, the Hosting Fee for Client. Client shall
pay no fee for the hosting services to be performed by Webb during the six month
period ending on November 14, 2000. If Client desires Webb to continue to host
the CommunityWare/XML, AccelX, XML Publish software and web sites created by
Client beyond the November 14, 2000 date, Webb and Client shall negotiate the
terms under which Webb will continue to host the services in a separate
agreement prior to that date.
C-23
<PAGE>
Schedule D
----------
Professional Services Agreement
THIS PROFESSIONAL SERVICES AGREEMENT ("Agreement") between WEBB Interactive
Services, Inc. ("WEBB"), a Colorado corporation with principal offices located
at 1800 Glenarm Place, Denver, Colorado 80202 and VetConnect ("Client")
identified in the attached Master Software License Agreement (the "Master
Agreement") dated as of March 31, 2000, is effective as of March 31, 2000
("Effective Date"). WEBB and Client are referred to collectively as the
"Parties."
Background
----------
WHEREAS, Client has licensed certain Products from WEBB and Client desires
to have WEBB provide professional services related to the Products during the
term of the Master Agreement.
WHEREAS, WEBB is willing to offer professional services related to the
Products during the term of the Master Agreement, subject to the terms of this
Agreement.
Agreement
---------
In consideration of the foregoing, the Parties agree as follows:
1. Definitions. Capitalized terms used but not defined in this Agreement
-----------
shall have the meanings ascribed to them in the Master Agreement.
2. WEBB's Obligations
------------------
2.1 WEBB shall perform for Client the professional services (the
"Services") specified in Exhibit D-1, in the form of Statement of Work, as same
may be revised in writing from time to time by mutual agreement of the Parties,
each of which will be made a part of this Agreement. In the event of a conflict
between any term of this Agreement and an Exhibit, the terms of the Exhibit
shall prevail.
2.2 Changes within the scope of the Services shall be made only in a
writing executed by authorized representatives of both parties. WEBB shall have
no obligation to commence work in connection with any change until the fee
and/or schedule impact of the change is agreed upon by the parties in writing.
2.3 WEBB reserves the right to determine which of its personnel shall be
assigned to perform the Services, and to replace or reassign such personnel
during the term hereof; provided, however, that it will, subject to scheduling
and staffing considerations, use reasonable efforts to attempt to honor Client's
request for specific individuals.
2.4 WEBB shall have the right to outsource its obligations under this
Agreement to a third party, provided that WEBB shall remain responsible for its
obligations under this Agreement that are performed by such third party.
3. Client Obligations
------------------
3.1 In connection with WEBB's provision of the Services, Client shall
perform all tasks and assume all responsibilities not expressly described as the
Services and, in particular, shall perform those tasks and assume those
responsibilities specified in the applicable Exhibit ("Client
Responsibilities"). The Exhibit shall also contain any assumptions related to
the Services. Client understands that WEBB's performance is dependent on
Client's timely and effective satisfaction of Client Responsibilities hereunder
and timely decisions and approvals by Client. WEBB shall be entitled to rely on
all decisions and approvals of the Client in connection with the Services.
Changes in decisions and approvals are subject to the provisions of Section 2.2,
above.
3.2 In addition to any particular items which may be specified in the
Exhibit, when required by WEBB, Client shall supply on-site WEBB personnel with
reasonably suitable office space, desks, storage, furniture, and other normal
office equipment support, including adequate telephone service, postage,
copying, typing, and general office supplies which are necessary in connection
with WEBB's performance of the Services.
4. Term and Termination
--------------------
4.1 Either party may at any time terminate this Agreement by giving thirty
(30) days' written notice of termination to Webb. In the event of such
termination, Client shall pay WEBB the lesser of 1) the amount specified in the
applicable Exhibit or 2) the amount incurred by Webb for all Services rendered
and expenses incurred by WEBB prior to the date of termination.
C-24
<PAGE>
4.2 If either party is in material default of its obligations hereunder
and such material default continues for thirty (30) days following receipt of
written notice from the other party, the non-breaching party may terminate this
Agreement immediately, in addition to any other remedies it may have. In such
case, the non-prevailing party will pay the prevailing party (as determined by a
court or in arbitration) all costs and expenses including reasonable attorneys'
fees incurred by the prevailing party in exercising any of its rights or
remedies.
4.3 This Agreement shall automatically terminate upon the termination of
the Master Agreement. If this Agreement is terminated pursuant to this Section
4.3, the Parties will be obligated to comply with all post-termination
obligations under the Master Agreement and any outstanding fees and other
charges, if any, shall become immediately due and payable.
5. Charges, Taxes and Payments
---------------------------
5.1 Client shall pay WEBB for the Services as defined in the applicable
Exhibit at WEBB's then current rates for professional services, unless otherwise
specified in the applicable Exhibit.
5.2 Unless the Parties agree otherwise in writing, Client shall pay the
amounts payable to WEBB hereunder within thirty (30) days of receipt of invoices
submitted by WEBB. Any invoice remaining unpaid for more than thirty (30) days
from receipt shall accrue interest at a rate of the lesser of one and one-half
(1.5%) percent per month or the highest rate allowed by law.
5.3 Unless provided otherwise in an Exhibit, WEBB shall be reimbursed by
Client for all reasonable and necessary expenses incurred by WEBB in the
performance of the Services, including, but not necessarily limited to, travel
and lodging expenses, communications charges and supplies.
5.4 The charges specified in this Agreement are exclusive of all federal,
state, local and foreign taxes, levies and assessments. Client agrees to bear
and be responsible for the payment of all such taxes, levies and assessments
imposed on Client or WEBB arising out of this Agreement excluding any income tax
imposed on WEBB by a governmental entity of the United States.
6. Confidential Information.
------------------------
6.1 "Confidential Information" means any trade secret or other information
or data of a proprietary or confidential nature belonging to either party,
including but not limited to: (a) technical or developmental information
(including associated documentation); (b) marketing or pricing information; (c)
business practices or relationships; (d) performance results or benchmark test
results of all or any portion of the Products; (e) designs, ideas, concepts,
inventions, technical know how, software programs, program flow charts, file
layouts, and all record bearing media containing or disclosing such information.
Confidential Information shall not include information of one party that: (i) is
or becomes lawfully available to the public through no act or omission of the
other party; (ii) is in the other party's lawful possession prior to the
disclosure and was not obtained by the other party either directly or indirectly
from the disclosing party; (iii) is lawfully disclosed to the other party by a
third party without restriction on disclosure or (iv) is independently developed
by the other party.
6.2 Neither party shall use or disclose to any person, either during the
term or after the termination of this Agreement, any Confidential Information
owned by the other party, except as expressly permitted pursuant to the terms of
this Agreement or as required in response to a valid order or requirement of a
court or other governmental body having competent jurisdiction provided,
however, that the party proposing to so disclose first gives prior written
notice of such proposed disclosure to the other party.
7. Non-Solicitation.
----------------
Neither party shall solicit for employment, whether directly or indirectly
through an associated or affiliated company or subsidiary or otherwise, employ,
engage or contract from the date of this Agreement or any Exhibit and for a
period of two (2) years thereafter, any person who is employed or contracted by
the other party during the duration of this Agreement. .
8. Proprietary Materials and Work Product.
--------------------------------------
8.1 Unless the parties agree otherwise in writing, the parties acknowledge
and agree that all work product (the "Work") developed in providing the Services
or resulting from providing the Services shall become and remain the exclusive
property of WEBB. Other than the license granted to Client pursuant to the
Master Agreement, no right, title or interest in all or any portion of the
Work, is conveyed or assigned to Client either expressly or by implication by
virtue of this Agreement including any patents, copyrights, trade secrets,
trademarks, trade names or other intellectual property (collectively, the
"Intellectual Property Rights"). Upon written request by WEBB, Client shall
properly execute such assignments, bills of sale or other documents necessary to
confirm, assign or transfer in favor of WEBB, any Intellectual Property Rights
in the Work created, developed or discovered by Client, its employees or
consultants in assisting WEBB in the provision of the Services, provided that
the Client shall retain a perpetual license to use, copy and modify any such
Intellectual Property Rights created, developed or discovered by Client subject
to the terms and
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<PAGE>
conditions of this Agreement.
8.2 Nothing in this Agreement shall preclude WEBB from developing for
itself, or for others, materials which are competitive with those produced as a
result of the Services provided hereunder, irrespective of their similarity to
items which may be delivered to Client pursuant to this Agreement.
9. Warranty, Limitation of Liability and Indemnification
-----------------------------------------------------
9.1 EXCEPT AS STATED IN THIS AGREEMENT, THERE ARE NO EXPRESS OR IMPLIED
WARRANTIES RESPECTING THIS MAINTENANCE AND SUPPORT AGREEMENT OR THE SERVICES
PROVIDED HEREUNDER (INCLUDING THE FIXING OF ERRORS THAT MAY BE CONTAINED IN THE
APPLICABLE SOFTWARE), INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE WARRANTIES SET FORTH
IN THIS AGREEMENT ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES WITH RESPECT
TO SUCH SERVICES WHETHER ORAL OR WRITTEN, EXPRESS OR IMPLIED.
9.2 WEBB WILL NOT BE LIABLE FOR ANY FAILURE OR DELAY IN PERFORMANCE DUE IN
WHOLE OR IN PART TO ANY CAUSE BEYOND WEBB'S REASONABLE CONTROL. IN NO EVENT
SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR (A) ANY SPECIAL, INDIRECT,
INCIDENT OR CONSEQUENTIAL DAMAGES, OR (B) ANY DAMAGES RESULTING FROM LOSS OF
USE, DATA OR PROFITS, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY.
9.3 Client will hold WEBB and its directors, officers, employees,
representatives and agents, (collectively, "Webb Representatives") harmless
from, and defend and indemnify WEBB and Webb Representatives against, any and
all claims, losses, damages and expenses, including reasonable attorneys' fees,
arising from a third party claim against WEBB or Webb Representatives to the
extent that such third party claim is based on the negligence or willful
misconduct of Client or its agents or representatives.
9.4 WEBB will hold Client and its directors, officers, employees,
representatives and agents (collectively, "Client Representatives") harmless
from, and defend and indemnify Client and Client Representatives against, any
and all claims, losses, damages and expenses, including reasonable attorneys'
fees, arising from a third party claim against Client or Client Representatives
to the extent that such third party claim is based on: (a) the negligence or
willful misconduct of WEBB or Webb Representatives or (b) claims of infringement
of Intellectual Property Rights against Client or Client Representatives for the
authorized use of the Products.
9.5 If a third party asserts a claim that is eligible for indemnification
under Sections 9.3 or 9.4: (a) the indemnified party will promptly notify the
indemnifying party of the suit or claim; (b) the indemnified party will give the
indemnifying party sole authority to defend or settle the suit or claim,
provided that the indemnifying party does not agree to a settlement of the suit
or claim unless the settlement is reasonably acceptable to the indemnified
party; (c) the indemnified party will provide to the indemnifying party all
information in its control concerning the suit or claim; and (d) the indemnified
party will reasonably cooperate with the defense of the suit or claim. The
indemnification obligations under Sections 9.3 and 9.4 are subject to and
conditioned upon compliance with this Section 9.5 by the indemnified party.
10. General
-------
10.1 In connection with this Agreement each party is an independent
contractor and as such will not have any authority to bind or commit the other.
Nothing herein shall be deemed or construed to create a joint venture,
partnership or agency relationship between the parties for any purpose.
10.2 The waiver by either party of a breach of or a default under any
provision of this Agreement by the other party shall not be construed as a
waiver of any subsequent breach of the same or any other provision of this
Agreement nor shall any delay or omission on the part of either party to
exercise or avail itself of any right or remedy it has or may have hereunder
operate as a waiver of any right or remedy by such party.
10.3 This Agreement and any Exhibits attached hereto contains the full
understanding of the parties with respect to the professional services related
to the Products and supersedes all prior understandings and writings relating
thereto. No waiver, consent modification, amendment or change of the terms of
this Agreement shall be binding unless in writing and signed by WEBB and Client.
If the terms and conditions of this Agreement are inconsistent with, or contrary
to, the terms and conditions of the Master Agreement, the terms and conditions
of the Master Agreement shall be controlling.
10.4 This Agreement shall be governed by the laws of the State of
Colorado.
10.5 Any notice or other communication in connection with this Agreement
shall be furnished in writing and shall be effective upon receipt.
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<PAGE>
10.6 Except for Client's payment obligations for professional services
already completed by WEBB, neither Client nor WEBB will be deemed to be in
default of any provision of this Agreement or for any failure in performance,
resulting from acts or events beyond the reasonable control of Client or WEBB,
as the case may be including, without limitation, acts of God, civil or military
authority, civil disturbance, war, strikes, fires, other catastrophes,
telecommunication outages, equipment malfunctions or other such major events
beyond Client's or WEBB's reasonable control.
WEBB Interactive Services, Inc: Client:______________________________
By:__________________________________ By:__________________________________
Name:________________________________ Name:________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
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<PAGE>
EXHIBIT D-1
STATEMENT OF WORK
The installation tasks are expected to be:
a. VC & Webb: develop migration plan. (Process and plans for deployment, data
migration, backup & disaster recovery, testing, and maintenance.)
b. VC: order hardware and software licenses
c. VC: install ordered hardware and software
d. Webb & VC: create and load SiteBuilder database
e. Webb & VC: install SB software
f. Webb & VC: system administration training
g. Webb & VC or VC: system testing (functionality & backups/disaster recovery)
h. Webb & VC: data migration
i. Webb & VC: launch
Steps a, b, and c can be done before Webb makes a trip to VC's hosting location
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<PAGE>
EXHIBIT D-2
FEES AND CHARGES
Installation of software at the VetConnect location is expected to take 5 days
effort at the rate of a Software Engineer for which Webb Interactive services
will charge $1800/day. In the event installation requires additional time,
Client will be billed at an additional hourly rate of $300 per hour. Reasonable
travel related and other necessary out-of-pocket expenses will be paid by
Client.
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<PAGE>
Schedule E
Terms of Limited Exclusive Rights to Products
Webb Interactive Services grants to VetConnect the exclusive right to use the
AccelX CRM Product solely within the online animal health services industry
under the name of VetConnect or the domain name reasonably determined by
VetConnect according to the terms of this Agreement for a period of six (6)
months from the Effective Date. This exclusive right may be renewed for up to
two additional consecutive terms for a fee of $50,000 per term.
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<PAGE>
EXHIBIT 10.18
April 20, 2000
Mr. Gwenael Hagan
Vice President of Corporate Development
Webb Interactive Services, Inc.
1800 Glenarm Place
Suite 700
Denver, CO 80202
Dear Gwenael,
Per our discussion on April 12, 2000, this letter documents our understanding of
participation by Diamond Partners Incorporated d/b/a Diamond Technology Partners
Incorporated ("Diamond") in Webb Interactive Services, Inc.'s (Webb) initial
efforts to commercialize the Jabber.org Open Source solution and create
Jabber.com, Inc. This project will focus on identifying the appropriate
strategic path for Jabber.com, Inc. and ultimately converting that concept plan
into a complete business plan. The plan will be created with the goal that it
be used to help raise funds and create partnerships in order to move the company
forward in its long-term goals. Those next steps will include prototyping
multiple concepts and ultimately operationalizing the new business. In creating
this Digital StrategySM, we will attempt to leverage Webb's and Diamond's
relationships with the Open Source community, Webb's existing internal efforts
on the Jabber platform, the Diamond Network of partners and Webb's understanding
of the instant messaging environment.
We are very excited to be an integral part of making the underlying promise of
Jabber become a commercial reality. The race to dominate instant messaging has
been ongoing in the consumer marketplace for a number of years. However, little
has been successfully done to connect the various networks, to bring instant
messaging into the business to business commerce world or to develop a vision
for the future of what instant messaging can become by connecting to other
technologies like XML and wireless communications. It is this opportunity that
we hope to identify more clearly and communicate internally as well as
externally so that Jabber.com, Inc. has a coherent vision for its future.
If executed successfully, we believe that this opportunity will prove to be very
valuable for Webb. The extent of that value will be determined as part of the
overall project and will help in focusing in on the appropriate strategic path.
Since this new opportunity extends beyond Webb's current business model, it
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Mr. Gwenael Hagan
April 20, 2000
DRAFT
is critical that Webb proceeds carefully, targeting specific milestones rather
than instant profitability, without losing the element of speed. Existing
players are already attacking this market, so Webb needs to prototype and
implement rapidly in order to capture the opportunity while managing risk.
Therefore, Diamond proposes to assist Webb in rapidly developing a detailed
business plan, an economic model and a pitch presentation to gain the next round
of funding for Jabber.com, Inc. Diamond has extensive experience helping large
and small companies scope and plan for new e-business ventures like this one.
Additionally, Diamond is uniquely positioned to assist Webb in this effort since
we can leverage the work we have already done around the Open Source community
and instant messaging to help develop the strategy and minimize the time it
takes to get a team `up to speed' with the concept.
The remainder of this letter presents our approach, deliverables, timeframe,
staffing and fees that we propose for this engagement.
Note: Diamond's typical time frame to develop a Digital StrategySM for a
company is three months. The end result is an extraventure business plan that
should be able to be financed by an external venture capital firm. Our initial
discussions on this project with Webb have targeted an 8-week project, which
compresses the time frame and will require some tradeoffs for the speed of the
project.
Approach & Deliverables
Given the competitive nature of this marketplace and the opportunity we believe
exists for Jabber, Diamond believes that it is critical that Webb develop (or
ideate) potential `Killer App' concepts to commercialize very quickly. Once
that is done with the help of the external advisors for Webb/Jabber and the
broader Diamond Network, then we will take those concepts and form a complete
business plan, an economic model and a pitch presentation. Diamond will expect
to work collaboratively with the core Webb/Jabber team in developing these
potential `Killer Apps' and the ensuing business plan to ensure that the detail
knowledge of the opportunity remains with Jabber.com, Inc. going forward.
As part of the business plan, we will work with Webb to develop a refined
definition of the business concept, including specific products, services, and
partners. We will also develop a high-level rollout plan that maps out
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Mr. Gwenael Hagan
April 20, 2000
DRAFT
development of capabilities and service delivery from the prototype to end-state
implementation. Next, we will define the value proposition for all key
constituents, including Webb, partners, suppliers, and customers. Further, we
will design a high-level marketing strategy including branding and a
revenue/pricing model. Then, we will develop a financial model that projects
"order-of-magnitude" revenue, operating costs, and capital requirement over the
next 5 years, outline key management team requirements, and discuss risks and
possible mitigants. To the extent that we develop multiple products or
platforms, we will adjust the detail level of the financial model to fit the
compressed time frame.
All of these components will be integrated into a cohesive business plan that
can be used to evaluate and measure the opportunity from an internal and
external perspective. For the pitch presentation, we will use our Media Lab
resources to work closely with the team to scope the requirements, define the
flow of the presentation and create the appropriate graphics and text to support
funding and partnership efforts.
A summary of the key engagement components is outlined below:
<TABLE>
<CAPTION>
Component Tasks/Activities Deliverables
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Establish project Establish goals and deliverables . Deliverable map
objectives & Identify resources (internal and . Meeting schedule
schedule external) Schedule resources
Understand instant Understand Webb work-to-date on Jabber . High-level description of concepts
messaging/Open Collect and review industry research . Competitive analysis
Source environment . Instant messaging players/users
. Open Source initiatives
. Other relevant technologies
Synthesize primary and secondary research
Ideation process Establish ideation foundation . Framework for ideation process
Internal hypotheses development . Next level hypothesis descriptions
. Brainstorming sessions
. Refine existing hypotheses
Ideation sessions . Prioritized hypotheses
. Ideation session #1 - focus on
generating ideas to investigate
. Ideation session #2 - focus on
improving and filtering existing ideas
</TABLE>
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Mr. Gwenael Hagan
April 20, 2000
DRAFT
<TABLE>
<S> <C> <C>
Economic model Define and estimate revenue sources . Venture economic model
development Prepare financial statements
Create venture economic model
Business plan Develop initial business models . Financial pro formas
development . Integrate research . Management requirements
. Review and refine models to support . Risk factors
ideas from Ideation sessions . Comprehensive business plan
Finalize business model
. Define new venture business intent
. Define new venture involvement with
Open Source ecosystem
. Develop partnership map
. Develop organizational structure
. Develop high-level cost, time and
resources needed to evolve Jabber
Pitch presentation/ . Investor quality pitch presentation
demo Outline objectives
Get appropriate resources lined up
Outline the pitch/demo components
Create the pitch/demo
</TABLE>
Staffing
For this engagement, we propose augmenting the existing Webb team in order to
take maximum advantage of the experience and knowledge we have already gained in
this business:
Resource Primary Role
Engagement Partner (part-time) Overall engagement responsibility
Senior Principal - Strategy (full time) Day-to-day engagement
management
Senior Principal - Technology (full time) Ideation Process
Associate (full time) Business Plan & Pitch Presentation
Associate (full time) Economic Model
Analyst (full time) Research
Engagement Advisors: Mark Siefertson, Partner (technology)
Diamond network members on an as needed basis
Fees & Equity
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Mr. Gwenael Hagan
April 20, 2000
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The professional fees for this engagement are $800,000 at full rates. However,
Diamond has agreed to accept equity in lieu of fees in the amount of $140,000 or
17.5% of total fees. This makes the professional fees due in cash to be
$660,000. The equity arrangement is as follows:
1. For the $140,000 discussed in the previous paragraph, Diamond will be
entitled to the number of shares of capital stock of Jabber.com, Inc. equal
to $140,000 divided by the price per share of the stock sold at the first
round of external financing, such shares to be issued at the time of and on
the same terms and conditions (e.g., class of capital stock, price per
share, voting rights, registration rights, preemptive rights, anti-dilution
protection, etc.) as those sold to the participating investors in the first
round of external financing for Jabber.com, Inc.
2. Diamond will also be entitled to purchase at the time of each financing
round, on the same terms as other participants who participate in those
financing rounds (at fair market value), up to 10% cumulatively (or such
lesser amount as we may elect) of Jabber.com, Inc., with the proviso that
the amounts invested by Diamond cannot exceed 30% of the total investment
in Jabber.com, Inc. for each specific equity financing round up to Initial
Public Offering. In addition, Diamond will receive their pro rata share of
any friends and family allocation in connection with an IPO. This
aforementioned right to purchase 10% cumulatively of Jabber.com, Inc.
terminates upon an IPO, sale of substantially all of the assets of
Jabber.com, Inc., or a merger of Jabber.com, Inc. with another company in
which Jabber.com, Inc. shareholders do not constitute 50% of the combined
companies' shareholders.
3. Diamond will also make available Mark Siefertson, a Diamond Partner, to
become a member of Jabber.com, Inc.'s advisory board, under the terms and
conditions contained within the separately approved Advisory Board
Agreement in exchange for 37,500 common shares.
4. In exchange for the investment rights noted above and in addition to the
appointment of a Diamond Partner to the advisory board, Diamond agrees on a
good faith basis, as Diamond deems appropriate, to provide assistance
relating to promotions, brand building, fundraising, revenue generation,
partnership building, recruitment, and other key efforts related to
building the company. It being understood that Diamond will continue to
provide the aforementioned assistance subsequent to the conclusion of any
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Mr. Gwenael Hagan
April 20, 2000
DRAFT
consulting arrangement. It also being understood that all of Diamond's
rights mentioned in this arrangement letter will survive.
5. The foregoing equity arrangement shall apply to any successor-in-interest
to the Jabber.com, Inc.'s business.
***********************
Gwenael, we are looking forward to helping Webb take advantage of this exiting
growth opportunity. I look forward to working with you over the course of the
next few months. If you accept our proposal, please so confirm by signing where
indicated below and returning this letter to us.
Very truly yours,
Andy Carlson
Senior Principal
Diamond Technology Partners
Accepted and agreed on ________, 2000
By: ________________________________ By: ________________________________
Mike Connolly Gwenael Hagan
Vice President Vice President Corp. Development
Diamond Partners Incorporated Webb Interactive Services, Inc.
d/b/a Diamond Technology Partners
Incorporated
Attachments
Appendix A: Diamond Technology Partners Terms & Conditions of Services
Appendix B: High-level milestone chart
Appendix C: Detailed work plan (see spreadsheet attached)
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Mr. Gwenael Hagan
April 20, 2000
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Mr. Gwenael Hagan
April 20, 2000
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Appendix A
DIAMOND'S TERMS AND CONDITIONS OF SERVICES
- ------------------------------------------
CONFIDENTIALITY
Diamond acknowledges that during the Project it may learn and use certain of
Client's confidential information and thus will use reasonable efforts to
prevent third parties from learning about such information. Likewise, Client
will use reasonable efforts to prevent third parties from learning about
Diamond's confidential and proprietary information, which includes without
limitation Diamond's methodology, processes, programs and know-how. These
obligations do not apply to information or materials that: 1) are or become
generally known by third parties other than as a result of an act or omission by
the receiving party; 2) were already independently known by the receiving party
prior to receiving them from the disclosing party; 3) are developed
independently by the receiving party; or 4) are required by law or a
governmental agency to be disclosed, provided the receiving party promptly
notifies the disclosing party of such requirement so that the disclosing party
can seek to obtain a protective order or similar remedy. Diamond will act as an
independent contractor on the Project, and, unless otherwise specifically agreed
to by the parties, neither Diamond nor Client shall act as the agent or joint
venturer of the other.
PROPRIETARY RIGHTS
Except for previously developed ideas, concepts, know-how, knowledge,
techniques, tools, approaches, and methodologies proprietary to Diamond, as well
as any open source coding or software, which may be reflected in the
deliverables, Client shall have title to, ownership of, and all proprietary
rights in the deliverables provided by Diamond in connection with the Project,
including all work-in-progress; provided, however, that title to any such
proprietary rights shall not pass until Client's payment to Diamond therefor. At
Client's request, Diamond will execute such documents as may be necessary to
protect Client's rights in any work.
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Mr. Gwenael Hagan
April 20, 2000
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Nothing contained herein shall be construed as limiting Diamond's rights to use
or market in the conduct of Diamond's business, without obligation of any kind
other than Diamond's obligations of confidentiality to Client, any such pre-
existing materials or any general ideas, concepts, know-how, knowledge,
techniques, tools, approaches and methodologies or other residual values
possessed or known to Diamond or learned or developed during the provision of
services. Client agrees Diamond may retain archival copies of any and all
deliverables developed by Diamond for Client pursuant to the Project.
LIMITATION ON LIABILITY
Diamond warrants that the services described in this proposal will be provided
in a professional manner. Other than this warranty, Diamond makes and Client
receives no express or implied warranties, including without limitation any
express or implied warranties of merchantability or fitness for a particular
purpose. Client understands and agrees that any liability of Diamond regarding
the Project shall be limited to the amount of fees actually received by Diamond
in connection with the Project, and shall not include any special, incidental,
consequential or punitive damages, any damages based on injury to person or
property, or any lost sales or profits.
DISPUTE RESOLUTION
Diamond and you both agree that any dispute concerning the services that cannot
be resolved first by Diamond's and Client's respective chief executive officers
or other agreed-upon officers shall be arbitrated in accordance with the
commercial rules of the American Arbitration Association, and any award shall be
final and enforceable by a court.
CANCELLATION
Either Client or Diamond may terminate this Agreement by giving the other no
less than thirty (30) days advance written notice of termination, in which case
this Agreement shall terminate on the effective date specified in such notice
(which date shall not be less than thirty (30) days from the date of notice).
Either party may cancel this Agreement immediately, in whole or in part, for
material default, material breach, insolvency, bankruptcy, inability to pay
debts, or similar financial circumstances by the other. In the event of any such
termination, Diamond shall invoice the Client for any amounts due and
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Mr. Gwenael Hagan
April 20, 2000
DRAFT
payable for services rendered to Client prior to the effective date of
termination and Client shall pay such invoice within thirty (30) days of
Client's receipt thereof. Upon payment of such invoice, Diamond shall deliver to
Client all work completed up to the effective date of such termination and
neither party shall have any further obligation or liability to the other.
OFFICE ACCOMODATIONS AND COOPERATION
Diamond's regular workday is eight hours per day. Diamond personnel will
generally work four days on-site and one day off-site and will not be required
to work on Diamond holidays. In addition, from time to time, Diamond personnel
will be required to participate in firm or region wide training sessions. When
Diamond personnel perform services at Client's premises, Client will provide
reasonable office accommodations and services, including without limitation
office and storage space, reasonable use of computers, telephone facilities,
documentation, and other related material and equipment as reasonably requested
by Diamond. Client shall also furnish Diamond with all the data and information
required by Diamond for the Project, as well as reasonable access to key
personnel.
NON-SOLICITATION
During the term of this arrangement and for a period of one year thereafter,
neither party will directly or indirectly solicit for employment, employ,
consult with, or otherwise retain the services of any of the employees who are
in any manner connected with the services as set forth in this proposal.
USE OF CLIENT NAME
Notwithstanding anything herein (or in any other agreement) to the contrary,
Diamond shall have the right, upon Client's acceptance of the work hereunder, to
reference Client and the general nature of the work on Diamond's web site and in
presentations to prospects, clients or investors. Diamond shall also have the
right, from time to time, to create case studies, presentations, articles, and
the like related to the work ("Materials") and, upon Client's review and
approval of the Material's content, to utilize the Materials in public speaking
engagements, publications, and other similar uses. In no event will Diamond
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Mr. Gwenael Hagan
April 20, 2000
DRAFT
utilize the Materials or these rights in any way which: 1) misrepresents
Diamond's contribution; 2) damages or disadvantages Client's competitive
position; or 3) violates Diamond's obligations of confidentiality to Client
hereunder or in any other document.
INVOICES
Invoices for fees will be submitted at the beginning of each month and will be
due and payable within ten days of receipt.. Client agrees to submit payments to
Diamond for such invoices via electronic funds transfer to Diamond's Account
Number 18074324 at American National Bank, ABA # 071000770. Expenses (as further
described below) will be billed in arrears. For late payments, interest will be
charged at the rate of two percentage points over the then-current prime rate of
interest as announced at Bank One, calculated from the date when payment becomes
overdue until payment is made. Upon 30 days prior written notice, but no more
than once every three months, Diamond may increase its fee rates for services
provided.
EXPENSES, SEAT CHARGE AND TAXES
Client will reimburse Diamond for all reasonable out-of-pocket expenses incurred
by Diamond in connection with the provision of services and the evaluation of
investment, including without limitation travel, living, meals, long-distance
telephone, postage and express mail expenses. In addition, equipment and
administrative costs for computer equipment, network communications, general
research services, document production and administrative support will be
invoiced monthly at a rate of 4.9% of professional fees.
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Mr. Gwenael Hagan
April 20, 2000
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In the event Client uses a Diamond Solutions Center to build and/or launch
eBusiness solutions in connection with the Project, a seat charge for space,
services, tolls and other facilities and support will be invoiced monthly at the
rate of $2,000 per team member. Clients using such services on a part-time basis
will be charged on a pro rata basis. Client and Diamond shall mutually agree on
the number of Diamond Solutions Center team members needed for the Project.
In addition to access to designated sections of the facilities, the
infrastructure components of the seat charge also include network access, use of
development servers for the creation of a demo/prototype, developer workstations
for 60% of paid seats, access to approximately 100GB of disk space, nightly
backup of up to two development servers per project, rack space for holding two
development servers, security (setup of a single virtual private network),
printers, fax machine and scanners and help desk access. The seat charge also
includes use of software components, including project management tools,
environment management/source control, testing (both functional and
performance), database access for the creation of a demo/prototype, and access
to experts in various eCommerce applications.
The seat charge does not cover the following expenses, which expenses will be
--------
charged separately: individual reception or administrative assistant, use of
development servers or database access after the completion of the prototype,
developer workstations for greater than 60% of seats, backup of more then two
servers, more than one virtual private network.
Client will be responsible for any local, state, federal or other taxes or
assessments that might apply to the provision of services by Diamond.
ENTIRE AGREEMENT
The foregoing letter and these Terms and Conditions constitute the parties'
entire agreement with respect to the subject matter contained herein, and
supersede all other prior written or oral agreements and undertakings with
respect to such subject matter. The scope of this arrangement may be changed
only by mutual agreement.
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Mr. Gwenael Hagan
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Initials
_________
(authorized client representative)
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Mr. Gwenael Hagan
April 20, 2000
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Appendix B
[Jabber, Inc. - High level project milestone chart appears here]
Page 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,595,889
<SECURITIES> 0
<RECEIVABLES> 627,736
<ALLOWANCES> 4,000
<INVENTORY> 0
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<PP&E> 4,399,400
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<TOTAL-ASSETS> 42,816,431
<CURRENT-LIABILITIES> 2,402,356
<BONDS> 0
2,055,961
12,500,000
<COMMON> 73,722,923
<OTHER-SE> (47,953,091)
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<SALES> 1,009,822
<TOTAL-REVENUES> 1,009,822
<CGS> 762,924
<TOTAL-COSTS> 762,924
<OTHER-EXPENSES> 6,140,149
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<INTEREST-EXPENSE> 174,990
<INCOME-PRETAX> (5,906,354)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,906,354)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (12,873,126)
<NET-INCOME> (18,779,480)
<EPS-BASIC> (2.17)
<EPS-DILUTED> (2.17)
</TABLE>
