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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] 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: 000-25129
MAREX.COM, INC.
(Exact name of registrant as specified in its charter)
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FLORIDA 65-0354269
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(State or other jurisdiction of incorporation or
organization) (I.R.S. Employer Identification No.)
2701 SOUTH BAYSHORE DRIVE, 5TH FLOOR
MIAMI, FLORIDA 33133
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(Address of principal executive offices) (Zip Code)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 285-2003
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the Common Stock held by non-affiliates of
the registrant as of March 10, 2000 was approximately $175,106,621 based on the
$36.75 closing bid price for the Common Stock quoted on the NASD over-the-
counter bulletin board on such date. For purposes of this computation, all
executive officers and directors of the registrant have been deemed to be
affiliates. Such determination should not be deemed to be an admission that such
directors and officers are, in fact, affiliates of the registrant.
The number of shares of Common Stock of the registrant outstanding as of
March 10, 2000 was 6,423,806.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to
specified portions of the registrant's definitive Proxy Statement to be issued
in conjunction with the registrant's 2000 Annual Meeting of Stockholders, which
is expected to be filed not later than 120 days after the registrant's fiscal
year ended December 31, 1999.
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MAREX.COM, INC.
TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Consolidated Financial Data........................ 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 15
Item 8. Financial Statements and Supplementary Data................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 34
Item 11. Executive Compensation...................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 34
Item 13. Certain Relationships and Related Transactions.............. 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 35
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PART I
ITEM 1. BUSINESS
THE FOLLOWING DESCRIPTION OF OUR BUSINESS CONTAINS FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995, AS DO THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SECTIONS OF THIS FORM 10-K, ALL OF WHICH RELATE TO SUCH
MATTERS AS ANTICIPATED FINANCIAL PERFORMANCE, BUSINESS PROSPECTS, TECHNOLOGICAL
DEVELOPMENTS, AND SIMILAR MATTERS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN
AND UNKNOWN RISKS, UNCERTAINTIES, AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE, OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT
FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED ELSEWHERE IN THIS REPORT IN THE
SECTION ENTITLED "RISK FACTORS" AND THE RISKS DISCUSSED IN OUR OTHER SECURITIES
AND EXCHANGE COMMISSION FILINGS.
COMPANY
Marex.com, Inc. ("Marex.com" or the "Company") is a leading provider of
business to business ("B2B") e-commerce solutions for the marine industry. We
are developing a comprehensive set of procurement solutions for the automation
of business transactions on the Internet among suppliers, boat builders, boat
repairers, and dealers/distributors. We expect our solutions to offer our
members a medium for efficient procurement of goods and access to Internet
distribution channels.
Our objective is to expand our position as the leading B2B e-commerce
solution for the marine industry. We are focused on developing our business to
provide the most efficient tools possible for the procurement of marine goods at
all stages of the purchasing lifecycle.
The Exchange (the "Exchange"), the first procurement tool that we
developed, is an Internet based trading exchange for the marine industry. We
began registering members for the Exchange in November 1998. The Exchange allows
buyers to solicit quotes online from sellers for specific equipment, parts and
supplies. Buyers are displayed the best prices available, which are updated on a
real-time basis as bids are posted. Through the Exchange, we seek to provide a
worldwide search capability to buyers for equipment, parts and supplies and
create a lowest price forum for buyers to take advantage of spot market pricing
of sellers' overstocked and available inventory. Sellers utilizing the Exchange
will gain access to an expanded wholesale customer base and have greater
opportunity to resell slow moving inventory.
Marex.com was originally incorporated in Florida in September 1992 under
the name of Florida Marine Management, Inc. In order to reflect our focus on
providing internet-based e-commerce solutions for the marine industry, we
changed our name on November 17, 1999 from Affiliated Networks, Inc. to
Marex.com, Inc.
INDUSTRY OVERVIEW
Growth of Business-to-Business Commerce on the Internet
The Internet has emerged as a mass communications and commerce medium
enabling millions of people worldwide to share information, affiliate themselves
with others who share similar interests and conduct business electronically. The
Internet has created new opportunities for conducting commerce, such as B2B e-
commerce, that offers the potential for organizations to streamline complex
processes, lower costs and improve productivity. According to Forrester
Research, Internet-based B2B e-commerce sales surpass on-line business to
consumer ("B2C") sales. Forrester Research also estimates that B2B e-commerce
will expand over the next several years from $109 billion in 1999 to $2.7
trillion by 2004.
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The dynamics of B2B e-commerce relationships differ significantly from
those of other e-commerce relationships. B2B e-commerce solutions frequently
automate or otherwise improve workflows or processes that are fundamental to a
business' operations by replacing various paper-based transactions with
electronic communications. In addition, B2B e-commerce solutions must often be
integrated with a company's existing information systems, a process that can be
complex, time-consuming and expensive. B2B e-commerce solutions that offer
improved efficiency through the automation of business processes and workflows
are being developed for a variety of industries.
The Marine Industry
We feel that the marine market's highly fragmented supply chain coupled
with the inefficient purchasing methods being used by the industry make it
particularly well suited for B2B e-commerce. The marine industry utilizes
standard purchasing methods to buy and sell products. The current methods are
inefficient, costly and time consuming for both buyer and seller. Product orders
are traditionally handled through an internal, paper-based purchasing process
that requires searching for products in catalogs and manually preparing a
purchase order. Industry participants typically place orders by telephone or fax
and must place orders with multiple suppliers. While the traditional means of
telephone, facsimile and mail have historically served a valuable purpose in
facilitating commerce, information delivery, and communications between buyers
and sellers, they have inherent inefficiencies, in that they are slower, more
expensive in the long run and inefficient compared to Internet-related methods.
In addition, traditional purchasing methods present a number of challenges to
suppliers trying to reach small to medium sized boat builders and repair
companies with product information. Due to the high cost of printing and
distributing paper catalogs, suppliers cannot cost-effectively manage frequent
updates and distribution of time-sensitive information.
Opportunity for B2B E-commerce Solutions for the Marine Industry
We believe that the fragmentation and complexities of the marine industry
create a need for B2B e-commerce solutions that seamlessly link suppliers and
buyers of marine products. To effectively address the needs of buyers, solutions
must be cost-effective, easily implemented, easy to use and provide
comprehensive product selection, in-depth product information, specialized
search capabilities and an efficient order and order tracking mechanism. To
effectively address the needs of suppliers, solutions must also offer a neutral
and fair marketplace with full catalog descriptions of products so as to attract
additional customers.
BUSINESS STRATEGY
Our objective is to expand our position as the leading provider of B2B
e-commerce solutions for the marine industry. The key components of our strategy
to achieve this objective include:
Build the Marex.com Brand to Become Synonymous with E-commerce in the Marine
Industry
We plan to capitalize on the fact that, to our knowledge, we are the first
company to offer multiple e-commerce solutions to problems unique to the marine
industry. We intend to pursue an aggressive brand development strategy through
targeted advertising and promotions, press coverage and participation in trade
associations and industry events to continue to develop industry awareness of
our solutions.
Increase Adoption of Our Exchange
We intend to aggressively increase the base of members using our Exchange
and to increase its usage by current and future members. To encourage
implementation, we do not currently charge a membership fee. Additionally, we
intend to continue to educate existing and future users about the benefits of
our solutions and to provide training in their use, thereby accelerating
adoption and use.
Product Improvement and Development
We plan to extend our market leadership by increasing the functionality of
the Exchange, and by rolling out new e-commerce solutions which will automate
the procurement process of marine businesses.
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Establish and Maintain Technological Leadership
We will continue to expend substantial efforts to develop, purchase or
license technological advancements relating to our purchasing solutions. We
intend to focus on enhancing our system's reliability, functionality and ease of
integration with existing or newly developed purchasing systems.
Complete Strategic Relationships
We continue to form strategic relationships with industry leaders such as
manufacturers, content and technology partners and other companies in the
industry that provide online services.
PRODUCTS AND SERVICES
The Exchange
We began registering marine businesses as members of Marex.com in November
1998. Since that time, members have been utilizing our Exchange procurement tool
to find buyers and sellers in the marine trade for a wide variety of
wholesale-priced marine parts, supplies and equipment. We are in the process of
converting our Exchange into a truly automated auction and classified system.
The modified product, which will be called Classifieds and Auction, will provide
our members with the option to list items for a fixed price (Classifieds) or to
list items in an auction environment (Auction). We believe that this increased
functionality will serve to increase the flexibility and dynamics of the
products offered to our members.
Future Products
We are currently developing e-commerce solutions that will automate
procurement for the marine industry. We expect our solutions to offer increased
procurement efficiency and access to Internet distribution channels.
MARKETING
Our primary marketing efforts include advertising in industry publications.
We also utilize direct mail, telemarketing and presence at trade shows. We
concentrate these efforts on building brand recognition for our company,
positioning Marex.com as the "marine industry's online marketplace", and
educating our target market about the benefits of our e-commerce solutions. We
believe that such efforts encourage potential new members to have a positive
image and receptive mindset prior to our direct-selling effort.
PRODUCT DEVELOPMENT
We dedicate a significant amount of our resources to developing and
enhancing our products. Expenses related to the development of our products
primarily consist of compensation for product development personnel, cost of
outside contractors, amortization of software development costs, and general
expenses associated with the development of our products. We incurred product
development expenses of approximately $1,132,000 and $90,000 for the years ended
1999 and 1998, respectively.
INTELLECTUAL PROPERTY
We regard obtaining protection of our copyrights, service marks,
trademarks, trade dress and trade secrets as critical to our future success and
intend to rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect our
proprietary rights in products and services. While we plan to pursue the
registration of our trademarks and service marks in the U.S. and
internationally, effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our services are made
available online.
We have entered into confidentiality agreements with our employees and
certain vendors in order to limit access to and disclosure of our proprietary
information. There can be no assurance that these contractual
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arrangements or the other steps taken by us to protect our intellectual property
will prove sufficient to prevent misappropriation of our technology or to deter
independent third-party development of similar technologies.
To date, we have not been notified that our technologies infringe the
proprietary rights of third parties, but there can be no assurance that third
parties will not claim infringement by us with respect to past, current or
future technologies. We expect that participants in our markets will be
increasingly subject to infringement claims as the number of services and
competitors in our industry segment grows. Any such claim, whether meritorious
or not, could be time-consuming, result in costly litigation, cause service
upgrade delays or require us to enter into royalty or licensing agreements. Such
royalty or licensing agreements might not be available on terms acceptable to us
or at all. As a result, any such claim could have a material adverse effect on
our business, results of operations and financial condition.
SOFTWARE DEVELOPMENT
We have developed proprietary software for both our internal needs and
those of our e-commerce products. To date, we have developed several internal
proprietary software programs that include a full suite of administrative, data
collections, sorting, and marketing management tools. All of these programs are
maintained in-house. We have also developed a proprietary electronic commerce
software program. The software has been designed to enable the easy migration to
other industry platforms with relatively few, if any, changes.
COMPETITION
The market for B2B e-commerce and Internet ordering and purchasing is new
and rapidly evolving. We perceive existing competition to be intensive and
expect it to increase significantly in the future. We also think that barriers
to entry are relatively insubstantial. We believe that the critical success
factors for companies seeking to create Internet B2B e-commerce solutions
include the following: brand recognition; quality and reliability of the
Internet purchasing solution; breadth and depth of product offerings; base of
customers; and ease of use and convenience. We face competition from other
companies with e-commerce offerings, traditional suppliers and distributors of
marine products and marine manufacturers that have developed their own
purchasing solutions. We may also face further competition in the future from
traditional suppliers and distributors that enter into B2B e-commerce over the
Internet either on their own or by partnering with other companies. In addition,
we face competition from current online B2C companies.
GOVERNMENT REGULATION
Due to the increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations may be adopted
with respect to the Internet or other online services covering issues such as
user privacy, freedom of expression, pricing, content and quality of products
and services, taxation, advertising, intellectual property rights and
information security. The nature of such legislation and the manner in which it
may be interpreted and enforced cannot be fully determined and, therefore,
legislation could be enacted which could subject us and/or our customers to
potential liability, which in turn could have an adverse effect on our business,
results of operations and financial condition. The adoption of any such laws or
regulations might also decrease the rate of growth of Internet use, which in
turn could decrease the demand for our services or increase the cost of doing
business or in some other manner have a material adverse effect on our business,
results of operations and financial condition. In addition, applicability to the
Internet of existing laws governing issues such as property ownership,
copyrights and other intellectual property issues, taxation, libel, obscenity
and personal privacy is uncertain. The vast majority of such laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not contemplate or address the unique issues of the Internet and related
technologies.
Numerous states, including the State of Florida, in which our headquarters
is located, have regulations regarding the manner in which "auctions" may be
conducted and the liability of "auctioneers" in conducting such auctions. Due to
the fact that these laws were promulgated prior to the advent of the Internet
and exchanges in the nature of the Exchange, it is not clear, and there is
little guidance from the courts and the
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legislature as to, whether a system like the Exchange would fall within their
purview. While we are in the process of seeking a determination as to the
applicability of the Florida laws to our business, there can be no assurance
that the State of Florida, or any other state, will not attempt to impose these
regulations upon us or that such imposition will not have a material adverse
effect on our business, results of operations and financial condition.
Several states have also proposed legislation that would limit the uses of
personal user information gathered online or require online services to
establish privacy policies. The Federal Trade Commission has also recently
settled a proceeding with one online service regarding the manner in which
personal information is collected from users and provided to third parties.
Changes to existing laws, or the passage of new laws intended to address these
issues, could create uncertainty in the marketplace that could reduce demand for
our services or increase the cost of doing business as a result of litigation
costs or increased service delivery costs, or could in some other manner have a
material adverse effect on our business, results of operations and financial
condition. In addition, because our services are accessible worldwide, and we
facilitate sales of goods to users worldwide, other jurisdictions may claim that
we are required to qualify to do business as a foreign corporation in a
particular state or foreign country. We are currently only qualified to do
business in the State of Florida, and our failure to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject us to
taxes and penalties for the failure to qualify and could result in our inability
to enforce contracts in such jurisdictions. Any such new legislation or
regulation, or the application of laws or regulations from jurisdictions whose
laws do not currently apply to our business, could have a material adverse
effect on our business, results of operations and financial condition.
EMPLOYEES
As of December 31, 1999, we had 33 full-time employees. None of our
employees is represented by a collective bargaining agreement, nor have we
experienced any work stoppage. We consider our relations with our employees to
be good. We believe our future success depends in part on our continued ability
to attract, integrate, retain and motivate highly qualified technical and
managerial personnel, and upon the continued service of our senior management
and key technical personnel. We only have an employment agreement with our
President and CEO. Competition for qualified personnel in our industry and
geographical location is intense, and there can be no assurance that we will be
successful in attracting, integrating, retaining and motivating a sufficient
number of qualified personnel to conduct our business in the future.
RISK FACTORS
The following risk factors, together with all information in this Form
10-K, should be carefully considered in evaluating Marex.com and its business.
Due to the significant impact that the risk factors set forth below may have on
Marex.com's business, results of operations and financial condition, actual
results could differ materially from those expressed or implied by any
forward-looking statement.
We have a Limited Operating History
Marex.com, Inc. was founded in 1992 but did not launch the Exchange until
November 1998. Thus we have a limited operating history on which to base an
evaluation of our e-commerce business and prospects. Our prospects must be
considered in light of the risks, uncertainties, expenses and difficulties
frequently encountered by companies in their early stages of development,
particularly companies in new and rapidly evolving markets such as B2B
e-commerce. Many of these risks are described in this "Risk Factors" section.
There can be no assurance that we will be able to address these risks.
We have a History of Losses
We have incurred losses from operations in each period since our inception.
We expect to incur substantial operating losses and have continued negative cash
flows from operations for the foreseeable future. We expect to significantly
increase our spending on sales and marketing, product development, and general
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and administrative expenses. In addition, we have no material revenues to date.
If our revenue does not increase substantially or if our expenses increase
further than we expect, we may not become profitable.
Our Quarterly Operating Results are Volatile and Difficult to Predict
Due to our limited operating history, we believe that period-to-period
comparisons of revenues and results of operations are not meaningful. The
fluctuations in our operating results may fall below the expectations of
investors and securities analyst. Our failure to meet these expectations will
likely cause a significant decline in the market price of our stock.
The Business to Business E-commerce Model is Not Proven
Our B2B e-commerce model is based on the expansion of the Exchange and the
launch of our other procurement solutions for B2B e-commerce within the marine
industry. This business model is new and not proven and depends upon our ability
to, among other things: sell purchasing solutions to marine industry
participants; achieve high rates of adoption by customers; and generate
significant revenues from the use of our Internet-based solutions. We cannot be
certain that the business model will be successful, that it can achieve or
sustain revenue growth, or that it can generate any profits. The success of this
business model will require, among other things, that we develop and market
solutions with broad market acceptance by users and strategic partners. We
cannot be certain that B2B e-commerce on the Internet, our e-commerce solution,
or our services and brand in particular, will achieve broad market acceptance.
If We Fail to Release New E-commerce Solutions on a Timely Basis, Our Business
Would be Adversely Affected
We plan to introduce new e-commerce solutions to service the requirements
of marine industry participants and to increase the potential transaction
volumes. If we fail to introduce new products on a timely basis, we may
experience supplier and buyer dissatisfaction which will adversely affect our
business. In addition, any new product that does not achieve market acceptance
may cause damage to our reputation or brand name.
We Face Intense Competition
We perceive competition to be intense and we expect it to increase
significantly in the future. We face competition from other companies with
e-commerce offerings as well as traditional suppliers and distributors of marine
products and marine companies that have or may develop their own online
solutions. In addition, providers of online marketplaces and online auction
services that currently focus on other industries may expand their services to
include marine products. Our competitors and potential competitors may develop
superior Internet solutions that achieve greater market acceptance than the
Marex.com solution. In addition, substantially all of our prospective customers
have established long-standing relationships with some competitors and potential
competitors. We cannot be certain that we can compete successfully against
current and future competitors.
Our Solution and Services are New and Face Rapid Technological Changes
The Internet market for the Marex.com solution is characterized by rapid
technological advances, evolving standards in the Internet and software markets,
changes in customer requirements and frequent new product and service
introductions and enhancements. As a result, we believe that our future success
depends upon our ability to enhance current Internet-based solutions and
services, to develop and introduce new solutions and services that will achieve
market acceptance, and where necessary, to integrate Internet-based solutions
with customers' systems. If we do not adequately respond to the need to develop
and introduce new solutions or services, then our business will be negatively
affected. Further, we may incur significant expense to integrate purchasing
solutions with customers' systems and to maintain this integration as customers'
systems evolve. Failure to provide this integration may delay or altogether
dissuade the marine market or a particular customer from adopting our
Internet-based solutions.
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We Will Need to Manage Our Expanding Business
Our growth has placed, and is expected to continue to place, a significant
demand on our sales, marketing, managerial, operational, information technology
and other resources. If we cannot manage our growth effectively, our business
will be adversely affected. We expect to need a significant number of new
employees to expand our business. Our current information systems, procedures
and controls may not support expanded operations and may hinder our ability to
take advantage of the market for e-commerce purchasing solutions to the marine
industry.
We Depend on Key Personnel
Our performance is substantially dependent on the performance of the
executive officers and other key employees. Failure to successfully manage
personnel requirements would have a negative effect on the business. We have
experienced difficulty from time to time in hiring the personnel necessary to
support the growth of our business, and we may experience similar difficulty in
hiring and retaining personnel in the future. Competition for senior management,
experienced sales and marketing personnel, software developers, and other
employees is intense, and we cannot be certain that we will be successful in
attracting and retaining personnel. The loss of the services of any executive
officers or key employees could have a negative effect on the business. Failure
to obtain or retain the services of necessary executive officers or key
employees may not support existing or expanded operations, and may hinder our
ability to take advantage of the market for e-commerce purchasing solutions to
the marine industry.
We Expect the Price of Our Common Stock to Be Volatile
The market price of the Common Stock may fluctuate significantly in
response to a number of factors, some which are beyond our control, including
the following: quarterly variations in operating results; changes in market
valuation of Internet commerce companies; announcements of significant
contracts, acquisitions, strategic partnerships, joint ventures or capital
commitments; loss of a major customer or strategic partner, or failure to
complete a sale to a significant customer; additions or departures of any key
personnel; future sales of our Common Stock; and stock market price and volume
fluctuations, which are particularly common among highly volatile securities of
Internet companies.
Security Problems May Inhibit the Growth of Internet-Based Purchasing Solutions
A significant barrier to the adoption of e-commerce is the secure
transmission of confidential information over public networks. Users generally
are concerned with security and privacy on the Internet and any publicized
security problems could inhibit the growth of the Internet, and therefore
inhibit the Marex.com solution as a means of conducting transactions. If there
is a breach in our security system, we may be required to make significant
expenditures to protect against security breaches and to alleviate problems
caused by such breaches.
System Failure May Cause Interruption of Services
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation, and affects our
ability to process transactions, provide high quality customer service and
attract and retain customers, suppliers, users and strategic partners. Currently
the infrastructure and systems are located at one site at our headquarters in
Miami, Florida. We are in the process of adding a mirror site at a different,
distant location. Until then, we depend on single-site infrastructure. Any
disruption to this infrastructure resulting from a natural disaster or other
event could result in an interruption in service, fewer transactions and, if
sustained or repeated, could impair our reputation and the attractiveness of the
services.
We May Require Additional Capital for Operations
We currently anticipate that current financing arrangements, together with
existing borrowing arrangements and available funds will be sufficient to meet
anticipated needs for working capital and capital expenditures for at least the
next 12 months. We will need to raise additional funds in the future in order to
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fund rapid expansion, to develop new or enhanced solutions and services, to
respond to competitive pressures or to acquire complementary businesses,
technologies or services.
We Depend on Intellectual Property Rights
Our intellectual property is important to us. We seek to protect
intellectual property through copyrights, trademarks, trade secrets,
confidentiality provisions in customer, supplier and strategic relationship
agreements, nondisclosure agreements with third parties, employees and
contractors. We cannot assure that measures we take to protect intellectual
property will be successful or that third parties will not develop alternative
purchasing solutions that do not infringe upon our intellectual property. In
addition, we could be subject to intellectual property infringement claims by
others. Failure to protect against misappropriation of intellectual property, or
claims that we are infringing the intellectual property of third parties could
have a negative effect on our business.
Regulation or Taxation of the Internet or Transacting Business Over the Internet
Due to the increasing popularity and use of e-commerce, it is possible that
a number of taxes, laws and regulations may be adopted in the U.S. and abroad
with particular applicability to the Internet and e-commerce transactions. It is
possible that governments will adopt taxes and enact legislation that may be
applicable in areas such as content, product distribution, network security,
encryption and the use of key escrow, data and privacy protection, electronic
authentication or "digital" signatures, illegal and harmful content, access
charges and re-transmission activities. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership, content,
taxation, defamation and personal privacy is uncertain. Taxes, laws or
regulations may limit the growth of the Internet, dampen e-commerce and reduce
the number of transactions, increase the cost of doing business or increase
legal exposure. Any of these factors could have a negative effect on our
business.
SEASONALITY
Our business is seasonal due to the impact of the buying and selling
patterns of the members that utilize our system. We believe that the second and
third quarters are the peak periods for the recreational marine industry. In
addition, the recreational marine industry is highly cyclical and is highly
affected by a number of factors. Some of those factors are: (i) economic
conditions, (ii) consumer confidence levels, and (iii) weather conditions.
ITEM 2. PROPERTIES
The Company leases office space (11,800 sq. ft.) in Miami, Florida,
pursuant to a lease agreement that expires June 30, 2004.
ITEM 3. LEGAL PROCEEDINGS
We are not aware of any pending material legal proceedings to which we are
a party or which our property is the subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 16, 1999, Marex.com held a special meeting of stockholders at
the Company's offices at 2701 South Bayshore Drive, 5th Floor, Miami, Florida
33133. The matters voted upon and their results were as follows:
Proposal 1
To approve an amendment to the Company's Amended and Restated Articles of
Incorporation, to change the Company's name to "Marex.com, Inc."
Proposal 1 was approved based on the following results:
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<CAPTION>
FOR AGAINST ABSTAIN
- --------- --------- ---------
<S> <C> <C>
4,533,724 1,050 0
</TABLE>
Proposal 2
To approve the amendment and restatement of the Company's Amended and
Restated 1997 Stock Option Plan, to increase the maximum number of shares which
may be subject to options granted under the Restated Plan by 2,000,000 shares.
Proposal 2 was approved based on the following results:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- --------- --------- ---------
<S> <C> <C>
3,716,432 45,200 2,515
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our Common Stock is traded on the NASD over-the-counter bulletin board
under the symbol "MRXX". Prior to changing our name, we commenced our trading on
February 4, 1998 under the symbol "AFNT". The following table sets forth the
high and low bid quotations for our Common Stock for the periods indicated.
These quotations reflect prices between dealers retroactively adjusted for a
3-for-1 stock split on March 24, 1998. Prices do not include retail mark-ups,
mark-downs, commissions and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1998
First Quarter (commencing February 4)....................... $ 6.00 $5.50
Second Quarter.............................................. 5.28 5.25
Third Quarter............................................... 5.00 4.50
Fourth Quarter.............................................. 14.00 4.00
1999
First Quarter............................................... $11.50 $8.50
Second Quarter.............................................. 12.13 9.25
Third Quarter............................................... 10.38 7.50
Fourth Quarter.............................................. 10.19 6.75
</TABLE>
As of March 10, 2000, there were approximately 128 holders of record of our
Common Stock, of which 6,423,806 shares were issued and outstanding. The closing
bid price for the Common Stock was $36.75 per share.
We have never paid cash dividends on our Common Stock. We intend to retain
future earnings, if any, to finance the expansion of our business and do not
anticipate that any cash dividends will be paid in the
9
<PAGE> 12
foreseeable future. The future dividend policy will depend on our earnings,
capital requirements, expansion plans, financial condition and other relevant
factors.
PRIVATE PLACEMENTS OF COMMON STOCK
During the second quarter of 1999, we raised $6,892,465 from the sale of
1,122,047 shares of Common Stock and after deducting $872,074 in commissions and
$31,208 in other costs related to the financing. The shares were primarily sold
to overseas investors and were issued pursuant to Rule 505 and 506 under
Regulation D of the Securities Exchange Act of 1933.
As of December 31, 1999, proceeds from our 1999 private placements had been
used as follows: $2,892,000 was used towards operating expenses; $726,000 was
invested in property, plant and equipment, and a trademark; $403,000 was used to
pay-off debt; and $151,000 was used to fund the discontinued operations of
Sovereign.
10
<PAGE> 13
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to the
consolidated financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", which are included elsewhere in
this Form 10-K. The selected financial data of Marex.com as of and for each of
the four years in the period ended December 31, 1999, have been derived from
Marex.com's audited consolidated financial statements. The selected financial
data of Marex.com as of and for the year ended December 31, 1995, have been
derived from unaudited consolidated financial statements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 7,277 $ -- $ -- $ -- $ --
----------- ----------- ---------- ---------- ----------
Operating expenses:
Product development.............. 1,132,179 89,952 -- -- --
Selling and marketing............ 1,137,554 166,699 -- -- --
General and administrative....... 1,385,027 24,799 -- -- --
----------- ----------- ---------- ---------- ----------
Total operating
expenses............... 3,654,760 281,450 -- -- --
----------- ----------- ---------- ---------- ----------
Loss from operations............... (3,647,483) (281,450) -- -- --
----------- ----------- ---------- ---------- ----------
Other income (expense):
Interest income.................. 106,411 -- -- -- --
Interest expense................. (6,909) (45,208) (32,800) (16,800) --
Other............................ (1,406) (912) (23,213) -- --
----------- ----------- ---------- ---------- ----------
Total other income
(expense).............. 98,096 (46,120) (56,013) (16,800) --
----------- ----------- ---------- ---------- ----------
Loss from continuing operations.... (3,549,387) (327,570) (56,013) (16,800) --
----------- ----------- ---------- ---------- ----------
Discontinued operations:
Loss from discontinued
operations.................. (100,167) (827,483) (599,844) (308,568) (20,480)
Loss on disposal, including
$11,869 for operating losses
during the phase out
period...................... (40,200) -- -- -- --
----------- ----------- ---------- ---------- ----------
Total discontinued
operations............. (140,367) (827,483) (599,844) (308,568) (20,480)
----------- ----------- ---------- ---------- ----------
Net loss........................... $(3,689,754) $(1,155,053) $ (655,857) $ (325,368) $ (20,480)
=========== =========== ========== ========== ==========
Net loss per share, basic and
diluted:
Continuing operations............ $ (0.62) $ (0.07) $ (0.01) $ (0.02) $ --
Discontinued operations.......... (0.03) (0.17) (0.15) (0.27) (0.02)
----------- ----------- ---------- ---------- ----------
Net loss......................... $ (0.65) $ (0.24) $ (0.16) $ (0.29) $ (0.02)
=========== =========== ========== ========== ==========
Weighted average shares of Common
Stock outstanding................ 5,700,306 4,752,975 3,995,719 1,127,869 1,000,000
=========== =========== ========== ========== ==========
BALANCE SHEET DATA:
Cash and equivalents............... $ 3,434,036 $ 350,042 $ 28,778 $ 69,058 $ --
Working capital (deficit).......... 2,922,218 13,821 (226,200) (253,201) (209,460)
Total assets....................... 4,315,458 596,596 447,826 454,795 221,121
Long-term liabilities.............. 6,734 28,647 92,215 113,017 35,229
Accumulated deficit................ (5,889,943) (2,200,189) (1,045,136) (389,279) (63,911)
Total stockholders' equity
(deficit)........................ 3,704,104 222,093 (27,836) (72,279) (46,911)
</TABLE>
11
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the notes to the consolidated financial
statements, which are included elsewhere in this Form 10-K. It contains
forward-looking statements that involve risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those discussed below and
elsewhere in this Form 10-K, particularly under the heading "Risk Factors".
OVERVIEW
Marex.com is a provider of e-commerce solutions for the marine industry.
The Exchange, the first procurement tool that we developed, is an Internet based
trading exchange for the marine industry. We began registering members for the
Exchange in November 1998. The Exchange allows buyers to solicit quotes online
from sellers for specific equipment, parts and supplies. Buyers are displayed
the best prices available, which are updated on a real-time basis as bids are
posted. Through the Exchange, we seek to provide a worldwide search capability
to buyers for equipment, parts and supplies and create a lowest price forum for
buyers to take advantage of spot market pricing of sellers' overstocked and
available inventory. Sellers utilizing the Exchange will gain access to an
expanded wholesale customer base and have greater opportunity to resell slow
moving inventory.
In addition to the Exchange, we are developing e-commerce solutions that
will automate the procurement process of marine businesses. We expect our
solutions to offer increased procurement efficiency and access to Internet
distribution channels.
DISCONTINUED OPERATIONS
On August 24, 1999, our Board of Directors approved a plan to discontinue
the operations of its non-core business subsidiary, Sovereign Financial
Information Services, Inc. ("Sovereign"), in order to focus its business towards
its Internet-based services and products for the marine industry. Sovereign was
engaged in the publishing of research reports, stock handbooks and global
industry guides. Sovereign ceased operations on September 30, 1999. The
estimated loss on the disposal of Sovereign was $40,000, consisting of a
write-down of Sovereign assets totaling $28,000 and a provision of $12,000 for
the estimated operating losses until the date of disposal. In 1999, our loss
from discontinued operations was $100,000, compared to $827,000 in 1998. The
decrease resulted from greater resources and efforts allocated towards our
continuing operations in 1999.
The financial information in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" refers to our continuing
operations and excludes the operations of Sovereign.
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues
The Exchange generates revenues by charging a transaction fee for completed
transactions. The fee is based on a sliding scale ranging from approximately 10%
for smaller transactions to 4% for larger transactions. Revenues are recognized
at the completion of a transaction. A transaction is considered completed when
the buyer has received and approved the merchandise that was purchased through
the Exchange, and we have remitted the purchase price, less the transaction fee,
to the seller. For the year ended December 31, 1999, we recorded revenues of
$7,000 generated from $194,000 of completed transactions through the Exchange.
The Exchange, which was not operational until November 1998, did not generate
any revenues in 1998.
Product Development
Product development expenses consist primarily of compensation for product
development personnel, cost of outside contractors, amortization of software
development costs, and other costs associated with the operations and
enhancements of the website. Product development expenses increased to
$1,132,000 for the
12
<PAGE> 15
year ended December 31, 1999, compared to $90,000 for the same period in 1998.
The change related primarily to increases of $623,000 in personnel and personnel
related costs, $114,000 in outside contractor costs, and $59,000 in depreciation
and amortization. The balance was comprised of overhead and operating costs
directly associated with the development and maintenance of the website. We
expect product development expenses to continue to increase as we develop and
enhance the functionality of the website.
Selling and Marketing
Selling and marketing expenses consist primarily of compensation for sales
and marketing personnel, advertising, trade shows and related marketing costs.
Selling and marketing expenses increased to $1,138,000 for the year ended
December 31, 1999, compared to $167,000 for the same period in 1998. The change
is primarily due to increases of $497,000 in personnel and personnel related
costs, $297,000 in advertising and marketing costs, and $54,000 in professional
fees. The balance was comprised of overhead and operating costs directly
associated with selling and marketing activities. We expect selling and
marketing expenses to continue to increase as we increase awareness about our
company and improve our positioning within the market.
General and Administrative
General and administrative expenses consist primarily of compensation for
administrative personnel, facilities expenses, professional fees, and general
corporate expenses. General and administrative expenses increased to $1,385,000
for the year ended December 31, 1999, compared to $25,000 for the same period in
1998. The change related primarily to increases of $618,000 in personnel and
personnel related costs, $276,000 in professional fees and $140,000 relating to
the fair value of warrants issued to consultants. The balance was comprised of
corporate charges directly associated with the administrative functions of our
company. We expect general and administrative expenses to continue to increase
as we add personnel and incur additional corporate expenses associated with the
evolution of our business.
Other Income and Expense
We recorded $106,000 of interest income for the year ended December 31,
1999, as a result of our investments in marketable securities which were derived
from the net proceeds of the private placements completed in 1999. Interest
expense for the year ended December 31, 1999 was $7,000, compared to $45,000 in
the prior year as a result of the decrease in our notes payable and loan from
related party balances.
Loss from Continuing Operations
Our loss from continuing operations increased to $3,549,000 for the year
ended December 31, 1999, from $328,000 in the prior year. The change resulted
from the increase in costs, as described above, associated with the launch of
the Exchange which was in the development stage until November 1998 and the
development of other e-commerce products.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues
The Exchange, which was not operational until November of 1998, did not
generate any revenues during 1998 and 1997.
Product Development
In 1998, we recorded $90,000 of product development expenses related
primarily to personnel and personnel related costs. We did not incur any product
development expenses in 1997.
Selling and Marketing
Selling and marketing expenses consist primarily of compensation for sales
and marketing personnel, advertising, and related marketing costs. In 1998, we
recorded selling and marketing expenses of $167,000
13
<PAGE> 16
consisting primarily of $15,000 in personnel and personnel related costs and
$141,000 in advertising and marketing costs. The balance was comprised of
overhead and operating costs directly associated with selling and marketing
activities. We did not incur any selling and marketing expenses in 1997.
General and Administrative
In 1998, we recorded general and administrative expenses of $25,000
consisting primarily of $15,000 in personnel and personnel related costs. The
balance was comprised of corporate charges directly associated with the
administrative functions of our company. We did not incur any general and
administrative expenses in 1997.
Other Income and Expense
Interest expense during the year ended December 31, 1998 was $45,000,
compared to $33,000 for the same period in 1997. The increase was primarily due
to the balances outstanding during 1998 under the loan from related party. Other
expense decreased from $23,000 in 1997, to $900 in 1998 as a result of decreased
losses relating to trading securities.
Loss from Continuing Operations
Our loss from continuing operations was $328,000 during the year ended
December 31, 1998, compared to $56,000 for the same period in 1997. The change
resulted from the increase in costs, as described above, associated with the
launch of the Exchange which was in the development stage until November 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private sale of Common Stock, short-term borrowings from banks, and borrowings
from our Chief Executive Officer who is also President, Director and a
shareholder.
Net cash used in operating activities was $2.9 million in 1999, primarily
as a result of a net loss from continuing operations of $3.5 million. The net
loss was offset by an increase of $523,000 in accounts payable and accrued
expenses and a charge of $140,000 to reflect the fair value of warrants issued
to consultants.
Net cash used in investing activities was $748,000 in 1999, primarily due
to leasehold improvements relating to the new office, the purchase of computer
and office equipment, and the purchase of furniture and fixtures.
Net cash provided by financing activities was $6.9 million, which was
primarily due to the issuance of Common Stock and borrowings. The issuance of
Common Stock and borrowings was partially offset by payments of notes payable
balances and amounts due to a related party.
At December 31, 1999, our cash and cash equivalents totaled $3.4 million,
while our working capital was $2.9 million. In comparison, as of December 31,
1998, cash and cash equivalents totaled $350,000, while our working capital was
$14,000. The increase was primarily due to the issuance of $6.9 million of
Common Stock during 1999. To date, our primary uses of cash have been in
operating activities to fund the development and promotion of our e-commerce
solutions.
In March 2000, the Company entered into an agreement for the sale of
430,000 shares of Series A1 Convertible Preferred Stock ("Series A1 Preferred
Stock") at $100 per share. The sale, consisting of two tranches, results in
gross cash proceeds of $43 million. The first tranche, completed on March 3,
2000, consisted of 210,000 shares of Series A1 Preferred Stock amounting to cash
proceeds of $21 million. The second $22 million tranche will close upon the
earlier of 60 days following the date of the first issuance, or the date at
which the Common Stock of the Company is listed on Nasdaq, assuming the
satisfaction of certain conditions.
We expect to experience significant growth in our operating expenses during
the foreseeable future in order to execute our business plan. We anticipate that
such operating expenses, as well as planned capital
14
<PAGE> 17
expenditures, will constitute a material use of our cash resources. We believe
that the net proceeds from our sale of Series A1 Preferred Stock will be
sufficient to meet our working capital and operating resources requirements for
at least the next year. In the event that our working capital and operating
resources requirements during the next year exceed our cash proceeds from our
sale of Series A1 Preferred Stock, we may not be able to raise additional
capital on acceptable terms or at all.
RECENT PRONOUNCEMENT
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". SFAS No. 137 defers for one year the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
will now apply to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS No. 133 will require us to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income. We will adopt SFAS No. 133 as required for our first
quarterly filing of fiscal year 2001. We believe the adoption of this Statement
will not have a material effect on our results of operations and financial
position.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
15
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MAREX.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... 17
Independent Auditors' Report................................ 18
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 19
Consolidated Statements of Operations
For the Years Ended December 31, 1999, 1998 and 1997...... 20
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1999, 1998 and 1997...... 21
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997...... 22
Notes to Consolidated Financial Statements.................. 23
</TABLE>
16
<PAGE> 19
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Marex.com, Inc.:
We have audited the accompanying consolidated balance sheet of Marex.com,
Inc., (a Florida Corporation) and Subsidiary (formerly Affiliated Networks,
Inc.) as of December 31, 1999, and the related consolidated statements of
operations, shareholders' equity and cash flows the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Marex.com,
Inc. and Subsidiary as of December 31, 1999 and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles in the United States.
/s/ Arthur Andersen LLP
Miami, Florida,
February 21, 2000 (except with respect
to the matter discussed in Note 12, as to
which the date is March 7, 2000).
17
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Marex.com, Inc. and Subsidiary, formerly
Affiliated Networks, Inc. and Subsidiary
Miami, Florida
We have audited the accompanying consolidated balance sheet of Marex.com,
Inc. and Subsidiary, formerly Affiliated Networks, Inc. and Subsidiary, as of
December 31, 1998, and the related consolidated statements of operations,
shareholders' equity (deficit), and cash flows for the years ended December 31,
1998 and 1997. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Marex.com, Inc. and
Subsidiary, formerly Affiliated Networks, Inc. and Subsidiary, as of December
31, 1998 and the results of their operations, changes in their shareholders'
equity, and their cash flows for the years ended in December 31, 1998 and 1997
in conformity with generally accepted accounting principles.
/s/ McClain & Company, L.C.
Miami, Florida
January 18, 1999 except for Note 3,
as to which the date is February 21, 2000
18
<PAGE> 21
MAREX.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,434,036 $ 350,042
Prepaid expenses and other current assets................. 70,602 --
Loan to shareholder....................................... 22,200 --
Net current assets of discontinued operations............. -- 9,635
----------- -----------
Total current assets.............................. 3,526,838 359,677
----------- -----------
Property and equipment, net................................. 692,335 71,270
----------- -----------
Other assets:
Trademark, net............................................ 23,021 --
Software development costs, net........................... 71,668 89,954
Deposits.................................................. 1,596 1,596
Net non-current assets of discontinued operations......... -- 74,099
----------- -----------
Total other assets................................ 96,285 165,649
----------- -----------
Total assets................................. $ 4,315,458 $ 596,596
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable............................................. $ -- $ 116,206
Capital lease obligations................................. 6,845 11,296
Accounts payable and accrued expenses..................... 534,552 106,307
Customer deposits......................................... 63,223 76,297
Due to related party...................................... -- 35,750
----------- -----------
Total current liabilities......................... 604,620 345,856
----------- -----------
Long-term liabilities:
Notes payable, net of current portion..................... -- 23,521
Capital lease obligations, net of current portion......... 6,734 5,126
----------- -----------
Total long-term liabilities....................... 6,734 28,647
----------- -----------
Total liabilities............................ 611,354 374,503
----------- -----------
Shareholders' equity:
Preferred Stock, par value $.01 per share, 1,000,000
shares authorized, none issued and outstanding......... -- --
Common Stock, par value $.01 per share,
25,000,000 shares authorized, 6,396,806 and
4,928,180 shares issued and outstanding as of December
31, 1999 and December 31, 1998, respectively........... 63,968 49,282
Additional paid-in capital................................ 9,530,079 2,373,000
Accumulated deficit....................................... (5,889,943) (2,200,189)
----------- -----------
Total shareholders' equity........................ 3,704,104 222,093
----------- -----------
Total liabilities and shareholders' equity... $ 4,315,458 $ 596,596
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
19
<PAGE> 22
MAREX.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Revenues................................................. $ 7,277 $ -- $ --
----------- ----------- ---------
Operating expenses:
Product development................................. 1,132,179 89,952 --
Selling and marketing............................... 1,137,554 166,699 --
General and administrative.......................... 1,385,027 24,799 --
----------- ----------- ---------
Total operating expenses....................... 3,654,760 281,450 --
----------- ----------- ---------
Loss from operations..................................... (3,647,483) (281,450) --
----------- ----------- ---------
Other income (expense):
Interest income..................................... 106,411 -- --
Interest expense.................................... (6,909) (45,208) (32,800)
Other............................................... (1,406) (912) (23,213)
----------- ----------- ---------
Total other income (expense)................... 98,096 (46,120) (56,013)
----------- ----------- ---------
Loss from continuing operations.......................... (3,549,387) (327,570) (56,013)
----------- ----------- ---------
Discontinued operations:
Loss from discontinued operations................... (100,167) (827,483) (599,844)
Loss on disposal, including $11,869 for operating
losses during the phase out period................ (40,200) -- --
----------- ----------- ---------
Total discontinued operations.................. (140,367) (827,483) (599,844)
----------- ----------- ---------
Net loss................................................. $(3,689,754) $(1,155,053) $(655,857)
=========== =========== =========
Net loss per share, basic and diluted:
Continuing operations............................... $ (0.62) $ (0.07) $ (0.01)
Discontinued operations............................. (0.03) (0.17) (0.15)
----------- ----------- ---------
Net loss............................................ $ (0.65) $ (0.24) $ (0.16)
=========== =========== =========
Weighted average shares of Common Stock outstanding...... 5,700,306 4,752,975 3,995,719
=========== =========== =========
</TABLE>
See Notes to Consolidated Financial Statements
20
<PAGE> 23
MAREX.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED SHAREHOLDERS'
STOCK CAPITAL DEFICIT EQUITY
------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996...................... $39,000 $ 278,000 $ (389,279) $ (72,279)
Issuance of 360,200 shares of Common Stock...... 3,602 696,698 -- 700,300
Net loss........................................ -- -- (655,857) (655,857)
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1997...................... 42,602 974,698 (1,045,136) (27,836)
Issuance of 668,000 shares of Common Stock...... 6,680 1,398,302 -- 1,404,982
Net loss........................................ -- -- (1,155,053) (1,155,053)
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1998...................... 49,282 2,373,000 (2,200,189) 222,093
Exercise of stock options....................... 3,466 135,534 -- 139,000
Issuance of 1,122,047 shares of Common Stock.... 11,220 6,881,245 -- 6,892,465
Fair value of warrants issued to consultants.... -- 140,300 -- 140,300
Net loss........................................ -- -- (3,689,754) (3,689,754)
------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1999...................... $63,968 $9,530,079 $(5,889,943) $ 3,704,104
======= ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements
21
<PAGE> 24
MAREX.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
----------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from continuing operations........................... $(3,549,387) $(327,570) $(56,013)
Adjustments to reconcile loss from continuing operations
to net cash used in continuing operations
Depreciation......................................... 71,006 2,594 --
Amortization......................................... 27,765 1,482 --
Fair value of warrants issued to consultants......... 140,300 -- --
Loss on disposal of fixed assets..................... 1,406 -- --
Increase in prepaid expenses and other current
assets............................................ (70,602) -- --
Increase in accounts payable and accrued expenses.... 522,614 11,937 --
Decrease in customer deposits........................ (13,074) -- --
Decrease (increase) in trading securities............ -- 34,875 (34,875)
----------- --------- --------
Net cash used in operating activities............. (2,869,972) (276,682) (90,888)
----------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (693,477) (36,906) (6,811)
Acquisition of trademark.................................. (32,500) -- --
Additions to software development costs................... -- (8,158) (83,278)
(Increase) decrease in loan to shareholder................ (22,200) 61,038 (50,820)
----------- --------- --------
Net cash (used in) provided by investing
activities...................................... (748,177) 15,974 (140,909)
----------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party borrowings.................... 224,551 438,862 65,000
Proceeds from exercise of stock options................... 139,000 -- --
Principal payments on due to related party................ (260,301) (403,112) (65,000)
Principal (payments) borrowings under notes payable....... (139,727) (76,112) 41,933
Principal payments on capital lease obligations........... (2,843) (10,749) (9,306)
Proceeds from issuance of Common Stock.................... 6,892,465 1,404,982 700,300
----------- --------- --------
Net cash provided by financing activities......... 6,853,145 1,353,871 732,927
----------- --------- --------
Net cash provided by continuing operations.................. 3,234,996 1,093,163 501,130
Net cash used in discontinued operations.................... (151,002) (771,899) (541,410)
----------- --------- --------
Net increase (decrease) in cash and cash equivalents........ 3,083,994 321,264 (40,280)
CASH AND CASH EQUIVALENTS, beginning of year................ 350,042 28,778 69,058
----------- --------- --------
CASH AND CASH EQUIVALENTS, end of year...................... $ 3,434,036 $ 350,042 $ 28,778
=========== ========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest................. $ 5,988 $ 45,200 $ 31,000
=========== ========= ========
</TABLE>
See Notes to Consolidated Financial Statements
22
<PAGE> 25
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION
Marex.com (the "Company"), formerly known as Affiliated Networks, Inc., is
a provider of business to business (B2B) e-commerce solutions for the marine
industry. The Company has developed a comprehensive set of procurement solutions
for the automation of business transactions on the Internet among suppliers,
boat builders, boat repairers, and dealers/distributors. The Company's solutions
offer its members a medium for efficient procurement of goods and access to
Internet distribution channels.
Marex.com was originally incorporated in Florida in September 1992 under
the name of Florida Marine Management, Inc. In order to reflect the Company's
focus on providing Internet-based e-commerce solutions for the marine industry,
it changed its name on November 17, 1999 from Affiliated Networks, Inc. to
Marex.com, Inc.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Sovereign Financial Information Services, Inc. ("Sovereign"), a wholly
owned subsidiary of Marex.com, Inc., ceased operations on September 30, 1999 and
is reported as a discontinued operation in the accompanying consolidated
financial statements (see Note 3).
The accompanying consolidated financial statements include the accounts of
Marex.com, Inc. and Sovereign. All intercompany accounts and transactions have
been eliminated in the consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the assets or lease term as follows:
<TABLE>
<CAPTION>
YEARS
----------------------
<S> <C>
Computer hardware and software........................ 3
Office equipment and furniture........................ 5
Leasehold improvements................................ 5
Equipment held under capital leases................... Life of Lease or
Estimated Useful Life,
if Shorter
</TABLE>
SOFTWARE DEVELOPMENT COSTS
The Company has capitalized certain costs associated with the development
of the Exchange (the "Exchange"), the first of the Company's e-commerce
procurement solutions. The Company was following the guidance promulgated by
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed" until SOP 98-1, "Accounting for Software Developed for
Internal Use", became effective on January 1, 1999. As prescribed by SFAS No.
86, all costs incurred to establish technological feasibility of a computer
software product to be sold, leased, or otherwise marketed were expensed as
incurred.
23
<PAGE> 26
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1997, once technological feasibility was determined, the
subsequent costs for coding and testing were capitalized until the software was
available for general release to members in November of 1998.
Amortization of the Exchange is computed using the straight-line method
over the remaining estimated useful life of five years. Amortization expense was
approximately $18,000 and $1,500 for the years ended December 31, 1999 and 1998,
respectively.
TRADEMARK
The cost of the trademark acquired is being amortized using the
straight-line method over two years. Amortization of trademarks included in
"Product Development" in the accompanying consolidated statement of operations
commenced in 1999 and totaled approximately $9,000 for the year ended December
31, 1999.
LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of any asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. There were no impairment charges recorded in the year ended
December 31, 1999.
INCOME TAXES
The Company utilizes an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to effect taxable income.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change in deferred tax
assets and liabilities and the change in any valuation allowance during the
year.
REVENUE RECOGNITION
The Company generates revenues by charging a transaction fee for completed
transactions. The fee is based on a sliding scale ranging from approximately 4%
to 10% of the sales price. Revenues are recognized at the completion of a
transaction. A transaction is considered completed when the buyer has received
and approved the merchandise that was purchased through the Exchange, and the
Company has remitted the purchase price, less the transaction fee, to the
seller.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
24
<PAGE> 27
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following assumptions were used to estimate the fair value of each
class of financial instruments for which it is practical to estimate that value:
Cash and Cash Equivalents
The carrying amounts of cash and cash equivalents approximate their fair
value.
Notes Payable, Capital Lease Obligations and Due to Related Party
The fair values of the notes payable, capital lease obligations and due to
related party are estimated based upon current rates offered to the Company for
debt of the same remaining maturities. Carrying amounts of notes payable,
capital lease obligations and due to related party are reasonable estimates of
their fair values.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company continues to account for stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and has made the pro forma
disclosures required by SFAS No. 123 for each of the three years ended December
31, 1999 (see Note 11).
WARRANTS
As required by SFAS No. 123, the Company accounts for warrants issued to
non-employees not issued in conjunction with debt by amortizing the
Black-Scholes value of such warrants over the vesting period. The Black-Scholes
value of warrants issued in conjunction with debt is amortized over the life of
the loan agreement as interest expense. In 1999, expense related to warrants was
$140,300 and is included in "General and Administrative Expenses" in the
accompanying consolidated statement of operations.
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share", requires two presentations of earnings
per share--"basic" and "diluted". Basic earnings per share is computed by
dividing income available to common stockholders (the numerator) by the weighted
average number of common shares (the denominator) for the period. The
computation of diluted earnings per share is similar to basic earnings per
share, except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potentially
dilutive common shares had been issued.
The following options and warrants to purchase shares of common stock were
outstanding at the end of each year, but were not included in the computation of
diluted earnings per share because the Company reported a net loss for all years
presented and, therefore, the effect would be antidilutive:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPTIONS
Outstanding............................ 2,416,000 1,911,000 1,932,000
Weighted average exercises............. $ 5.00 $ 1.38 $ 1.37
WARRANTS
Outstanding............................ 436,971 33,000 33,000
Weighted average exercises............. $ 9.19 $ 1.83 $ 1.83
</TABLE>
25
<PAGE> 28
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Company, earnings per share under SFAS No. 128 for each of the
three years ended December 31, 1999 was the same as if it were computed in
accordance with the prior rule due to the antidilutive nature of the potential
common stock equivalents. See Note 11 for more information regarding options to
purchase Common Stock.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income", establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is defined as
the change in equity during the financial reporting period of a business
enterprise resulting from non-owner sources. The Company had no comprehensive
income items to report outside of its statements of operations for the years
ended December 31, 1999, 1998 and 1997.
RECENT PRONOUNCEMENT
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". SFAS No. 137 defers for one year the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
will now apply to all fiscal quarters of all fiscal years beginning after June
15, 2000. SFAS No. 133 will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. The Company will adopt SFAS No. 133 as
required for its first quarterly filing of fiscal year 2001. The Company
believes the adoption of this Statement will not have a material effect on its
results of operations and financial position.
NOTE 3 -- DISCONTINUED OPERATIONS
On August 24, 1999, the Company's Board of Directors approved a plan to
discontinue the operations of its non-core business subsidiary, Sovereign, in
order to focus its business towards its Internet-based e-commerce solutions for
the marine industry. Sovereign was engaged in the publishing of research
reports, stock handbooks and global industry guides. Sovereign ceased operations
on September 30, 1999. The estimated loss on the disposal of Sovereign is
$40,200, consisting of a write-down of Sovereign assets totaling $28,331 and a
provision of $11,869 for operating losses until the date of disposal.
The accompanying consolidated balance sheets, consolidated statements of
operations, and consolidated statements of cash flows have been reclassified to
report separately the discontinued operations in the prior periods. Selected
results of the discontinued operations were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $ -- $ 90,227 $ 385,765
========= ========= =========
Gross profit................................ -- 38,376 257,292
========= ========= =========
Selling, general and administrative......... 140,367 865,859 857,136
========= ========= =========
Net loss.................................... $(140,367) $(827,483) $(599,844)
========= ========= =========
</TABLE>
26
<PAGE> 29
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT, NET
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
-------- ------------
<S> <C> <C>
Computer hardware and software....................... $528,935 $69,913
Office equipment and furniture....................... 212,016 10,368
Leasehold improvements............................... 41,867 --
Equipment held under capital leases.................. 25,033 60,800
-------- -------
807,851 141,081
Less accumulated depreciation and amortization....... (115,516) (69,811)
-------- -------
Property and equipment, net.......................... $692,335 $71,270
======== =======
</TABLE>
Depreciation expense charged to operations for the years ended December 31,
1999, 1998 and 1997 was approximately $71,000, $3,000 and $0, respectively.
NOTE 5 -- NOTES PAYABLE
At December 31, 1998, notes payable consisted of the following:
<TABLE>
<S> <C>
Note payable to bank, interest at 11.7%, payable in monthly
installments including interest of $1,657 through December
1999, secured by accounts receivable, equipment, and
general intangibles of the Company, personally guaranteed
by the Chief Executive Officer who is also President,
Director and a shareholder................................ $ 21,798
Note payable to bank, interest at prime plus 2.5%, payable
in monthly installments of $1,388 plus interest through
November 1999, secured by accounts receivable, equipment,
and general intangibles of the Company, personally
guaranteed by the Chief Executive Officer who is also
President, Director and a shareholder..................... 16,667
$50,000 line of credit with bank, interest at prime plus
3.0% payable monthly, principal due on demand, secured by
accounts receivable, equipment, and general intangibles of
the Company, personally guaranteed by the Chief Executive
Officer who is also President, Director and a
shareholder............................................... 50,000
$25,000 line of credit with finance company, interest at
prime plus 6.75%, payable in minimum monthly installments
of 2% of outstanding balance plus interest, cancelable at
any time, personally guaranteed by the Chief Executive
Officer who is also President, Director and a
shareholder............................................... 24,955
Note payable to bank, interest at 12.5%, payable in monthly
installments including interest of $1,677 through March
2000, secured by accounts receivable, equipment and
general intangibles of the Company, personally guaranteed
by the Chief Executive Officer who is also President,
Director and a shareholder................................ 26,307
---------
Total............................................. 139,727
Less current portion.............................. (116,206)
---------
$ 23,521
=========
</TABLE>
27
<PAGE> 30
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense charged to operations on these notes payable was
approximately $3,000, $21,000 and $27,000 for the years ended December 31, 1999,
1998 and 1997, respectively.
NOTE 6 -- CAPITAL LEASES
The Company is the lessee of certain equipment under capital leases
expiring in various years through the year 2004. The assets and liabilities
under capital leases are recorded at the lower of the present value of the
minimum lease payments or the fair value of the asset and are included in
property and equipment, net. The assets are depreciated over the lesser of their
estimated useful lives or the term of the lease. Depreciation of assets under
capital leases is included in depreciation expense.
Minimum future lease payments under capital leases for the next five years
and in the aggregate as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 8,055
2001........................................................ 2,316
2002........................................................ 2,316
2003........................................................ 2,316
2004........................................................ 965
-------
Total minimum lease payments................................ 15,968
Less amount representing interest........................... (2,389)
-------
Present value of net minimum lease payment.................. $13,579
=======
</TABLE>
Interest rates on capitalized leases vary from 9.5% to 13% and are based on
the Company's incremental borrowing rate. Interest expense for the years ended
December 31, 1999, 1998 and 1997 was approximately $2,000, $4,000 and $6,000,
respectively.
NOTE 7 -- CUSTOMER DEPOSITS
Customer deposits primarily represent unearned fee income from Sovereign.
As of December 31, 1999 and 1998, customer deposits totaled approximately
$63,000 and $76,000, respectively.
NOTE 8 -- INCOME TAXES
The Company has recorded a 100% valuation allowance on the deferred tax
assets due to the uncertainty of the realization of the deferred tax assets.
At December 31, 1999 and 1998, the significant components of the Company's
deferred tax assets are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Allowance for doubtful accounts...................... $ -- $ 50,155
Depreciation......................................... 12,344 --
Accrual to cash adjustment........................... 24,972 18,168
Other................................................ (9,529) --
Net operating loss carryforwards..................... 2,209,411 763,550
----------- ---------
Total................................................ 2,237,198 831,873
Less valuation allowance............................. (2,237,198) (831,873)
----------- ---------
$ -- $ --
=========== =========
</TABLE>
28
<PAGE> 31
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the statutory federal and state income tax rates to income before income taxes.
The sources and tax effects of the difference are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Expected tax benefit at 39.5%................. $1,457,452 $456,246 $259,064
Non-deductible expenses....................... (52,127) (4,937) (8,064)
Change in valuation allowance................. (1,405,325) (451,309) (251,000)
---------- -------- --------
$ -- $ -- $ --
========== ======== ========
</TABLE>
As of December 31, 1999, the Company's net operating loss carryforwards for
income tax purposes amounted to approximately $5,593,446 and expire at various
dates from 2011 through 2019.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its office space under an operating lease, which expires
on June 30, 2004. Minimum future lease payments under operating leases for the
next five years and in the aggregate as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 223,950
2001........................................................ 225,848
2002........................................................ 229,644
2003........................................................ 233,440
2004........................................................ 116,720
----------
$1,029,602
==========
</TABLE>
During the years ended December 31, 1999, 1998 and 1997, rental expense for
all operating leases was approximately $84,000, $43,000 and $55,000,
respectively.
Employment Agreement
As of December 31, 1999, the Company had an employment agreement with its
Chief Executive Officer. Future minimum payments under the employment agreement
are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 160,000
2001........................................................ 225,000
2002........................................................ 265,000
2003........................................................ 265,000
2004........................................................ 265,000
----------
$1,180,000
==========
</TABLE>
The employment agreement became effective on January 1, 1999. For the year
ended December 31, 1999, salary and bonus expense for the Chief Executive
Officer totaled $295,000.
NOTE 10 -- RELATED PARTY TRANSACTIONS
During the year ended December 31, 1997, certain shareholders paid $25,000
of professional services and commissions on behalf of the Company.
29
<PAGE> 32
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In July of 1999, the Company loaned the Chief Executive Officer, who is
also the President, Director and a shareholder, $22,200. The loan matures in
July of 2000 and bears interest at 1% over the prime rate. During 1999, interest
income earned by the Company from this loan was approximately $900.
The Chief Executive Officer, who is also the President, Director and a
shareholder owns another company which made loans to the Company pursuant to a
revolving loan agreement. The loan agreement specified interest at 2.5% over the
prime rate, with principal due upon demand. The loan, which had a balance of
$35,750 as of December 31, 1998, was paid during 1999. The Company incurred
$2,000 and $19,000 of interest expense under the revolving loan agreement for
the years ended December 31, 1999 and 1998, respectively.
NOTE 11 -- SHAREHOLDERS' EQUITY
The Company effected a three-for-one stock split to stockholders of record
as of the close of business on March 24, 1998. Share and per share amounts
presented have been retroactively adjusted to reflect the stock split.
STOCK OPTION PLAN
In January 1997, the Company approved a 1996 and 1997 Incentive Stock
Option Plan (ISO). The 1996 and 1997 Incentive Stock Option Plans, as amended,
provide options for 900,000 and 4,000,000 shares, respectively, to be purchased
for the greater of $.33 or the fair market value on the date of grant. In
general, options become exercisable over a four year period from the date of
grant and expire 5 years after date of grant. Shares available for future option
grants at December 31, 1999 totaled 2,112,000. As of December 31, 1999, the
Company had granted options to purchase 3,170,000 shares of Common Stock to
employees and directors of the Company. The following is a summary of stock
option activity during the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997..................... 420,000 $0.37
Granted............................................ 1,680,000 1.57
Exercised.......................................... -- --
Canceled........................................... (168,000) 0.87
---------
Outstanding at December 31, 1997................... 1,932,000 1.37
Granted............................................ -- --
Exercised.......................................... -- --
Canceled........................................... (21,000) 0.33
---------
Outstanding at December 31, 1998................... 1,911,000 1.38
Granted............................................ 1,070,000 9.65
Exercised.......................................... (372,000) 1.06
Canceled........................................... (193,000) 2.57
---------
Outstanding at December 31, 1999................... 2,416,000 5.00
=========
</TABLE>
30
<PAGE> 33
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS VESTED OPTIONS
-------------------------------- ------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE LIFE EXERCISE EXERCISE
PRICE RANGE NUMBER (YRS.) PRICE NUMBER PRICE
- ----------- --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.33-$0.37.................... 711,000 2.0 $0.36 594,600 $0.36
$1.83.......................... 510,000 2.1 $1.83 306,000 $1.83
$5.50-$11.16................... 1,195,000 4.2 $9.12 531,000 $9.29
</TABLE>
As permitted by SFAS No. 123, the Company accounts for options issued to
employees under Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees". Consequently, no compensation cost has been recognized on
options issued to employees because the exercise price of such options was not
less than the market value of the Common Stock on the date of grant.
Had compensation cost for options issued to employees been determined
consistent with SFAS No. 123, the Company's net loss and net loss per share
would have been the pro forma amounts shown in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Net loss:
As reported......................... $(3,689,754) $(1,155,053) $(655,857)
Pro forma........................... (4,469,977) (1,164,110) (665,217)
Net loss per share, basic and diluted:
As reported......................... $ (0.65) $ (0.24) $ (0.16)
Pro forma........................... (0.78) (0.24) (0.17)
</TABLE>
The weighted average fair values of options at their grant date during 1999
and 1997, were $6.24 and $0.35, respectively. The estimated fair value of each
option granted is calculated using the Black-Scholes option-pricing model. The
weighted average assumptions used in the model were as follows:
<TABLE>
<CAPTION>
RISK-FREE EXPECTED
GRANT INTEREST EXPECTED TERM
DATE VOLATILITY RATE DIVIDENDS (YEARS)
- ----- ----------- --------- --------- --------
<S> <C> <C> <C> <C>
1997..................................... -- 6.25% 0% 4
1998 (*)................................. -- -- -- --
1999..................................... 80% 5.50% 0% 4
</TABLE>
(*) No options were granted during 1998.
PREFERRED STOCK
During 1998, the articles of incorporation of the Company were amended. The
amendment authorized 1,000,000 shares of preferred stock of $.01 par value with
preferences to be determined by the Board of Directors upon issuance. No
preferred stock has been issued as of December 31, 1999. See Note 12 for
information regarding the sale of preferred stock subsequent to December 31,
1999.
WARRANTS
During 1997, the Company received two loans from entities owned or
controlled by current shareholders in the amounts of $15,000 and $50,000,
respectively. Effective July 28, 1997, the Company issued 6,000 warrants to
these lenders as partial consideration for the loans. Each warrant is
convertible into one share of
31
<PAGE> 34
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's Common Stock and is exercisable at $1.83 per share. The warrants
expire 5 years from the effective date.
The Company has issued warrants to consultants in consideration of having
acted as agents for the Company's private placements. The Company issued
warrants to purchase 353,971 and 27,000 shares of Common Stock to placement
agents in 1999 and 1997, respectively. The weighted average exercise price of
warrants issued to placement agents in 1999 and 1997 was $9.48 and $1.83,
respectively. Each warrant was exercisable at the date of grant and expires 5
years from such date. The costs of warrants issued in conjunction with private
placements were costs of raising capital and thus were deducted from additional
paid in capital. The fair value of the warrants, which was determined in
accordance with SFAS No. 123, offset the deductions to additional paid in
capital.
On October 27, 1999 the Company granted 50,000 warrants to a consultant as
consideration for general corporate services. The warrants expire in October of
2002 and had a weighted average exercise price of $12.00. The Company used the
Black-Scholes model to calculate the fair value of these warrants by using the
following weighted average assumptions: Volatility, 80%; Risk-free Interest
Rate, 5.80%; Expected Dividends, $0; and Expected Term, 2 years. Based on these
assumptions, the computed fair value of warrants issued to consultants was
$140,300 and is charged to expense in the accompanying Consolidated Statement of
Operations.
All warrants issued by the Company were outstanding at December 31, 1999.
The following is a summary of warrant activity during the years ended December
31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
WARRANTS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1997...................... -- $ --
Issued.............................................. 33,000 1.83
-------
Outstanding at December 31, 1997.................... 33,000 1.83
Issued.............................................. -- --
-------
Outstanding at December 31, 1998.................... 33,000 1.83
Issued.............................................. 403,971 9.79
-------
Outstanding at December 31, 1999.................... 436,971 9.19
=======
</TABLE>
NOTE 12 -- SUBSEQUENT EVENTS
Sale of Preferred Stock
In March 2000, the Company entered into an agreement for the sale of
430,000 shares of Series A1 Convertible Preferred Stock ("Series A1 Preferred
Stock") at $100 per share. The sale, consisting of two tranches, results in
gross cash proceeds of $43 million.
Each share of the Series A1 Preferred Stock is convertible into 7.69 shares
of Common Stock at the option of the holder at any time. Automatic conversion
occurs upon either of the following: completion by the Company of a public
offering which raises gross proceeds of at least $50 million, at an effective
price per share to the public of at least $26.00 as adjusted for stock splits,
stock dividends or other similar transactions; or, upon the event that the
market price per share of Common Stock exceeds $26, subject to adjustments for
stock splits, stock dividends, or other similar transactions, for a consecutive
twenty day period following the one-year anniversary of the effective date of a
registration statement of the issued Common Stock of the Company.
The holders of the Series A1 Preferred Stock are entitled to a number of
votes equal to a number of shares of Common Stock into which such Preferred
Stock is convertible.
32
<PAGE> 35
MAREX.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon declaration by the Board of Directors, holders of Series A1 Preferred
Stock shall be entitled to receive dividends ratably in an amount per share
equal to that which the holders would have been entitled had they converted
their Series A1 Preferred Stock into shares of Common Stock.
Upon any liquidation of the Company, holders of record of the Series A1
Preferred Stock shall be entitled to receive, out of the assets of the Company
and before any distribution or payment is made upon any class of security of
lesser rank, an amount per share equal to the lesser of $100 per share or the
assets of the Company available for distribution to its stockholders,
distributed ratably among holders of the outstanding Series A1 Preferred Stock.
After the distribution to the holders of Series A1 Preferred Stock has been
made, the remaining assets of the Company available for distribution to
shareholders shall be distributed pro rata solely among the holders of Common
Stock.
Holders may redeem shares of Series A1 Preferred Stock in the event that
the Company does not honor a conversion. In such a case, the redemption amount
is equal to, at the option of the holder, the market value of the Common Stock
that the shares of Series A1 Preferred Stock would otherwise have been
convertible into or $100 per share.
33
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
On August 24, 1999, we dismissed McClain & Company, L.C. ("McClain") as our
independent public accountant and engaged Arthur Andersen LLP as our independent
public accountant. Both of these decisions were approved by our Board of
Directors and the audit committee of our Board of Directors.
McClain's report on our financial statements for the three most recent
fiscal years did not contain an adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles. In addition, during our three most recent fiscal years and through
August 24, 1999, there were no disagreements with McClain on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
McClain, would have caused McClain to make reference to the subject matter of
the disagreement in connection with its report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by
reference to the registrant's Proxy Statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
34
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF DOCUMENT
- -------- -----------------------
<S> <C> <C>
3.1 -- Form of Amended and Restated Articles of Incorporation of
the Company (1)
3.2 -- Form of Amended and Restated Bylaws of the Company (1)
3.3 -- Articles of Amendment to Amended and Restated Articles of
Incorporation of Affiliated Networks, Inc. (4)
4.1 -- Form of Warrant (1)
4.2 -- Certificate of Designation for the Series A1 Convertible
Preferred Stock, par value $.01 (4)
4.3 -- Securities Purchase Agreement among Marex.com, Inc. and
Certain Purchasers, dated March 2, 2000 (4)
4.4 -- Registration Rights Agreement among Marex.com, Inc. and
Certain Purchasers, dated March 2, 2000 (4)
10.1 -- 1996 Incentive Stock Option Plan, as amended (1)
10.2 -- 1997 Incentive Stock Option Plan, as amended (1)
10.3 -- Amended and Restated 1997 Stock Option Plan (3)
10.4 -- Revolving Note to DAS Consulting, Inc. (1)
10.5 -- Company's Office Lease, as amended (5)
10.6 -- Employment Agreement of David A. Schwedel (5)
21 -- Subsidiary of the Small Business Issuer (2)
27.1 -- Financial Data Schedule (5)
</TABLE>
- ---------------
(1) Previously filed as an exhibit to the Company's Form 10-SB and Amendment No.
1 to Form 10-SB.
(2) Previously filed as an exhibit to the Company's Form 10-KSB for the year
ended December 31, 1998.
(3) Previously filed as part of the Company's Form DEFS14A filed on October 19,
1999.
(4) Previously filed as an exhibit to the Company's Form 8-K filed on March 8,
2000.
(5) Filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed in the last quarter of the period covered
by this report.
35
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MAREX.COM, INC.
By: /s/ DAVID A. SCHWEDEL
------------------------------------
David A. Schwedel
Chief Executive Officer
Date: March 23, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID A. SCHWEDEL Director, Chairman of the March 23, 2000
- ----------------------------------------------------- Board, President and Chief
David A. Schwedel Executive Officer
/s/ KENBIAN A. NG Chief Financial Officer March 23, 2000
- ----------------------------------------------------- (Principal Financial and
Kenbian A. Ng Accounting Officer)
/s/ DAN GALLAGHER Director March 23, 2000
- -----------------------------------------------------
Dan Gallagher
/s/ GEORGE GLAZER Director March 23, 2000
- -----------------------------------------------------
George Glazer
/s/ ROGER A. TROMBINO Director March 23, 2000
- -----------------------------------------------------
Roger A. Trombino
</TABLE>
36
<PAGE> 1
Exhibit 10.5
COCONUT GROVE BANK
BUILDING LEASE AGREEMENT
LANDLORD
TENANT
THIS AGREEMENT, entered into this ______ day of June 1999, A.D., between COCONUT
GROVE BANK, a Florida Banking Corporation, hereinafter referred to as
"Landlord", and AFFILIATED NETWORKS, INCORPORATED herein after referred to as
"Tenant".
WITNESSETH:
PREMISES
THAT THE Landlord does this day lease unto Tenant that certain space
(approximately 7592 square feet), as shown outlined on the plan attached hereto
as Schedule "A" on the 3rd, 4th, 5th (xx) floors of the building, hereinafter
referred to as "Building", known as COCONUT GROVE BANK BUILDING located at 2701
South Bayshore Drive, Miami, Dade County, Florida, to be used and occupied by
tenant as administrative space and for no other purposes or uses whatsoever.
TERM
BASE RENTAL
TO HAVE AND TO HOLD said premises for the term of Five (5) years, beginning 1
July 1999 and ending 30 June 2004 at and for the agreed total base rental of See
Attached SCHEDULE "B" Dollars ($ ), payable as follows: Equal monthly
payments of Dollars ($ ), plus applicable sales taxes and additional rent
as $_______ as provided herein, if any. All payments are to be made in legal
tender of the United States of America to COCONUT GROVE BANK on the first day of
each and every month in advance without demand
SEE ATTACHED SCHEDULE "A-1" thru "A-3" - FLOOR PLANS
SCHEDULE "B" - RENTAL RATE
-1-
<PAGE> 2
at "Building" Manager's office, 2701 South Bayshore Drive, Miami, Dade County,
Florida, or such other place as Landlord may designate in writing, the first
such monthly rental payment to be made simultaneoulsy with the execution of
this lease.
IT IS FURTHER STIPULATED AND COVENANTED BY AND BETWEEN THE PARTIES HERETO AS
FOLLOWS:
COMMENCEMENT
The lease period shall begin when improvements for Tenant, in accordance with
specifications agreed upon in written by Landlord and Tenant, which are the
responsibilities of the Landlord, are complete and the offices ready for
occupancy. Rent payments shall not be delayed due to the fault of the Tenant or
failure to complete improvements ordered by the Tenant for its own use. If the
term of this lease shall begin during a calendar month, then the rent for such
portion of the particular calendar month at the beginning of the term shall be
apportioned and paid on the basis of a month of thirty (30) days. Any credit due
Tenant as a result of such apportionment and its payment of the first monthly
payment shall be credited against the second monthly payment.
SECURITY
Tenant, concurrently with the execution of this lease, has deposited with the
Landlord, unless otherwise expressly stated herein,, a sum equal to one monthly
rental payment exclusive of sales tax, the receipt of which is hereby
acknowledged by Landlord, which sum shall be retained by Landlord as security
for the payment by Tenant of the rents herein agreed to be paid by Tenant and
for the faithful performance by Tenant of the terms and covenant of this lease.
It is agreed that Landlord, at Landlord's option, may at any time apply said sum
or any part thereof toward the payment of the rents and all other sums payable
by Tenant under this lease, and towards the performance of each and every
Tenant's covenants under this lease, but shall thereby be discharged only pro
tanto: That Tenant shall remain liable for any amounts that such sum shall be
insufficient to pay; that Landlord may exhaust any or all rights and remedies
against Tenant before resorting to said sum, but nothing herein contained shall
require to be deemed to require Landlord, so to do; that, should this lease be
faithfully performed by Tenant, this deposit shall be returned by Landlord to
Tenant within ten (10) days after the expiration of the term of this lease.
Landlord shall not be required to pay Tenant any interest on said security
deposit. Landlord shall not be required to hold said security funds in a
segregated account.
BUILDING ACCESS
Building will be open to the public Monday through Friday of each week from 7:00
A.M. until 10:30 P.M. Entrance is available at both the first and second floor
levels with the following exceptions: The second floor entrance will be open and
under the control of a uniformed security guard from 5:30 P.M. until midnight,
Monday through Friday; and on Saturdays and Sundays from 9:00 A.M. until 5:00
P.M. The entrance on the first floor will be closed from 6:00 P.M. until 6:30
A.M. and all day on Saturday and Sunday. All persons entering the building
during the time that the building is under security guard will have to show
identification and sign the Visitor's Log under the supervision of the security
guard. All persons leaving the building while the building is under the control
of the security guard will have to sign out. Tenant may arrange to open building
-2-
<PAGE> 3
beyond the above hours by giving twenty-four (24) hours advance written notice
to the Building Manager and payment to Landlord the cost of additional security
guard service. At all times other than stated above, including Sundays and
Holidays and the Monday following Christmas and New Years, when Christmas and
New Years fall on Sunday, the Building will be under ADT electronic
surveillance and closed to all persons. The above-referenced Holidays are:
Christmas Day, New Year's Day, Memorial Day, Fourth of July, Labor Day and
Thanksgiving Day. When Christmas Eve and New Year's Eve fall on a week day the
building will close at 5:00 P.M. When Christmas Eve and New Year's Eve fall on
Saturday or Sunday the building will be closed to all persons on those days.
It shall be the responsibility of the Tenant to arrange for all of its employees
and/or invitees to be out of the building prior to the building being placed
under ADT electronic surveillance. Landlord shall have no responsibility to any
Tenant, Tenant's employees or invitees in the event said party or persons should
fail to leave the building prior to the time the ADT electronic surveillance is
placed in effect and Tenant agrees to indemnify and save harmless Landlord from
any claim or suit against Landlord in such event.
Landlord reserves the right to issue identification passes and require the same
for admission to the building while under security guard. It is expressly
understood by Tenant that guard and/or ADT service is provided for the
protection of the banking facilities located in the Building. Landlord shall
have no responsibility to Tenant to provide such service and may discontinue
same at any time. Landlord shall have no responsibility to Tenant, its employees
and/or invitees for loss or damage to person or property caused by theft,
vandalism, or other cause or causes.
SERVICES FURNISHED BY LANDLORD
Landlord will furnish Tenant, while occupying the premises, water - cold and
refrigerated - at those points of supply provided for general use of its
Tenants, electricity for lighting and office use, lavatory and toilet
facilities, automatic self-operated elevators, reasonable cleaning services once
each day, Monday through Friday (except Holidays as above defined) (Provided
that the premises are kept in order by Tenant and that same are available for
cleaning after 5:30 P.M. of each day) and air conditioning (cooling) from 7:00
A.M. to 8:00 P.M. on weekdays and from 9:00 A.M. to 5:00 P.M. on Saturdays and
Sundays. If Tenant requires air conditioning at other hours, written notice
twenty-four (24) hours in advance shall be given by Tenant to Landlord and
Tenant will be billed for such use at the rate of Twenty Five Dollars ($25.00)
per hour. The Tenant will not install or maintain electrically operated
equipment or other machinery except light office machines normally used without
first obtaining the written consent of the Landlord and such consent of Landlord
may be conditioned upon payment by Tenant of additional rent. Any electrical or
computer equipment which, together with Tenant's other electrically operated
equipment, requires in excess of 20 ampere - 220 volt service shall not be
installed without the prior written approval of the Landlord (this also includes
photo processing and printing equipment). Likewise, if any Tenant requires
excess use of water, such use shall be conditioned upon written consent of the
Landlord and additional rent as compensation for such excess use. Failure by
Landlord to any extent to furnish, or any stoppage of, these defined services
resulting from causes beyond the control of Landlord shall not render Landlord
liable in any respect for damages to either person or property, nor be construed
as an eviction of Tenant, nor work any abatement of rent nor relieve Tenant from
fulfillment of any covenant or agreement hereof.
-3-
<PAGE> 4
Should any equipment or machinery break down or for any cause cease to
function properly, Landlord shall use reasonable diligence to repair the same
promptly but Tenant shall have no claim for rebate of rent or damages on account
of any interruptions in service occasioned thereby or resulting therefrom.
Any charges against Tenant by Landlord for additional services or work done by
order of the Tenant, or otherwise accruing under this lease, shall be
considered as rent due and shall be included in any lien for rent.
PARKING
In addition to the premises described herein, the Tenant shall be entitled to
the use of THIRTY-FIVE (35) parking spaces on the premises, the location of
which shall be assigned by the Landlord. If there are unassigned spaces in the
designated employee parking areas, the same may be used by the Tenant until
assigned specifically by the Landlord to another Tenant. Tenant acknowledges
that there will be designated an area of visitor parking and agrees not to park
in said area so designated or permit any of its employees to park in said area
or areas.
Parking in front of the building on the East side and on the North side of the
second level parking area will be limited to fifteen (15) minutes and/or thirty
(30) minutes, as marked. These areas will be patrolled and cars subject to
violation will be towed away at car owner's or operator's expense. The aforesaid
parking is provided for the convenience of Tenants and guests or customers of
Tenants and shall be used at the risk of Tenants, its guests or customers. The
Landlord accepts no responsibility for injury, damage or loss of any
automobiles, while in the parking facility provided for the Tenant in connection
with the premises. Persons using the parking facility and adjacent area thereto
use same at their own risk, and the Landlord accepts no responsibility
whatsoever for any injury to any person in the parking facility or any other
part or portion of the premises, office building, or any adjacent area thereto,
whether under the control of the Landlord or some third party. The Landlord
accepts no responsibility for the regulation of the parking area nor for persons
who improperly park automobiles in spaces assigned to another Tenant or operate
automobiles in an improper manner. Landlord is under no obligation to provide a
parking attendant or doorman, and is under no obligation to provide security for
automobiles parked in the parking facility.
ASSIGNMENT OR SUBLETTING
Tenant will not assign this lease or allow the same to be assigned by operation
of law or otherwise, or sublet the demised premises, or any part thereof, or use
or permit the same to be used for any other purpose than as above stipulated,
unless authorized by Landlord; said authorization will not be unreasonably
withheld.
REPAIRS AND RE-ENTRY
Tenant will, at Tenant's own cost and expense, repair or replace any damage or
injury done to the building, or any part thereof, caused by Tenant or Tenant's
agents, employees, invitees, or visitors. If Tenant fails to make such repairs
or replacements promptly, or within fifteen (15) days of occurrence, Landlord
may, at its option, make such repairs or replacements and Tenant shall repay the
cost thereof to Landlord on demand. Tenant will not commit or allow any waste or
damage to be committed on any portion of the demised premises, and shall, at the
termination of
-4-
<PAGE> 5
this lease, by lapse of time or otherwise, deliver up said premises to Landlord
in as good condition as at date of possession of Tenant, ordinary wear and tear
and damage by fire or windstorm alone excepted, and, upon such termination of
lease, Landlord shall have the right to re-enter and resume possession of the
demised premises.
ALTERATIONS ADDITIONS OR IMPROVEMENTS
Tenant will not make or allow to be made any alterations or physical additions
in or to the demised premises without written consent of Landlord first had and
obtained. Any and all such alterations, physical additions or improvements when
made to the demised premises by Tenant shall be at the Tenant's cost and
expense. Any and all such alternations, physical additions or improvements
except removable fixtures or furniture of the Tenant shall at once become the
property of the Landlord and shall be surrendered to the Landlord upon the
termination in any manner, of this lease.
LAWFUL USE AND VIOLATIONS OF INSURANCE COVERAGE
Tenant will not occupy or use, or permit any portion of the demised premises to
be occupied or used for any business or purpose which is unlawful in part or in
whole or deemed to be disreputable in any manner, or extra hazardous, or permit
anything to be done which will in any way increase the rate of insurance on said
building and/or its contents.
LAWS AND REGULATIONS
Tenant will keep and maintain the demised premises in a clean and healthful
condition and comply with all laws, ordinances, orders, rules and regulations
(State, Federal, Municipal and other agencies or bodies having any jurisdiction
thereof, including rules, orders and regulations of the Southeastern
Underwriters Association for the prevention of fires), with reference to use,
conditions or occupancy of the demised premises.
RULES OF BUILDING
Tenant and Tenant's agents, employees, invitees and visitors will comply fully
with all requirements of rules of the building which are attached hereto and
made a part hereof as though fully set out herein. Landlord shall at all times
have the right to change such rules and regulations or to amend them in any
reasonable manner as may be deemed advisable by Landlord for the safety, care
and cleanliness of the demised premises and for preservation of good order
therein, all of which changes and amendments will be sent by Landlord to Tenant
in writing and shall be thereafter carried out and observed by Tenant.
ENTRY FOR REPAIRS AND INSPECTION
Tenant will permit Landlord or its officers, agents or representatives
the right to enter into and upon any and all parts of the demised premises, at
all reasonable hours to inspect same or clean or make repairs or alterations or
additions as Landlord may deem necessary or desirable and Tenant shall not be
entitled to any abatement or reduction of rent by reason thereof.
NUISANCE
Tenant will conduct his business, and control his agents, employees, invitees
and visitors in such a manner as not to create any nuisance, or interfere with,
annoy, or disturb any other Tenant or Landlord in its management of the
building.
-5-
<PAGE> 6
CONDEMNATION
In the event the whole or any part of the building other than a part not
interfering with the maintenance or operation thereof shall be taken or
condemned for any public or quasi-public use or purpose, the Landlord may at its
option terminate this lease from the time title to or right to possession shall
vest in or be taken for such public or quasi-public use or purpose, and the
Landlord shall be entitled to any and all income, rent, awards or any interest
therein whatsoever which may be paid or made in connection therewith.
LOSS OR DAMAGE
Landlord shall not be liable or responsible for any loss or damage to any
property or person occasioned by theft, fire, act of God, public enemy,
injunction, riot, strike, insurrection, war, Court order, requisition or order
of governmental body or authority, or other matter beyond the control of
Landlord, or for any damage or inconvenience which may arise through repair or
alteration of any part of the building or failure to make any such repairs or
from any cause whatever unless caused solely by Landlord's negligence.
LIEN FOR RENT
In consideration of the mutual benefits arising under this contract, Tenant does
hereby pledge and assign unto Landlord all property of Tenant now or hereafter
placed in or upon the demised premises (except such part of any property as may
be exchanged or replaced from time to time in its ordinary course of
operations), and such property is hereby subjected to a lien in favor of
Landlord and shall be and remain subject to such lien of Landlord for payment
of all rents and other sums agreed to be paid by Tenant herein. Said liens shall
be in addition to and cumulative of the Landlord's liens provided by law.
ABANDONMENT
If the Tenant shall abandon or vacate said premises before the end of the term
of this lease, or shall suffer the rent to be in arrears, the Landlord may, at
its option, forthwith cancel this lease or it may enter said premises as the
agent of the Tenant, by force or otherwise, without being liable in any way
therefor, and relet the premises with or without any furniture that may be
therein, as the agent of the Tenant, at such price and upon such terms and for
such duration of time as the Landlord may determine, and receive the rent
therefor, applying the same to the payment of the rent due by these presents,
and if the full rental herein provided shall not be realized by Landlord over
and above the expenses to Landlord in such reletting, including but not limited
to the cost of renovating, altering and decorating for a new occupant, the said
Tenant shall pay any deficiency, and if more than the full rental is realized,
Landlord will pay over to said Tenant the excess on demand; or Landlord may sue
the Tenant as each installment of rent matures or for the whole rent when it
becomes due.
HOLDING OVER
In the case of holding over by Tenant after expiration or termination of this
lease, Tenant will pay as liquidated damages, double rent for the entire
holdover period. No holding over by Tenant after the term of this lease, either
with or without consent and acquiescence of Landlord, shall operate to extend
the lease for a longer period than one month; and any holding over with the
consent of Landlord in writing shall thereafter constitute this lease a lease
from month to month.
-6-
<PAGE> 7
INSURANCE
Lesee shall, at its own expense, procure and maintain through the Term:
Combined comprehensive single limit public liability insurance, including, but
not limited to, insurance against assumed or contractual liability under this
Lease, with respect to the Premises, to afford protection with limits, for each
occurrence, of not less than Five Hundred Thousand Dollars ($500,000.00);
All risks, property and casualty insurance, including vandalism, malicious
mischief, fire and extended coverage written at replacement cost value and with
replacement cost endorsement, covering all of Lessee's personal property in the
Premises (including, without limitation, inventory, trade fixtures, floor
coverings, furniture and other property removable by Lessee under the
provisions of this Lease) and all leasehold improvements installed in the
Premises by or on behalf of Lessee:
Plate glass insurance covering the plate glass in the Premises; and
If and to the extent required by law, workmen's compensation or similar
insurance in form and amounts required by law.
Lessee's insurance shall be with a Best's A+ rated company licensed to transact
business in the State of Florida. Lessor and Lessor's mortgagee, if any, shall
be named as additional insureds under Lessee's insurance, and such insurance
shall be primary and non-contributing with any insurance carried by Lessor.
Lessee's insurance policies shall contain endorsements requiring thirty (30)
days notice to Lessor and Lessor's mortgagee, if any, prior to any cancellation
or any reduction in amount of coverage. Lessee shall deliver to Lessor as a
condition precedent to its taking occupancy of the Premises, but not to its
obligation to pay Rent, a certificate or certificates evidencing such insurance
acceptable to Lessor. Lessee shall at least thirty (30) calendar days prior to
the expiration of such policies, deliver to Lessor certificates of insurance
evidencing the renewal of such policies. A FAILURE TO PROVIDE SUCH INSURANCE
COVERAGE SHALL BE DEEMED AN EVENT OF DEFAULT UNDER THIS LEASE.
If, on account of the failure or Lessee to comply with the foregoing
provisions, Lessor is adjudged a co-insurer by its insurance carrier, then any
loss or damage Lessor shall sustain by reason there of shall be borned by
Lessee and shall be immediately paid by Lessee upon receipt of a bill thereof
and evidence of such loss.
Lessor shall not be obligated to insure any furniture, equipment, machinery,
goods or supplies which Lessee may bring or obtain upon the Premises, or any
additional improvements which Lessee may construct on the Premises. Lessor
reserves the right to self-insure the Building.
Anything in the Lease to the contrary notwithstanding, Lessor and Lessee hereby
waive and release each other of and from any and all rights of recovery, claim,
action or cause of action, against each other, their agents, officers and
employees, for any loss or damage that my occur to the Premises, Building,
improvements to the Building, any furniture, equipment, machinery, goods or
supplies not covered by this Lease which Lessee may bring or obtain upon the
Premises, or any additional improvements which Lessee may construct on the
Premises, by reason of fire, the elements or any or any other cause which could
by insured against, under the terms
-6A-
<PAGE> 8
of standard fire and extended coverage insurance policies, regardless of cause
or origin, including negligence of Lessor or Lessee and their agents, officers
and employees. Because this Subsection will preclude the assignment of any
claim mentioned in it by way of subrogation (or otherwise) to an insurance
company (or any other person), each party to this Lease agrees immediately to
give to each insurance policies properly endorsed, if necessary, to prevent the
invalidation of the insurance coverage by reason of the mutual waivers
contained in this Subsection. Lessee also waives and releases Lessor, its
agents, officers and employees, of and from any and all rights of recovery,
claim, action or cause of action for any loss or damage insured against under
any other policies of insurance carried by Lessee.
-6B-
<PAGE> 9
FIRE CLAUSE
In the event of damage by fire or other causes resulting from fault or
negligence of Tenant or Tenant's agents, employees, invitees or visitors, the
same shall be repaired by and at the expense of Tenant under the direction and
supervision of Landlord. If the demised premises, without fault or neglect of
the Tenant, his agents, employees, invitees, or visitors, shall be partially
destroyed by fire or other casualty so as to render the premises untenantable,
the rental herein recited shall cease thereafter until such time as the demised
premises are made tenantable by Landlord. In case of the total destruction of
the demised premises without fault or neglect of the Tenant, his agents,
employees, invitees or visitors, or if from such cause the same shall be so
damaged that Landlord shall decide not to rebuild, then all rental due up to
the time of such destruction or termination shall be paid by Tenant, and
thenceforth this lease shall cease and come to an end. In the event of damage
to the Demised Premises by fire or other causes if the Demised Premises cannot
be restored within 120 days from the date of such damage, Tenant, at Tenant's
election, may terminate this Lease and the rent shall be paid only to the date
when such damage occurred.
ATTORNEY'S FEES
In case Tenant makes default in the performance of any of the terms, covenants,
agreements or conditions contained in this lease, the Landlord places the
enforcement of this lease, or any part thereof, or the collection of any rent
due, or to become due hereunder, or recovery of the possession of the demised
premises in the hands of an attorney, or files suit upon the same, Tenant
agrees to pay Landlord reasonable attorney's fees and Court costs, provided
Landlord prevails; however, if Tenant prevails, Landlord shall pay Tenant's
reasonable attorney's fees and Court costs.
INDEMNITY LIABILITY
The Tenant will indemnify and hold harmless the Landlord against all
liabilities, damages, and other expenses, including reasonable attorney's fees,
which may be imposed upon, incurred by, or asserted against the Landlord by
reason of any of the following occurring during the term of this lease: (a) Any
use or occupancy of the leased property by Tenant, (b) Any negligence on the
part of the Tenant or its agents, contractors, licensees, (c) Any personal
injury or property damage occurring on or about the leased property. Landlord
shall not be liable to Tenant for any damage, loss or injuries to persons or
property of the Tenant which may be caused by the acts or negligence of any
person or corporation, except such injury or loss resulting from negligence of
the Landlord, its agents or employees.
LIENS
Tenant shall have no authority to create any liens for labor or materials on
landlord's interest in building owned by Landlord and all persons contracting
with Tenant for labor, materials and/or supplies or the doing of work shall look
solely to Tenant and Tenant's interest under this lease and said persons are
hereby charged with notice that they must look solely to Tenant's interest in
the demised premises. In the event any such lien is filed against the property
of the Landlord, Tenant shall forthwith discharge the same; if not discharged by
Tenant within thirty (30) days after the filing of said lien, either by a
satisfaction thereof or by the posting of a bond, Tenant's failure so to do
shall constitute a default under the terms of this lease. Tenant further agrees
and will hold harmless
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Landlord from all costs, including bond premiums and attorney's fees and/or
other charges and expenses reasonably incurred by Landlord in connection with
the discharge of any such lien or any judgment obtained thereon. Any such
expenses incurred by Landlord shall be considered as rent due and payable on
demand of Landlord.
CERTIFICATE
Upon the request of Landlord, its mortgagee, prospective purchaser or any
Federal or State Bank Examiner, Tenant shall furnish a Certificate in writing
to the effect that its lease is in full force and effect and that Landlord is
not in default, or specifically state any exceptions thereto. Failure to give
such Certificate within two weeks after written request shall be conclusive
evidence that the lease is in full force and effect and Landlord is not in
default. Tenant shall thereafter be estopped from asserting any such defaults
as of the date of said request.
DEFAULT BY TENANT
Tenant agrees to pay promptly said rent and all other charges that accrue under
this lease. In the event that Tenant should be in default thereof for a period
of seven (7) days after the same shall become due and payable, Landlord shall
have the option of: (1) Terminating this lease and resuming possession of the
premises for its own account and recovering from Tenant the damage between the
rent specified in this lease and the rental value thereof for the balance of
the term, reduced to its present worth; (2) Or, enter the premises as agent of
Tenant and rent the same for the remainder of the term for the account of Tenant
and recovery from Tenant either at the end of the term or as each payment
becomes due, as Landlord may choose, the difference between the rent called for
in this lease and the rent received on re-renting.
Default on Tenant's part in keeping or performing any other term, covenant, or
condition of this lease, shall authorize Landlord, at its option at any time
after such default, and after ten (10) days' written notice thereof to Tenant,
immediately, or at any time thereafter, to re-enter said premises and remove
all persons therefrom with or without legal process, and without prejudice to
any of its other legal rights, and all claims for damages by reason of such
re-entry are expressly waived, as also are all claims for damages by reason of
any distress warrants or proceedings by way of sequestration which Landlord may
employ to recover said rents, or possession of said premises, and Landlord
shall have the options set forth in the preceding paragraph pertaining to a
default in payment of rents, provided that Landlord shall not have the right to
re-enter if, within ten (10) days after written notice of any default, Tenant
fully cures all defaults.
WAIVER
Failure of Landlord to declare any default immediately upon occurrence thereof
or delay in taking action in correction therewith shall not waive such default,
but Landlord shall have the right to declare any such default at any time and
take such action as might be lawful or authorized hereunder, either in law or
in equity.
POSSESSION
If, for any reason, the demised premises shall not be ready for occupancy by
Tenant at the time of commencement of this lease,
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this lease shall not be affected thereby, nor shall Tenant have any claim
against Landlord by reason thereof, but no rent shall be payable for the period
during which the premises shall not be ready for occupancy; and all claims for
damages arising out of such delay are hereby waived and released by Tenant.
BANKRUPTCY
If, voluntary bankruptcy proceedings be instituted by Tenant, or if proceedings
be instituted by any one else to adjudge Tenant a bankrupt, or if Tenant makes
an assignment for the benefit of his creditors or if execution be issued
against him, or if the interest of Tenant in this contract passes by operation
of law to any person other than Tenant, this lease may, at the option of
Landlord, be terminated by written notice addressed to Tenant and mailed in the
post office at Miami, Florida.
TRANSFER OF LANDLORD'S RIGHTS
Landlord shall have the right to transfer and assign, in whole or in part, all
and every feature of its rights and obligations hereunder and in building and
property referred to herein. Such transfers or assignments may be made either
to a corporation, trust company, individual or group of individuals, and,
howsoever made, are to be in all things respected and recognized by Tenant.
AMENDMENT OF LEASE
This agreement may not be altered, changed, or amended, except by an instrument
in writing, signed by both parties hereto.
SUBORDINATION
This lease is hereby made expressly subject and subordinate at all times to any
and all mortgages, deeds of trust, ground or underlying leases affecting the
demised premises which have been executed and delivered, or which may at any
time hereafter be executed and delivered, and any and all extensions and
renewals thereof and substitutions therefor, and to any and all advances made or
to be made under or upon said mortgages, deeds of trust, ground or underlying
leases. Tenant agrees to execute any instrument or instruments which the
Landlord may deem necessary or desirable to effect the subordination of this
lease to any or all such mortgages, deeds of trust, ground or underlying leases
and, in the event the Tenant shall refuse after reasonable notice to execute
such instrument or instruments, the Landlord may, in addition to any right or
remedy accruing hereunder, terminate this lease without incurring any liability
whatever, and the estate hereby granted is expressly limited accordingly.
TIME OF THE ESSENCE
It is understood and agreed between the parties hereto that time is of the
essence of this contract, and this applies to all terms and conditions
contained herein.
PEACEFUL ENJOYMENT
Tenant shall and may peaceably have, hold and enjoy the demised premises subject
to the other terms hereof and provided Tenant pays the rentals herein recited
and performs all of his covenants and agreements herein contained.
NO REPRESENTATIONS BY LANDLORD
Landlord or its agents have made no representations or promises with respect to
the said building, the land upon which it is erected or demised premises except
as herein expressly set forth and no rights, easements or licenses are acquired
by Tenant by
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implication or otherwise except as expressly set forth in the provisions of
this lease. The taking possession of the demised premises by Tenant shall be
conclusive evidence, as against Tenant, that Tenant accepts same "as is" and
that said premises and the building of which the same form a part were in good
and satisfactory condition at the time such possession was so taken.
SURRENDER OF PREMISES
Tenant shall surrender to Landlord, at termination of this lease and/or upon
any cancellation of this lease, said demised premises. In the event the Tenant
should fail to surrender said premises upon termination of this lease, Tenant
will pay to Landlord any damages that Landlord might incur on account of
Tenant's failure to deliver possession of the demised premises to Landlord and
will indemnify and hold harmless Landlord from any and all claims made by any
succeeding Tenant of said premises on account of delay of Landlord in
delivering premises to said succeeding Tenant, to the extent such delay is
occasioned by Tenant's failure to surrender said premises. This right of
Landlord against Tenant is in addition to the Holdover provisions hereinbefore
set forth in this lease.
If Tenant should fail to remove all of its personal property upon termination
of lease, Landlord may, at its option remove same in any manner the Landlord
shall choose and store such effects without liability to the Tenant for loss,
and the Tenant agrees to pay to the Landlord on demand, all expenses incurred
in such removal, including Court costs and attorney's fees, or the Landlord
may, at its option, without notice, sell such effects or any part, at private
sale without legal process for such price as the Landlord may obtain and apply
the proceeds of such sale or any amounts due under this lease from the Tenant
to the Landlord and on the expense incident to the removal and sale of said
effects.
CAPTIONS
The Captions are inserted only as a matter of convenience and for reference and
in no way define, limit or describe the scope of this lease nor the intent of
any provision thereof.
HEIRS AND ASSIGNS
The covenants, conditions and agreements contained in this lease shall bind and
inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors, and, except as otherwise
provided in this lease, their assigns.
NO BROKER
Tenant warrants and represents that it dealt with no Real Estate Broker in the
negotiation of this lease and Landlord, in executing this lease, is relying
upon such representation.
NOTICES
It is understood and agreed between the parties hereto that written notice
addressed to Tenant and mailed or delivered to premises leased hereunder shall
constitute sufficient notice to the Tenant, and written notice addressed to
Landlord and mailed or delivered to the office of Landlord shall constitute
sufficient notice to the Landlord, to comply with the terms of this lease.
CUMULATIVE REMEDIES
The various rights, remedies, powers and elections of Landlords reserved,
expressed or contained in this lease are cumulative
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and no one of them shall be deemed to be exclusive of the others or of such
other rights, remedies, powers, options or elections as are now, or may
hereafter be, conferred upon Landlord by law.
PRONOUNS AND GENDER
The terms Landlord and Tenant, as herein contained, shall include singular
and/or plural, masculine, feminine, and/or neuter, heirs, successors,
executors, administrators, personal representatives and/or assigns wherever the
context so requires or admits and use of and neuter gender includes all
genders, wherever the context so requires.
RELOCATION OF TENANT
Landlord shall have the sole right to relocate any Tenant, having one thousand
square feet or less, to comparable space in the Building, upon giving the
Tenant ninety days prior written notice.
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<PAGE> 14
SHOWING PREMISES
At anytime, within thirty days before the expiration of this lease, Landlord or
its agents shall have the right to enter the premises during reasonable hours
to exhibit said premises to prospective tenants.
OPTION TO RENEW
Landlord grants Tenant the first right of refusal to renegotiate a new lease,
commencing at the expiration of the original term, provided Tenant shall not be
in default under the terms of this lease, and shall give written notice of sixty
(60) days before the expiration of this lease.
COCONUT GROVE BANK, Landlord
/s/ By: /s/ A.D. Harrison, Jr.
- ----------------------------- ----------------------------- (Seal)
A.D. HARRISON, JR.
Chairman
Date:
- ----------------------------- ---------------------------
(Witness as to Landlord)
Tenant:
/s/ By: /s/ David A. Schwedel
- ----------------------------- ----------------------------- (Seal)
/s/ Date: 6/22/99
- ----------------------------- ---------------------------
(Witness as to Tenant)
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
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[FLOORPLAN]
SCHEDULE "A"
<PAGE> 16
SCHEDULE "B"
RENTAL RATE
Suites 310, 403, and 500A - 7,592 square feet
AFFILIATED NETWORKS, INC.
5 Year Lease with 2 Year Option
FIRST YEAR: July 1, 1999 to June 30, 2000
$16.50 per sq ft
$125,268 per annum, plus tax
SECOND & THIRD YEARS July 1, 2000 to June 30, 2002
$17.00 per sq ft
$129,064 per annum, plus tax
FOURTH & FIFTH YEARS July 1, 2002 to June 30, 2004
$18.00 per sq ft
$136,656 per annum, plus tax
OPTION TO RENEW
Landlord grants Tenant the option to extend the lease term for an additional
two (2) year period. The rental rate for the option period shall be negotiated
no later than sixty (60) days prior to the end of the original lease period.
<PAGE> 17
COCONUT GROVE BANK
2701 SOUTH BAYSHORE DRIVE [LOGO]
MIAMI, FLORIDA 33133
TELEPHONE 858-6666
FAX 305-856-7052
TELEX # 518939 COGROBANK
- --------------------------------------------------------------------------------
WHERE SUMMER SPENDS THE WINTER
- --------------------------------------------------------------------------------
J.W. JUDGE
BUILDING MANAGER
23 November 1999
Affiliated Networks Inc.
Coconut Grove Bank Building
Fifth Floor
2701 S. Bayshore Dr.
Miami, Florida
Dear David:
Effective 1 January 2000 your Building Lease Agreement dated 1 July, 1999 is
hereby amended to include 4,208 square feet located on the Penthouse Floor; new
total approximate square feet: 11,800. Rental rate on the additional square
footage shall be $23.00 sq. ft. The additional rent shall be $8,065.33 per
month, plus tax.
Please forward a check in the amount of $8,065.33 for the additional security
deposit required.
All other terms and conditions of the original Lease Agreement remain the same.
If you are in agreement with this Amendment please sign in the space provided
below.
Sincerely,
/s/ J.W. Judge
J.W. JUDGE
/s/ David Schwedel, President 11/23/99
- -------------------------------------------
SIGNATURE/TITLE/DATE
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into on
this 8th day of July, 1999 effective as of January 1, 1999 by and between
Affiliated Networks, Inc., a Florida corporation (the "Company"), and David A.
Schwedel (hereinafter called the "Executive").
RECITALS
A. The Executive is currently employed as the President and Chief
Executive Officer of the Company.
B. The Executive possesses intimate knowledge of the business and
affairs of the Company, its policies, methods and personnel.
C. The Board of Directors of the Company (the "Board") recognizes
that the Executive has contributed to the growth and success of the Company, and
desires to assure the Company of the Executive's continued employment and to
compensate him therefor.
D. The Board has determined that this Agreement will reinforce
and encourage the Executive's continued attention and dedication to the Company.
E. The Executive is willing, to make his services available to
the Company and on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties agree as follows:
1. EMPLOYMENT.
1.1 EMPLOYMENT AND TERM. The Company hereby agrees to
employ the Executive and the Executive hereby agrees to serve the Company on the
terms and conditions set forth herein.
1.2 DUTIES OF EXECUTIVE. During the Term of Employment
under this Agreement, the Executive shall serve as the President and Chief
Executive Officer of the Company, shall diligently perform all services as may
be assigned to him by the Board (provided that, such services shall not
materially differ from the services currently provided by the Executive), and
shall exercise such power and authority, as may from time to time be delegated
to him by the Board. The Executive shall devote his full time and attention to
the business and affairs of the Company, render such services to the best of his
ability, and use his best efforts to promote the interests of the Company, and
shall not engage in any activities that compete with
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the business of the Company. It shall not be a violation of this Agreement for
the Executive to (i) serve on corporate, civic or charitable boards or
committees, (ii) deliver lectures, fulfill speaking engagements or teach at
educational institutions, or (iii) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities to the Company in accordance with this Agreement.
2. TERM.
2.1 INITIAL TERM. The initial Term Employment under this
Agreement, and the employment of the Executive hereunder, shall commence on
January 1, 1999 (the "Commencement Date") and shall expire on December 31, 2004,
unless sooner terminated in accordance with Section 5 hereof (the "Initial
Term").
2.2 RENEWAL TERMS. At the end of the Initial Term, the
Term of Employment automatically shall renew for successive one year terms
(subject to earlier termination as provided in Section 5 hereof), unless the
Company or the Executive delivers written notice to the other at least 6 months
prior to the Expiration Date of its or his election not to renew the Term of
Employment.
2.3 TERM OF EMPLOYMENT AND EXPIRATION DATE. The period
during which the Executive shall be employed by the Company pursuant to the
terms of this Agreement is sometimes referred to in this Agreement as the "Term
of Employment", and the date on which the Term of Employment shall expire
(including the date on which any renewal term shall expire), is sometimes
referred to in this Agreement as the "Expiration Date".
3. COMPENSATION.
3.1 BASE SALARY. The Executive shall receive a base
salary (the "Base Salary") at the annual rate of $130,000 for calendar year
1999, with such Base Salary payable in installments consistent with the
Company's normal payroll schedule, subject to applicable withholding, and other
taxes. The Base Salary shall be reviewed, at least annually, for merit increases
and may, by action and in the discretion of the Board, be increased at any time
or from; provided, however, that the Base Salary shall be increased as of each
January 1 during the Initial Term so that the Base Salary payable to the
Executive shall not be less than $160,000 for calendar year 2000, $225,000 for
calendar year 2001, and $265,000 for calendar years 2002, 2003 and 2004. Base
Salary, once increased, shall not thereafter be decreased for any reason.
3.2 BONUSES.
a. The Company shall pay the Executive a bonus
(sometimes hereinafter referred to as "Incentive Compensation") for each
calendar year (each a "Bonus Period") during the Term of Employment based on
established objective goals to be agreed upon by the Board, or the Compensation
Committee of the Board. The goals shall be quantitative, definite, and
reasonably attainable. Payment shall be accompanied by a statement reflecting
the bonus formula computation. The Executive shall have the right to review and
contest the bonus computation.
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<PAGE> 3
b. For the Bonus Period in which the
Executive's employment with the Company terminates for any reason other
than by the Company for Cause under Section 5.1 hereof, the Company shall pay
the Executive a pro rata portion (based upon the period ending on the date on
which the Executive's employment with the Company terminates) of the bonus
otherwise payable under Section 3.2a for the Bonus Period in which such
termination of employment occurs; provided, however, that the Bonus Period shall
be deemed to end on the last day of the fiscal quarter of the Company in which
the Executive's employment so terminates. The Incentive Compensation for this
Bonus Period is sometimes hereinafter referred to as the "Termination Year
Bonus".
c. The Executive shall receive such additional
bonuses, if any, as the Board may in its sole and absolute discretion determine.
d. Any Incentive Compensation payable pursuant
to this Section 3.2 shall be paid by the Company to the Executive within 2 1/2
months after the end of the Bonus Period for which it is payable.
4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.
4.1 REIMBURSEMENT OF EXPENSES. Upon the submission of
proper substantiation by the Executive, and subject to such rules and guidelines
as the Company may from time to time adopt, the Company shall reimburse the
Executive for all reasonable expenses actually paid or incurred by the Executive
during the Term of Employment in the course of and pursuant to the business of
the Company. The Executive shall account to the Company in writing for all
expenses for which reimbursement is sought and shall supply to the Company
copies of all relevant invoices, receipts or other evidence reasonably requested
by the Company,
4.2 COMPENSATION/BENEFIT PROGRAMS. During the term of
Employment, the Executive shall be entitled to participate in all medical,
dental, hospitalization, accidental death and dismemberment, disability, travel
and life insurance plans, and any and all other plans as are presently and
hereinafter offered by the Company to its executives, including savings,
pension, profit-sharing and deferred compensation plans, subject to the general
eligibility and participation provisions set forth in such plans.
4.3 WORKING FACILITIES. During the Term of Employment,
the Company shall furnish the Executive with an office, secretarial help and
such other facilities and services suitable to his position and adequate for the
performance of his duties hereunder.
4.4 AUTOMOBILE. During the Term of Employment, the
Company shall provide the Executive with a non-accountable automobile allowance
of six hundred and fifty dollars ($650) per month.
4.5 STOCK OPTIONS. Immediately upon execution of this
Agreement, the
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<PAGE> 4
Company shall grant to the Executive options to purchase 230,000 shares of the
common stock of the Company in accordance with the Stock Option Agreement
attached as Exhibit "A" hereto and made a part hereof, under (and therefore
subject to all terms and conditions of) the Company's 1996 Incentive Stock
Option Plan as amended, and any successor plan thereto (the "Stock Option Plan")
and all rules of regulation of the Securities and Exchange Commission applicable
to stock option plans then in effect. The Executive shall be eligible to receive
such other stock option grants under the Stock Option Plan, and on such other
terms and conditions, as shall be determined by the Committee appointed pursuant
to the Stock Option Plan, or by the Board of Directors of the Company, in its
discretion and pursuant to the Stock Option Plan.
4.6 VACATION AND OTHER BENEFITS. The Executive shall be
entitled to five (5) weeks of vacation each calendar year during the Term of
Employment, to be taken at such times as the Executive and the Company shall
mutually determine and provided that no vacation time shall interfere with the
duties required to be rendered by the Executive hereunder. Any vacation time not
taken by Executive during any calendar year may be carried forward into any
succeeding calendar year. The Executive shall receive such additional benefits,
if any, as the Board of the Company shall from time to time determine.
5. TERMINATION.
5.1 TERMINATION FOR CAUSE. The Company shall at all times
have the right, upon written notice to the Executive, to terminate the Term of
Employment, for Cause. For purposes of this Agreement, the term "Cause" shall
mean (i) an action or omission of the Executive which constitutes a willful and
material breach of, or failure or refusal (other than by reason of his
disability) to perform his duties under, this Agreement which is not cured
within fifteen (15) days after receipt by the Executive of written notice of
same, (ii) fraud, embezzlement, misappropriation of funds or breach of trust in
connection with his services hereunder, or (iii) conviction of any crime which
involves dishonesty or a breach of trust. Any termination for Cause shall be
made in writing to the Executive, which notice shall set forth in detail all
acts or omissions upon which the Company is relying for such termination. The
Executive shall have the right to address the Board regarding the acts set
forth in the notice of termination. Upon any termination pursuant to this
Section 5.1, the Company shall (i) pay to the Executive his Base Salary to the
date of termination and (ii) pay to the Executive his accrued but unpaid
Incentive Compensation, if any, for any Bonus Period ending on or before the
date of the termination of Executive's employment with the Company. The Company
shall have no further liability hereunder (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination, subject,
however, to the provisions of Section 4.1.
5.2 DISABILITY. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Term of
Employment, if the Executive shall become entitled to benefits under the
Company's long-term disability plan as then in effect, or, if the Executive
shall as the result of mental or physical incapacity, illness or disability,
become unable to perform his obligations hereunder for a period of 180 days in
any 12-month period. The Company shall have sole discretion based upon competent
medical advice to determine whether
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<PAGE> 5
the Executive continues to be disabled. Upon any termination pursuant to this
Section 5.2, the Company shall (i) pay to the Executive any unpaid Base Salary
through the effective date of termination specified in such notice, (ii) pay to
the Executive his accrued but unpaid Incentive Compensation, if any, for any
Bonus Period ending on or before the date of termination of the Executive's
employment with the Company, (iii) pay to the Executive a severance payment
equal to 12 months of the Executive's Base Salary at the time of the termination
of the Executive's employment with the Company and (iv) pay to the Executive his
Termination Year Bonus, if any, at the time provided in Section 3.2(d) hereof.
The Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of
termination, subject, however to the provisions of Section 4.1, and (y) payment
of compensation for unused vacation days that have accumulated as of the date on
which such termination occurs).
5.3 DEATH. Upon the death of the Executive during the Term
of Employment, the Company shall (i) pay to the estate of the deceased Executive
any unpaid Base Salary through the Executive's date of death, (ii) pay to the
estate of the deceased Executive his accrued but unpaid Incentive Compensation,
if any, for any Bonus Period ending on or before the executive's date of death,
and (iii) pay to the estate of the deceased Executive, the Executive's
Termination Year Bonus, if any, at the time provided in Section 3.2(d) hereof.
The Company shall have no further liability hereunder (other than for (x)
reimbursement for reasonable business expenses incurred prior to the date of the
Executive's death, subject, however, to the provisions of Section 4. 1, and (y)
payment of compensation for unused vacation days that have accumulated as of the
date on which such termination occurs).
5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall have
the right to terminate the Term of Employment by written notice to the
Executive. Upon any termination pursuant to this Section 5.4 (that is not a
termination under any of Sections 5.1, 5.2, 5.3, 5.5 or 5.6, the Company shall
(i) pay to the Executive any unpaid Base Salary through the effective date of
termination specified in such notice, (ii) pay to the Executive the accrued but
unpaid Incentive Compensation, if any, for any Bonus Period ending on or before
the date of the termination of the Executive's employment with the Company,
(iii) continue to pay the Executive's Base Salary for a period (the
"Continuation Period") through the date on which the Term of Employment would
have ended pursuant to Section 2 hereof in the absence of an earlier termination
pursuant to this Section 5, in the manner and at such time as the Base Salary
otherwise would have been payable to the Executive, (iv) continue to pay the
Executive Incentive Compensation and continue to provide the Executive with the
benefits he was receiving under Sections 4.2 and 4.4 hereof (the "Benefits")
through the end of the Continuation Period in the manner and at such times as
the Incentive Compensation or Benefits otherwise would have been payable or
provided to the Executive, (v) pay to the Executive his Termination Year Bonus,
if any, at the time provided in Section 3.2(d); and (iv) pay to the Executive as
a single lump sum payment, within 30 days of the Expiration Date, a lump sum
benefit equal to the value of the portion of his benefits under any savings,
pension, profit sharing or deferred compensation plans that are forfeited under
such plans by reason of the termination of his employment hereunder prior to the
end of the Continuation Period. In the event that the termination of Executive's
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employment hereunder shall occur on or before December 31, 1999, then the
Incentive Compensation and Benefits payable under clause (iv) of this Section
5.4 shall be equal to the amounts that would have been paid or provided to the
Executive for the year ended December 31, 1999. In the event that
termination of Executive's employment hereunder shall occur after December 31,
1999, then the Incentive Compensation payable under clause (iv) of this Section
5.4 shall be equal to the amount of Incentive Compensation payable to the
Executive for the calendar year immediately preceding the termination of
Executive's employment hereunder, and the Benefits shall be the Benefits
provided to the Executive for the calendar year in which the Executive's
employment hereunder terminates. In the event that the Company is unable to
provide the Executive with any Benefits required hereunder under the Company's
then existing benefit plans by reason of the termination of the Executive's
employment pursuant to this Section 5.4, then the Company shall arrange to have
issued for the benefit of the Executive and Executive's dependents individual
policies of insurance providing benefits substantially similar to the Benefits.
The Executive shall not be required to pay any premiums or other charges in an
amount greater than that amount, if any, that the Executive would have paid
while employed by the Company for the benefits so provided. Further, the
Executive shall become immediately vested in his Stock Options in the same
manner and to the same extent as if his employment hereunder terminated on the
last day of the Continuation Period. The Company shall have no further
liability hereunder (other than for (x) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (y) payment of compensation for unused vacation
days that have accumulated as of the date on which such termination occurs).
5.5 TERMINATION BY EXECUTIVE.
a. The Executive shall at all times have the right, upon
thirty (30) days written notice to the Company, to terminate the Term of
Employment.
b. Upon termination of the Term of Employment
pursuant to this Section 5.5 (that is not a termination under Section 5.6) by
the Executive without Good Reason, the Company shall (i) pay to the Executive
any unpaid Base Salary through the effective date of termination specified in
such notice and (ii) pay to the Executive his accrued but unpaid Incentive
Compensation, if any, for any Bonus Period ending on or before the termination
of Executive's employment with the Company. The Company shall have no further
liability hereunder (other than for (x) reimbursement for reasonable business
expenses incurred prior to the date of termination, subject, however, to the
provisions of Section 4.1, and (y) payment of compensation for unused vacation
days that have accumulated as of the date on which such termination occurs).
c. Upon termination of the Term of Employment pursuant
to this Section 5.5 (that is not a termination under Section 5.6) by the
Executive for Good Reason, the Company shall pay to the Executive the same
amounts that would have been payable by the Company to the Executive under
Section 5.4 of this Agreement if the Term of Employment had been terminated by
the Company without Cause. The Company shall have no further liability
-6-
<PAGE> 7
hereunder (other than for (x) reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Section 4.1, and (y) payment of compensation for unused vacation days that
have accumulated as of the date on which such termination occurs).
d. For purposes of this Agreement, "Good
Reason" shall mean (i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 1.2 of this Agreement, or any other
action by the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive; (ii) any failure by the Company to comply with any of the provisions
of Article 3 or 4 of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive; (iii)
the Company's requiring the Executive to be based at any office or location
outside of Coconut Grove, Florida, except for travel reasonably required in the
performance of the Executive's responsibilities; (iv) any purported termination
by the Company of the Executive's employment otherwise than for Cause pursuant
to Section 5.1, or by reason of the Executive's disability pursuant to Section
5.2 of this Agreement, prior to the Expiration Date. For purposes of this
Section 5.5(d), any good faith determination of "Good Reason" made by the
Executive shall be conclusive.
5.6 CHANGE IN CONTROL OF THE COMPANY.
a. In the event that a Change in Control (as defined in
paragraph (c) of this Section 5.6) in the Company shall occur during the Term of
Employment, the Company shall pay to the Executive, within 30 days of such
Change in Control, a lump sum cash payment equal to the quotient obtained by
dividing (i) $600,000, by (ii) 100% minus the Executive's combined federal,
state and local marginal tax rate (determined based upon the assumptions set
forth in the last sentence of Section 5.7 (a) hereof),
b. In the event that (i) a Change in Control (as defined
in paragraph (c) of this Section 5.6) in the Company shall occur during the Term
of Employment, and (ii) prior to the earlier of the Expiration Date and three
years after the date of the Change in Control, (x) the Term of Employment is
terminated by the Company without Cause pursuant to Section 5.4 hereof or (y)
the Executive terminates the Term of Employment for Good Reason pursuant to
Section 5.5(b) hereof, then the Company shall (1) pay to the Executive any
unpaid Base Salary through the effective date of termination, (2) pay to the
Executive the Incentive Compensation, if any, not yet paid to the Executive for
any year prior to such termination, at such time as the Incentive Compensation
otherwise would have been payable to the Executive, (3) pay to the Executive his
Termination Year Bonus, if any, at the time provided in Section 3.2 hereof,
and (4) pay to the Executive as a single lump sum cash payment, within 30 days
of the termination of his employment hereunder, a lump sum payment equal to the
sum of (x) three times the sum of
-7-
<PAGE> 8
Executive's annual Base Salary, Incentive Compensation, and the value of the
annual fringe benefits (based upon their cost to the Company) required to be
provided to the Executive under Sections 4.2 and 4.4 hereof, for the year
immediately preceding the year in which his employment terminates, plus (y) the
value of the portion of his benefits under any savings, pension, profit sharing
or deferred compensation plans that are forfeited under those plans by reason of
the termination of his employment hereunder. Further, upon the Change in
Control, the Executive's Stock Options shall immediately vest. The payments
required pursuant to this paragraph (b) shall be in addition to any benefits
payable under paragraph (a) of this Section 5.6. The Company shall have no
further liability hereunder (other than for (1) reimbursement for reasonable
business expenses incurred prior to the date of termination, subject, however,
to the provisions of Section 4.1, and (2) payment of compensation for unused
vacation days that have accumulated as of the date on which such termination
occurs).
c. For purposes of this Agreement, the term "Change in
Control" shall mean:
(i) Approval by the shareholders of the Company
of (x) a reorganization, merger, consolidation or other form of corporate
transaction or series of transactions, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not, immediately
thereafter, own more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, in substantially the
same proportions as their ownership immediately prior to such reorganization,
merger, consolidation or other transaction, or (y) a liquidation or dissolution
of the Company or (z) the sale of all or substantially all of the assets of the
Company (unless such reorganization, merger, consolidation or other corporate
transaction, liquidation, dissolution or sale is subsequently abandoned);
(ii) Individuals who, as of the Commencement Date
of this Agreement, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the Commencement Date of this Agreement whose
election or nomination for election by the Company's shareholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the Directors of the Company, as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Securities
Exchange Act) shall be, for purposes of this Agreement, considered as though
such person were a member of the Incumbent Board; or
(iii) the acquisition (other than from the
Company) by any person, entity or "group", within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act, of 25% or more of
either the then outstanding shares of the Company's Common Stock or the combined
voting power of the Company's then outstanding voting securities entitled to
vote generally in the election of directors (hereinafter referred to as the
ownership of a
-8-
<PAGE> 9
"Controlling Interest") excluding, for this purpose, any acquisitions by (1) the
Company or its Subsidiaries, (2) any person, entity or "group" that as of the
Commencement Date of this Agreement owns beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a
Controlling Interest or (3) any employee benefit plan of the Company or its
Subsidiaries.
5.7 CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
a. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment,
distribution or other action by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, including any additional payments
required under this Section 5.7) (a "Payment") would be subject to an excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), or any interest or penalties are incurred by the Executive with respect
to any such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), the
Company shall make a payment to the Executive (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
Excise Tax) imposed upon the Gross-Up Payment, the Executive retains (or has had
paid to the Internal Revenue Service on his behalf) an amount of the Gross-Up
Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y)
the product of any deductions disallowed because of the inclusion of the
Gross-Up Payment in the Executive's adjusted gross income and the highest
applicable marginal rate of federal income taxation for the calendar year in
which the Gross-Up Payment is to be made. For purposes of determining the
amount of the Gross-Up Payment, the Executive shall be deemed to (i) pay federal
income taxes at the highest marginal rates of federal income taxation for the
calendar year in which the Gross-Up Payment is to be made, and (ii) pay
applicable state and local income taxes at the highest marginal rate of taxation
for the calendar year in which the Gross-Up Payment is to be made, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes.
b. Subject to the provisions of paragraph (c) of this
Section 5.7, all determinations required to be made under this Section 5.7,
including whether and when a Gross Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Arthur Anderson LLP (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 5.7, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the
-9-
<PAGE> 10
Executive, it shall furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal income tax return
would not result in the imposition of a negligence or similar penalty. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 5.7 and the Executive thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of the
Executive.
c. The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 5.7(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences
-10-
<PAGE> 11
with the taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed and sue for the
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable year
of the Executive with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
d. If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5.7(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 5.7(c))
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 5.7(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the among of Gross-Up Payment required to
be paid.
5.8 RESIGNATION. Upon any termination of employment
pursuant to this Article 5, the Executive shall be deemed to have resigned as
an officer, and if he or she was then serving as a director of the Company, as
a director, and if required by the Board, the Executive hereby agrees to
immediately execute a resignation letter to the Board.
5.9 SURVIVAL. The provisions of this Article 5 shall
survive the termination of this Agreement, as applicable.
6. CONFIDENTIAL INFORMATION AND OWNERSHIP OF DEVELOPMENTS.
6.1 NONDISCLOSURE. The Executive shall not at any time
divulge, communicate, use to the detriment of the Company or for the benefit of
any other person or persons, or misuse in any way, any Confidential Information
(as hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition,
prospects, technology, customers,
-11-
<PAGE> 12
suppliers, sources of leads and methods of doing business) shall be deemed a
valuable, special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall remain a
fiduciary to the Company with respect to all of such information. For purposes
of this Agreement, "Confidential Information" means information disclosed to the
Executive or known by the Executive as a consequence of or through his
employment by the Company (including information conceived, originated,
discovered or developed by the Executive) prior to or after the date hereof, and
not generally known, about the Company or its business. Notwithstanding the
foregoing, nothing herein shall be deemed to restrict the Executive from
disclosing Confidential Information to the extent required by law.
6.2 OWNERSHIP OF DEVELOPMENTS. All copyrights, patents,
trade secrets, or other intellectual property rights associated with any ideas,
concepts, techniques, inventions, processes, or works of authorship developed or
created by Executive during the course of performing work for the Company or its
clients (collectively, the "Work Product") shall belong exclusively to the
Company and shall, to the extent possible, be considered a work made by the
Executive for hire for the Company within the meaning of Title 17 of the United
States Code. To the extent the Work Product may not be considered work made by
the Executive for hire for the Company, the Executive agrees to assign, and
automatically assign at the time of creation of the Work Product, without any
requirement of further consideration, any right, title, or interest the
Executive may have in such Work Product. Upon the request of the Company, the
Executive shall take such further actions, including execution and delivery of
instruments of conveyance, as may be appropriate to give full and proper effect
to such assignment.
6.3 BOOKS AND RECORDS. All books, records, and accounts
relating in any manner to the customers or clients of the Company, whether
prepared by the Executive or otherwise coming into the Executive's possession,
shall be the exclusive property of the Company and shall be returned immediately
to the Company on termination of the Executive's employment hereunder or on the
Company's request at any time.
6.4 DEFINITION OF COMPANY. Solely for purposes of this
Article 6, the term "Company" also shall include any existing or future
subsidiaries of the Company that are operating during the time periods described
herein and any other entities that directly or indirectly, through one or more
intermediaries, control, are controlled by or are under common control with the
Company during the periods described herein.
6.5 ACKNOWLEDGEMENT BY EXECUTIVE. The Executive
acknowledges and confirms that the provisions contained in this Article 6 are
reasonably necessary to protect the legitimate business interests of the
Company. The Executive further acknowledges that the restrictions contained in
this Article 6 are intended to be, and shall be, for the benefit of and shall be
enforceable by, the Company's successors and assigns.
6.6 REFORMATION BY COURT. In the event that a court of
competent jurisdiction shall determine that any provision of this Article 6 is
invalid or more restrictive than permitted under the governing law of such
jurisdiction, then only as to enforcement of this Article 6 within
-12-
<PAGE> 13
the jurisdiction of such court, such provision shall be interpreted and enforced
as if it provided for the maximum restriction permitted under such governing
law.
6.7 EXTENSION OF TIME. If the Executive shall be in
violation of any provision of this Article 6, then each time limitation set
forth in this Article 6 shall be extended for a period of time equal to the
period of time during which such violation or violations occur. If the Company
seeks injunctive relief from such violation in any court, then the covenants set
forth in this Article 6 shall be extended for a period of time equal to the
pendency of such proceeding including all appeals by the Executive.
6.8 SURVIVAL. The provisions of this Article 6 shall
survive the termination of this Agreement, as applicable.
7. INJUNCTION. It is recognized and hereby acknowledged by the
parties hereto that a breach by the Executive of any of the covenants contained
in Article 6 of this Agreement will cause irreparable harm and damage to the
Company, the monetary amount of which may be virtually impossible to ascertain.
As a result, the Executive recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the covenants contained
in Article 6 of this Agreement by the Executive or any of his affiliates,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.
8. ASSIGNMENT. Neither party shall have the right to assign or
delegate his rights or obligations hereunder, or any portion thereof, to any
other person.
9. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and, upon its effectiveness, shall supersede all prior agreements,
understandings and arrangements, both oral and written, between the Executive
and the Company (or any of its affiliates) with respect to such subject matter.
This Agreement may not be modified in any way unless by a written instrument
signed by both the Company and the Executive.
11. NOTICES. All notices required or permitted to be given
hereunder shall be in writing and shall be personally delivered by courier, sent
by registered or certified mail, return receipt requested or sent by confirmed
facsimile transmission addressed as set forth herein. Notices personally
delivered, sent by facsimile or sent by overnight courier shall be deemed given
on the date of delivery, and notices mailed in accordance with the foregoing
shall be deemed given upon the earlier of receipt by the addressee, as evidenced
by the return receipt thereof, or three (3) days after deposit in the U.S.
mail. Notice shall be sent (i) if to the Company, addressed to 2701 S. Bayshore
Dr.,Miami, FL 33133, Attention: Human Resources,
-13-
<PAGE> 14
and (ii) if to the Executive, to his address as reflected on the payroll records
of the Company, or to such other address as either party hereto may from time to
time give notice of to the other.
12. BENEFITS: BINDING EFFECT. This Agreement shall be for the
benefit of and binding upon the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and, where
applicable, assigns, including, without limitation, any successor to the
Company, whether by merger, consolidation, sale of stock, sale of assets or
otherwise.
13. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining portions of this Agreement or any
part thereof, all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid, this
Agreement shall be construed as if such invalid word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted. If such invalidity is caused by length of time or size of
area, or both, the otherwise invalid provision will be considered to be reduced
to a period or area which would cure such invalidity.
14. WAIVERS. The waiver by either party hereto of a breach or
violation of any term or provision of this Agreement shall not operate nor be
construed as a waiver of any subsequent breach or violation.
-14-
<PAGE> 15
15. DAMAGES. Nothing contained herein shall be construed to
prevent the Company or the Executive from seeking and recovering from the other
damages sustained by either or both of them as a result of its or his breach of
any term or provision of this Agreement. In the event that either party hereto
brings suit for the collection of any damages resulting from, or the injunction
of any action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other.
16. SECTION HEADINGS. The section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
17. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in
this Agreement is intended, or shall be construed, to confer upon or give any
person other than the Company, the parties hereto and their respective heirs,
personal representatives, legal representatives, successors and assigns, any
rights or remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
COMPANY:
Affiliate Networks, Inc.
By: /s/ George Glazer
------------------------------
Name: George Glazer
Title: Chm. Compensation
Committee
Board of Directors
EXECUTIVE:
/s/ David A. Schwedel
---------------------------------
David A. Schwedel
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MAREX.COM,
INC.'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,434,036
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,526,838
<PP&E> 807,851
<DEPRECIATION> 115,516
<TOTAL-ASSETS> 4,315,458
<CURRENT-LIABILITIES> 604,620
<BONDS> 0
0
0
<COMMON> 63,968
<OTHER-SE> 3,640,136
<TOTAL-LIABILITY-AND-EQUITY> 4,315,458
<SALES> 7,277
<TOTAL-REVENUES> 7,277
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,654,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,909
<INCOME-PRETAX> (3,549,387)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,549,387)
<DISCONTINUED> (140,367)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,689,754)
<EPS-BASIC> (.65)
<EPS-DILUTED> (.65)
</TABLE>
