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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from __________ to __________
Commission File No. 333-25937
CROSSWALK.COM, INC.
(Exact Name of Registrant in Its Charter)
Delaware 54-1831588
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(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
4100 Lafayette Center Dr. Suite 110
Chantilly, VA 20151
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(Address of Principal Executive Offices) (Zip Code)
703-968-4808
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Issuer's telephone number, including area code
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
- -----------------------------
Title of each class
Indicate by check mark whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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./X/
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The aggregate market value of common stock held by non-affiliates, based on the
closing price at which the stock was sold, at March 15, 2000 is approximately
$33 million.
The total number of shares outstanding of the issuer's common stock as of March
17, 2000, was 7,633,352.
The Company's Registration Statement filed on Form SB-2 declared
effective by the Commission September 24, 1997, along with the Company's Post
Effective Amendment thereto declared effective by the Commission dated July 29,
1998, and the Company's Form 10-KSB filings dated March 20, 1998 and March 22,
1999 are incorporated by reference in Part III, Item 14. The Company's Proxy
Statement on Schedule 14-A to be filed with the Commission in connection with
the Company's 2000 Annual Meeting of Stockholders is incorporated by reference
in Part III, Items 10 through 14.
PART I
ITEM 1. BUSINESS
CERTAIN INFORMATION IN THIS ANNUAL REPORT MAY CONTAIN "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT ARE
"FORWARD-LOOKING STATEMENTS" FOR PURPOSES OF THESE PROVISIONS, INCLUDING ANY
PROJECTIONS OF EARNINGS, REVENUES OR OTHER FINANCIAL ITEMS, ANY STATEMENTS OF
THE PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS, ANY STATEMENTS
CONCERNING PROPOSED NEW PRODUCTS OR SERVICES, ANY STATEMENTS REGARDING FUTURE
ECONOMIC CONDITIONS OR PERFORMANCE, AND ANY STATEMENT OF ASSUMPTIONS UNDERLYING
ANY OF THE FOREGOING. IN SOME CASES, "FORWARD-LOOKING STATEMENTS" CAN BE
IDENTIFIED BY THE USE OF TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECTS,"
"BELIEVES," "PLANS," "ANTICIPATES," "ESTIMATES," "POTENTIAL," OR "CONTINUE," OR
THE NEGATIVE THEREOF OR OTHER COMPARABLE TERMINOLOGY. ALTHOUGH THE COMPANY
BELIEVES THAT THE EXPECTATIONS REFLECTED IN ITS "FORWARD-LOOKING STATEMENTS" ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS OR ANY OF ITS
"FORWARD-LOOKING STATEMENTS" WILL PROVE TO BE CORRECT, AND ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE PROJECTED OR ASSUMED IN THE COMPANY'S
"FORWARD-LOOKING STATEMENTS." THE COMPANY'S FUTURE FINANCIAL CONDITION AND
RESULTS, AS WELL AS ANY OTHER "FORWARD-LOOKING STATEMENTS," ARE SUBJECT TO
INHERENT RISKS AND UNCERTAINTIES, SOME OF WHICH ARE SUMMARIZED IN ITEM 6,
"MANAGEMENT'S DISCUSSION AND ANALYSIS - OUTLOOK AND UNCERTAINTIES."
OVERVIEW
We are an Internet portal company that has developed and operates crosswalk.com,
which we believe is the premier Web site for the online Christian community. We
focus on "the intersection of faith and life", covering a growing spectrum of
everyday life within a Christian context. Our strategy is to make crosswalk.com
a community portal with deep content and broad information for Christians, not
just Christian information, drawing many from the broad Christian community
offline to an online experience where faith and life meet every day. We intend
to continue enhancing crosswalk.com in order to become the preferred online
resource for Christians in search of information, interaction and involvement
opportunities that help them apply a Christian world view across the breadth of
their life and interests.
Crosswalk.com comprises fourteen content areas or channels targeting music,
personal finance, careers, sports, home schooling, and health; lifestyle
channels focusing on men, women, families, entertainment, books, news, bible
study and spiritual life; and services ranging from free Web access filtering, a
full-Web filtered search engine, and "mycrosswalk" customized start pages to
online shopping, family-friendly
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movie reviews, bible referencing, greeting cards, games, chat, forums, local
events, free email and more. Content and site resources are developed and
offered both by Crosswalk.com and by ministries, secular retailers, and
publishers.
Crosswalk.com also includes Wike Associates (d/b/a Media Management) which we
acquired on August 13, 1999. Media Management, which includes the Web site
GOSHEN.net, is a wholly owned subsidiary of the Company. GOSHEN.net, which has
been integrated into crosswalk.com, provides, among other things, an extensive
searchable directory that can be used to discover such Internet services as Web
sites providing information about youth group resources, denominational
publications, Christian support groups, listings of various Christian radio
shows, and even the personal pages of Christian individuals and families. This
directory, which contains approximately 20,000 listed, categorized and
cross-referenced Web sites, is a resource for finding services and products on
the Web that will be of interest to Christians. Media Management also has an
advertising "card pack" business which distributes advertising materials to
250,000 churches, pastors and leading laymen through six annual mailings. The
average card pack contains between 90 to 120 advertisements, for which each
advertiser pays approximately $2,400.
On January 4, 1999, conditions were met for us to call for redemption certain
purchase warrants which were issued in our initial public offering. The
redemption date was February 12, 1999. As a result of the redemption call,
2,841,526 (or 98.8%) of the purchase warrants were exercised resulting in our
receipt of approximately $16.3 million in net proceeds.
In May 1999, our shareholders approved changing our name from DIDAX INC. to
Crosswalk.com, Inc. This set the stage for our branding initiatives throughout
the later part of 1999. We are ever striving to efficiently utilize resources to
expand the name recognition of crosswalk.com. In August 1999, the common stock
of Crosswalk.com began to trade on the Nasdaq National Market System, under the
symbol: "AMEN".
We have a limited operating history upon which an evaluation of our business can
be based. Our business must be considered in light of the risks, expenses and
problems frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets, such as
the Internet. The market for our services and products has only very recently
begun to develop, is rapidly evolving and is characterized by an increasing
number of market entrants which have introduced or developed services and
products for use on the Internet. As a result, our mix of services and products
may undergo substantial changes as we react to competitive and other
developments in the overall Internet market. We have incurred net losses since
inception and expect to continue to operate at a loss until sufficient revenues
are generated to cover expenses. As of December 31, 1999, we reported an
accumulated deficit of $22,044,497.
We market our sales, products and services and the content on crosswalk.com to
persons of all ages, economic levels, genders, ethnic backgrounds and
nationalities that identify themselves as Christian, principally Protestant
(regardless of denomination, if any) and Catholic, with emphasis upon
evangelical Christians. In January 1998 a survey conducted by Barna Research
indicated that "83% of Americans asserted that their religious faith was very
important in their life", and that 62% of Americans consider themselves as
"committed Christians." In 1999 Barna's research indicated that 40% of the U.S.
population considers themselves "born again Christians", ranging from 55% in the
south to 27% in the Northeast. The Gallup Organization reports from a survey
conducted in December 1999 that approximately 29% of Americans identify
themselves as Catholic and approximately 55% identify themselves as Protestant,
with 61% of the respondents indicating that religion is a very important part of
their life. Based on these reports, which have remained relatively consistent
over the last three years, Crosswalk.com traditionally uses 40% as the
percentage of Christians in its target audience.
According to Jupiter Communications, there were over 100 million people online
at the end of 1999, representing approximately 45% of U.S. households. They
predict that this will grow to just under 70% by 2003. According to eMarketer,
the Internet population will increase to nearly 142 million by 2002 and per
International Data Corporation ("IDC") the percentage of those users transacting
business online will grow from 35% to almost 50%.
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According to SOMA Communications, Inc., a Christian broadcast market research
firm utilizing data supplied by Simmons, over 70% of Christians on the Internet
have annual incomes in excess of $40,000 and over 30% of Christians on the
Internet have annual incomes over $75,000. According to Christianity Today,
Inc., a publisher of Christian periodicals, when compared to the general U.S.
population, Christians are approximately 25% more likely to own a computer and
approximately 15% more likely to own a modem. Additionally, according to the
Simmons data, Christians on the Internet are 42% more likely than the general
population to use an interactive computer service for shopping, and over 150%
more likely to purchase books and music online. We conclude from this data that
Christians are present and active on the Web, can afford to purchase goods and
services, have a propensity to buy on the Internet, and thus represent a good
demographic segment for sponsors, advertisers and retailers.
INFORMATION AND COMMERCE ON THE INTERNET GENERALLY
Much of the recent growth in the use of the Internet by businesses and
individuals has been driven by the emergence of the World Wide Web (the "Web"),
which enables non-technical users to exploit the resources of the Internet. The
emergence of the Internet as a significant communications medium is driving the
development and adoption of Web site content and commerce applications that
offer convenience and value to consumers, as well as unique marketing
opportunities and reduced operating costs to businesses. By hosting information
about products and services on a Web site, a company or organization can enable
potential customers or constituents in any geographical area to gather relevant,
in-depth information about products, services or organization activities and
messages at their convenience and according to their preferences. A growing
number of consumers have begun to transact business electronically, such as
paying bills, booking airline tickets, trading securities and purchasing
consumer goods, including personal computers, consumer electronics, compact
disks, books and vehicles. Moreover, online transactions can be faster, less
expensive and more convenient than transactions conducted through a human
intermediary. In addition, Web site commerce applications enable businesses and
organizations, including ministries, to rapidly target and economically manage a
broad customer and constituent base and establish and maintain ongoing direct
customer and constituent relationships. Forrester Research estimates that the
dollar value of goods and services purchased over the Internet will increase
from approximately $43 billion in 1998 to $1.3 trillion in 2003. They also
report that approximately 31% of households with investable assets of less than
$100,000 are online and that 39% of these households have purchased something
online.
COMPANY MISSION AND BUSINESS
Our mission is to be the preferred and comprehensive host for the online
Christian community, featuring unique, integrated and often exclusive content
and services which are inviting, family-friendly, and morally sound. In
addition, we desire to serve as an advocate for the Christian community, helping
them use the Web to apply biblical values to everyday life experiences.
We generate revenues through the sale of advertising and sponsorships; the
online retailing of Christian and family-friendly products manufactured or
developed by others (music, books, apparel, gifts, etc.); commissions and
referral fees from co-marketing relationships; and to a lesser extent, the
continuing provision of technology services to various Christian organizations.
Overall in 1999, we experienced a 537% increase in revenue as compared to 1998.
Up to this point, we have generated most of our revenue from selling channel
sponsorships, often on an exclusive basis, and often to Christian organizations
that also agreed to provide content. However, this type of relationship requires
certain labor-intensive efforts on our part producing lower than desired
margins. We believe that, with the current combination of extraordinarily deep
content and achievement of several traffic growth benchmarks, it is time to
shift emphasis to selling advertising, which we believe will ultimately generate
more revenue at lower cost.
Our approach to business growth is to continue building the crosswalk.com
Internet community, by offering content, products and services with distinction
geared toward meeting the needs of the Christian and family-friendly niche. Our
business model is to achieve profitability through advertising and affiliate
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retail sales from growth in membership, pageviews, and visitors to
crosswalk.com. We believe that generating revenues commensurate with critical
mass in the Internet marketplace will ultimately drive profitability and
recognition as the preferred online resource for Christians in search of
information, interaction and involvement opportunities that help them apply a
biblical world view across the breadth of their life and interests.
OPERATIONS
Employees
We have recently made some significant changes in staffing, reducing focus on
lower margin sponsorship and retail functional areas, while strengthening our
capability to deliver high quality content and advertising opportunities. With
gratitude and appreciation for their part as founders of Crosswalk and for their
years of dedicated service, the employment of Dane West and William Bowers was
concluded. Mr. West served as Vice President of Business Development and Sales,
and Mr. Bowers, was our Chief Technical Officer.
Leading the management team to implement our vision going forward is Chief
Executive Officer and President William Parker. Stephen Wike, former President
of Wike Associates, which we acquired in August 1998, serves as Chief Operating
Officer. Gary Struzik is Chief Financial Officer and Secretary. Steve Sedlmeyer
is responsible for Crosswalk Services. Mitch Kirsch handles our engineering
design and internal engineering infrastructure. Stephen Biggerstaff is
responsible for marketing and customer advocacy. Neal Joseph, former president
of Warner Bros.' Christian music division is our Vice President and General
Manager of crosswalk.com Entertainment. In addition, Scott Fehrenbacher, the
former President of American Values Based Investing, serves as Vice President
and General Manager of Business, News and Culture. The Company has 73 full time
employees and 8 part time employees. Of these full time employees, fourteen are
engaged in engineering and services, seventeen are engaged in marketing and
sales, thirty-four are engaged in crosswalk operations and nine in
administration. The part time employees assist in web development, marketing
support and administration. We start the new millennium committed and ready to
serve our niche audience with the best that the Web has to offer from a
Christian worldview.
Traffic on Crosswalk.com
Our progress in developing crosswalk.com is also evidenced by the growth in
membership and average monthly page views on crosswalk.com. Membership is free
and represents the number of registered users of our content or services.
Membership benefits include a free Web-based e-mail account, access to
crosswalk.com's chat and forums, permission to post local events in the award
winning crosswalk.com events database directory, free filtered Web access, the
ability to receive selected topical content via community mailing lists along
with monthly email updates on the latest additions to our site and the latest in
Christian music news. At December 31, 1999, we had 1,085,878 members as compared
to 147,405 members at December 31, 1998, an increase of 636%. Page views are a
measure of total pages viewed by visitors to crosswalk.com in a month. Average
monthly page views tallied in the fourth quarter of 1999 reached approximately
16,300,000, up from 2,200,000 for the comparable fourth quarter a year earlier.
This represents an increase of 641%. Our opportunity to generate additional
advertising and retail revenues is largely predicated upon increasing membership
and traffic in the form of page views on crosswalk.com.
Building Community on the Internet
Our product development strategy, centered around the theme of "information for
Christians, not just Christian information," is to target the most in-demand
consumer-driven information areas and applications on the Internet and then
deliver them to the Christian marketplace with what we believe is meaningful
distinction. Our task is not to create a community, but to enhance online, a
community of people whose everyday life is focused on a biblical foundation and
faith in Christ. We are also seeking to adapt to the Internet, topical areas for
which obtaining information and services are cumbersome and inconvenient
offline. To this end, in 1999, we increased our channel offering from five to
fourteen. Added to the Money, Music, Careers, Men and Womens channels in 1999
were Bible Study Tools, Sports, Spiritual Life, Homeschooling, Family, Health,
Entertainment, Webcast Guide and News and Culture areas.
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Bible Study Tools offers to pastors and laypeople alike, what we believe is the
most complete source for biblical study and encouragement on the Web. References
such as lexicons, concordances, commentaries, sermon helps, and input from
ministry leaders can be found in this area. For those who want to dig into
scripture, we believe there is no greater resource online. The Spiritual Life
Channel offers visitors the opportunity to listen to messages from popular
expositors of biblical teaching, as well as devotional sources for daily
meditation, community building prayer and encouragement chat areas, and even
clean jokes to brighten up your day. We believe that this rich content is
foundational to serving the Christian niche as a resource for life and ministry
many of our members depend on.
We desire to ultimately present all of life from a Christian perspective. Toward
this end the Sports Channel was launched in September 1999. Managed by Frank
Reich, former NFL quarterback, the Sports Channel not only provides visitors
with all the up to date sports information as available on the popular sports
related Web sites, but also provides distinct information as to how individuals
in a range of sports intertwine sports and their personal faith and testimony.
We believe that our members want to know about these personalities and embrace
them as they participate in watching sporting events in which they are involved.
Under the category of adapting to the Internet, topical areas for which
obtaining information and services are cumbersome and inconvenient offline, we
launched the Homeschool Channel in April 1999. Offline, distribution of home
schooling resources is afforded through conventions held several times a year,
and we believe that there is no more convenient approach to parents for guidance
in this important area. With so much negative press about what is transpiring in
the public school alternative, many are turning to home schooling. With sources
like Investor Business Daily and the Wall Street Journal identifying the testing
success experienced by home schooled children versus their peers, home schooling
is getting much attention. The home education marketplace is estimated to
encompass almost two million children and roughly $400 million in home
educational spending in 1999. Headed by Mike Farris, president of the Home
School Legal Defense Association (HSLDA) and the National Center for Home
Education and one of the recognized leaders in this educational trend, the
Homeschool Channel targets this audience, offering a comprehensive array of free
and fee-based resources as well as a premier selection of retail products and
services, collectively designed to drive revenues, membership and visits. We
believe that the Homeschool Channel uniquely serves this marketplace with a
combination of Web safety applications including CrossingGuardTM, a free Web
filtering solution available only to crosswalk.com members, and a full-Web
filtered search engine that blocks adult/explicit links from search results. In
addition, resources such as a curriculum guide, how to get started, expert tips,
and various tools and forums for parental idea and curriculum exchange are
provided. This is a valuable resource we believe will garner growing retail and
advertising revenues.
The Health Channel launched in June 1999, enables visitors to get the best in
health tips for their physical, mental and spiritual well being. In October 1999
Crosswalk teamed with sponsor Family Life, a division of Campus Crusade for
Christ to create the Family Channel with content aimed at giving each family
member insight into how to best fulfill their role in making the family the
strong cohesive unit as encouraged in scripture. The Webcast Guide, referencing
over 20,000 Web sites is used by the community as a guide to Christian
entertainment, teaching and information on the Web. The News & Culture Channel
provides the convenience of world news as it happens along with religious news
worldwide and a forum for commentary where the community is provided information
and the capability of taking action consistent with their faith in current
events. The Careers Channel provides job search capability and offers college
career planning and also added job and resume posting, plus personalized career
counseling services.
We also expanded our online offerings on channels launched in late 1998. The
Money Channel added strategic relationships that provided online banking,
brokerage, mortgage and insurance services within the contexts of both wealth
creation and financial stewardship. In addition to providing quotes, charts,
research, planning calculators, and more, the Money Channel provides the unique
proprietary INVESTigator(TM) values-based investing research tool. This online
investment evaluation software allows visitors to assess the companies
comprising an investment portfolio to determine whether their investments are
consistent with their personal values and provides them with alternative
investments with similar investment goals.
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Through the use of this values-based investing software, visitors can screen out
companies that engage in practices inconsistent with their values, while
identifying alternative investment portfolios with comparable historical
performance. The Money Channel will be offering numerous investment funds
created exclusively for Crosswalk centered on the values-based investing
concept. Online Investor magazine rated the Money Channel on crosswalk.com one
of the top ten financial sites on the Web.
The ability to listen to Christian music on the radio or buy it at traditional
offline retail outlets is severely limited. Most Christian radio, which is
rarely found in more than one or two stations per market and not at all in many
markets nationally, consists of ministry and talk radio programming. Musical
programming that does exist is necessarily narrow in scope. At the same time,
retail distribution of Christian music is still largely focused on Christian
bookstores, with limited geographical distribution, shelf space and audio
sampling capabilities. The Music Channel addresses these distribution issues by
providing artist interviews, CD sampling, 24-hour radio streams in a variety of
musical formats, concert schedules and ticketing information, and direct online
purchasing. In 1999 the Music Channel added expanded audio streaming services
and drew worldwide attention through exclusive live broadcasts of the 30th
Annual Dove Awards -- including live chats with award-winning artists -- and the
25th Annual Christian Artists Seminar. During the year, About.com recognized the
Music Channel as the "#1 Christian Music Web Site".
Crosswalk.com Services and Sense of Community
We believe that Christians and values-sensitive families will fully embrace the
potential of the Web when they can be assured of a safe environment that doesn't
expose them or their children to the offensive, adult-oriented, explicit content
now available online. To this end, crosswalk.com offers CrossingGuardTM - a
server-level, continuously updated Web filtering system that blocks over five
million Web pages. CrossingGuardTM is free to crosswalk.com members, who
otherwise must pay $20-$125 per year for filtering solutions that are
software-based or add-ons to basic Web access fees. Along with the filtered
access, crosswalk.com also offers its own filtered search engine, giving users
access to more than 100 million Web pages, while stopping objectionable ones
from even being listed in a search screen. Additional services include: free
e-mail; chats and discussion forums; an entertainment area full of online games,
daily features and columns; an award-winning directory of nationwide events of
special interest to the Christian community; and an online movie review area,
with current reviews and an archive of family-friendly movie reviews.
In addition to interactive services like chat and forums, crosswalk.com provides
for the formation and growth of online community through several channels that
touch on the day to day challenges that life brings. The Men's Channel and the
Women's Channel provide the environments for men and women to be encouraged in
their spiritual walk by sharing life's experiences with one another, tapping
into expert commentaries and recommended resources, reviewing a daily devotional
and even clicking on the daily humor column. Although a Christian context is
provided throughout crosswalk.com, these channels collectively round out the
emphasis on practically applying one's faith and values to everyday life.
In 1999 we enhanced our service offering with the introduction of
"my.crosswalk.com" personalized Web start pages; online greeting cards; enhanced
Internet filtering for surfing and searching; and a broad-based strategy for
email newsletter publishing. We believe that these services increase visits,
pageviews and members for crosswalk.com by affording site visitors a greater
level of convenience and personalization.
Investments in Technology
In 1999 we invested over one million dollars in infrastructure improvements
designed to support us internally to serve the growing membership on
crosswalk.com. This effort culminated in completion in the fourth quarter of
1999, of our movement to an Oracle/Sun server architecture. With the completion
of this major migration, the utilization of Vignette's StoryServer site content
management software, Accrue statistical analysis package along with the hosting
and bandwith provided by Exodus Communications and UUNet, we believe that we are
well positioned to serve the Christian niche in being prepared for robust growth
in Web site traffic on crosswalk.com.
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MARKETING
In 1999 we invested to establish brand recognition through print, radio,
television and online viral marketing. This could only be done effectively
pursuant to the change of our company name from DIDAX INC. to Crosswalk.com,
Inc. Crosswalk.com, as a brand, embodies two key aspects of the Company's vision
for the site. First, it represents a strong Web safety positioning and the
provision of safe passage in a dangerous area. Second, it speaks to our strategy
of "information for Christians, not just Christian information", which is a
unique position for Christian-based Web sites and one that provides resources
for the full spectrum of a Christian's daily walk.
We believe that solidifying our growing national recognition and position as the
leading Web portal for the online Christian community is critical to our ongoing
efforts to generate Web site traffic, membership and revenues. In 1999, we
accelerated our effort in this regard through aggressive media and public
relations campaigns. What proved to be most beneficial in this endeavor however,
has been the strength of our unique, value-added, market-driven content and
services within the crosswalk.com community. We have begun to apply cost
efficient "viral" marketing techniques to have our loyal members tell others
about crosswalk.com, through contests, promotions and fun activities. The
response to these efforts has been good and we intend to expand their
application throughout 2000. Many of these applications are internally developed
or managed, while a few are available via partnerships - often exclusive - with
other leading online content and service providers. All, however, stem from an
ongoing analysis of consumer needs, Web trends, and online business
opportunities. The dynamics of the Internet create an upward opportunity spiral
that converts unique applications into traffic and membership, and then converts
traffic and membership into a stream of new opportunities from external
organizations seeking a receptive audience.
Specifically, we engaged in various marketing efforts in 1999 to increase
awareness of and affinity for the crosswalk.com brand and to drive visits,
pageviews and members for the site and community. Most notable were strategies
to extend messaging beyond the traditional Christian media and into general
market programming with high appeal for the broad-based Christian consumer
marketplace. Examples include network television advertising on "Dateline"
(NBC), "Touched By An Angel" (CBS affiliates), and various programs on both the
CNN and the PAX networks. Radio initiatives included sponsorship positions on
"The Rush Limbaugh Show" and "The Dr. Laura Show", the top two rated radio
programs in the country, plus hundreds of markets on the leading Christian radio
networks. We also sponsored over 300 live Christian music events, supported key
content areas through targeted print publications, and invested in increasingly
efficient online advertising models, email newsletter growth, and viral Internet
marketing via contests and promotions.
With the depth of content and services we offer and the smart and cautious
investment in traffic and membership generating initiatives, we anticipate
growth in our position as a leading Web portal for the online Christian
community. With this position - and the ability to act as responsible advocate
for the largest Christian community on the Web - in place, we expect that this
growth in traffic will generate revenues.
COMPETITION
We face intense competition in the markets for our products and services. We
generate revenue from the sale of sponsorship and advertising space on our Web
site; the online retailing of Christian and family-friendly products and
services (including commissions and referral fees from co-marketing
relationships and affinity marketing programs); and, to an increasingly lesser
extent, Web site development and technology consulting services to various
organizations. For our retails sales commissions and fees, we compete with
traditional buying services, stores and other Web sites where the products and
services we feature are available. To sell sponsorships and advertising space on
our Web site, we compete with all other mediums of advertising such as print and
direct mail, radio and television, as well as the hundreds of thousands of Web
sites.
For example, the largest providers of online navigation, information,
entertainment, business and community services, such as Yahoo!, Lycos,
AltaVista, Microsoft, Netscape and America Online, provide
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Internet products and services that target a wide range of audiences and
communities which may also appeal to our Christian and family-friendly audience.
Likewise, we face competition from companies providing similar services to other
vertical markets or targeted audiences which overlap with the interests of our
audience.
One thing that we witnessed in 1999 is the validation of the significance of
this space on the Internet for serving the Christian niche. There are several
companies, including nonprofit organizations, which are attempting or may
attempt to aggregate Christian or family-friendly content on the Internet. These
competitors include iChristian.com, a Web site offering products and services
geared to the Christian marketplace; OnePlace.com, a retail shopping Web site
and ICRN (Involved Christian Radio Network), focusing on broadcast owned by
Salem Communications; Gospel Communications Network, a not for profit Web site
operated by a division of Gospel Films; Lightsource Online, and Musicforce.com,
Web sites operated by Gaylord Entertainment, which offer broadcast services and
the sale of music, respectively; Christian Answers.Net, a Web site operated by
Eden Communications, supported entirely by donations, including an area of
interest to young Christians and movie reviews; and recently, iBelieve.com, a
Web application of bricks and mortar retailer Family Christian Stores.
As we introduce new services, we may compete directly with a greater number of
companies. Such companies may already maintain or may introduce Web sites, which
compete with us. There can be no assurance that we can continue to compete
successfully against current or future competitors, nor can there be any
assurance that competitive pressures we face will not result in increased
marketing costs, decreased Internet traffic or loss of market share or otherwise
will not materially adversely affect our business, results of operations and
financial condition.
We believe that the principal competitive factors affecting the market for
Internet-based marketing services are the speed and quality of service
execution; the size and effectiveness and quality of products and services of
the participating manufacturers, producers and distributors; competitive
pricing; successful marketing and establishment of national brand name
recognition; positioning itself as a leading Internet-based marketing service;
the volume and quality of traffic to and purchase requests from a Web site; and
the ability to introduce new services in a timely and cost-effective manner.
Although we believe that we currently compete favorably with respect to such
factors, there can be no assurance that we will be able to compete successfully
against current or future competitors with respect to any of these factors.
Also, many of these competitors have longer operating histories, greater name
recognition and significantly greater financial and other resources than
Crosswalk. Moreover, there are no substantial barriers to entry in our markets,
and we expect this competition to continue to intensify, especially as we expand
our own product and service offerings. For instance, the presence of these
competitors in the Internet marketplace could cause us to increase and/or become
more efficient in spending on marketing, sales and product development.
OPERATIONS AND TECHNOLOGY
We believe that our future success is dependent on our ability to improve
continuously the speed and reliability of crosswalk.com, enhance communications
functionality with our consumers and maintain the highest level of information
privacy and transaction security. Continuous system enhancements are primarily
intended to accommodate increased traffic across crosswalk.com, improve the
speed with which purchase requests are processed and heighten Web site security,
which will be increasingly important as we offer new services. System
enhancements entail the implementation of sophisticated new technology and
system processes and there can be no assurance that such continuous enhancements
may not result in unanticipated system disruptions, such as power loss and
telecommunications failures. Our primary servers are located offsite and are
maintained by GTE, UUNet and Exodus Communication. In addition we maintain
certain servers at our corporate headquarters in Chantilly, Virginia. Our
servers are vulnerable to interruption by damage from fire, hurricane, power
loss, telecommunications failure and other events beyond our control. We believe
we have developed comprehensive out-of-state disaster recovery plans to
safeguard consumer information. We also maintain business interruption insurance
for the actual loss of business income sustained due to the suspension of our
operations over a twelve-month period as a result of
<PAGE> 10
direct physical loss of or damage to property at our executive offices. However,
in the event of a prolonged interruption, it is probable that this business
interruption insurance will not be sufficient to fully compensate Crosswalk. In
the event that we experience significant system disruptions, our business,
results of operations or financial condition could be materially adversely
affected.
Our services also may be vulnerable to break-ins and similar disruptive problems
caused by Internet users. Furthermore, weaknesses in the Internet may compromise
the security of confidential electronic information exchanged across the
Internet. This includes, but is not limited to, the security of the physical
network and security of the physical machines used for the information transfer.
Any such flaws in the Internet or the end-user environment, or weaknesses or
vulnerabilities in our services or the licensed technology incorporated in such
service, would jeopardize the confidential nature of information transmitted
over the Internet and could require us to expend significant financial and human
resources to protect against future breaches, if any, in order to alleviate or
mitigate problems caused by such security breaches. To the extent that our
activities, or that of third party contractors, involves the storage and
transmission of proprietary information (such as personal financial information
or credit card numbers), security breaches could expose us to a risk of
financial loss or litigation or other liabilities. Any such occurrence could
reduce consumer satisfaction in our services and could have a material adverse
effect on our business, results of operations or financial condition.
<PAGE> 11
TRADEMARKS AND PROPRIETARY RIGHTS
Our ability to compete is dependent in part upon our proprietary systems and
technology. While we rely on trademark, trade secret and copyright laws to
protect our proprietary rights, we believe that the technical and creative
skills of our personnel, continued development of our proprietary systems and
technology, brand name recognition and reliable Web site maintenance are more
essential in establishing and maintaining a leadership position. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our services or to obtain and use information that we regard as
proprietary. Policing unauthorized use of our proprietary rights is difficult.
In addition, litigation may be necessary in the future to enforce or protect our
intellectual property rights or to defend against claims of infringement or
invalidity. Misappropriation of our intellectual property or potential
litigation could have a material adverse effect on our business, results of
operations or financial condition.
We assert common law protection on certain names and marks that are used in
connection with our business. There can be no assurance that we will be able to
secure registration for any of our marks. We have also invested resources in
purchasing Internet domain names for existing and potential Internet sites from
the registered owners of such names. There is a substantial degree of
uncertainty concerning the application of federal trademark law to the
protection of Internet domain names, and there can be no assurance that we will
be entitled to use such domain names.
CHRISTIAN STATEMENT OF FAITH; THE COMPANY'S POLICY
Article XIII of our Bylaws provides that Crosswalk is a "religious
corporation." To this end and in order to best identify with and service its
selected Christian market niche and to generate its Internet product which is
heavily content laden, our policy is generally to include among our officers and
directors unconditionally, and employees, where a bona fide occupation
qualification exists, only persons who, upon request, subscribe to the Company's
Christian Statement of Faith as follows:
"1. We believe that there is one God, eternally existing in three persons:
the Father, the Son, and the Holy Spirit.
2. We believe that the Bible is God's written revelation to man and that
it is verbally inspired, authoritative, and without error in the
original manuscripts.
3. We believe in the deity of Jesus Christ, His virgin birth, sinless
life, miracles, death on the cross to provide for our redemption,
bodily resurrection and ascension into heaven, present ministry of
intercession for us, and His return to earth in power and glory.
4. We believe in the personality and deity of the Holy Spirit, that He
performs the miracle of the new birth in an unbeliever and indwells
believers, enabling them to live a godly life.
5. We believe that man was created in the image of God, but because of
sin, was alienated from God. That alienation can be removed only by
accepting through faith, God's gift of salvation which was made
possible by Christ's death."
In order to implement the Christian Statement of Faith, we intend
generally to act in accordance with the following policy, as stated in our
Bylaws:
"The Corporation shall:
1. Actively seek to market the services of the [C]orporation to those
persons, entities, and agencies which are actively involved in
propagating a pattern of beliefs and actions consistent with the tenets
of the Statement of Faith. Nothing herein shall be construed to
prohibit marketing such services to other persons, entities, or
agencies except as specifically set forth in the prohibitions or
corporate action set forth below.
2. To the extent permitted by law, expend from the revenues of the
[C]orporation such sums as are deemed prudent by the Board of Directors
to support, encourage, or sustain persons or entities which in the
judgment of the Board of Directors are expected to make significant
efforts to propagate the Gospel of Jesus Christ in any manner not in
conflict with the Statement of Faith. Such expenditures may be made
without regard to the tax status or nonprofit status of the recipient.
It is expected that the expenditures paid out under the provisions of
this paragraph shall
<PAGE> 12
approximate ten percent (10%) of the amount that would otherwise be the
net profits of the [C]orporation for the accounting period.
The Corporation shall not:
1. Take any position publicly or privately that denies or conflicts with
the tenets of the Statement of Faith.
2. Elect, qualify or permit to serve in office as a [d]irector or officer
to the [C]orporation any person who has not without reservation
subscribed to the Statement of Faith as being true, accurate and
correct or who having so subscribed has either publicly or privately
recanted from a particular of the Statement of Faith or who has
publicly made statements or taken actions without repentance which the
Board of Directors finds to be in clear conflict with the Statement of
Faith.
3. Hire or continue to employ any employee in any position in which, in
the sole discretion of the Corporation, subscription to the Statement
of Faith is a bona-fide occupational qualification reasonably necessary
to the normal operations of the Corporation's activities, where such
employee refuses, upon request, to subscribe to the Statement of Faith
or having so subscribed has either publicly or privately recanted from
any particular of the Statement of Faith or has publicly made
statements or taken actions without repentance which the Board of
Directors finds to be in clear conflict with the Statement of Faith.
Because the Scriptures teach that bad company corrupts good morals and
that a little leaven affects the whole lump, it is important to the
Corporation's purposes that it be protected from the influence of
persons not in agreement with the Statement of Faith at every level of
employment.
4. Permit any party to utilize the name, goodwill, trade marks, or trade
names of the [C]orporation in any course of action or dealings which
the [C]orporation itself is herein prohibited from taking."
"In addition to any other appropriate legend, prior to its issuance
each and every share certificate to be issued by this Corporation shall be
inscribed with a legend that states:
'This Corporation is a religious corporation. All shares of
this [C]orporation are subject to the terms as set forth in
the BYLAWS of the corporation which restricts the amendment or
deletion of that section of the BYLAWS which prescribes a
corporate Statement of Faith in the LORD JESUS CHRIST and
directs or prohibits certain corporate actions on the basis of
the Statement of Faith.'"
The Bylaws also state:
"No amendment to this Article XIII and no other superseding or
conflicting provision of these BYLAWS, the ARTICLES OF INCORPORATION,
or any shareholder agreement shall be adopted unless the result of the
count of votes approving the amendment is 90% affirmative without
dissension and a minimum of two-thirds of the shares outstanding are
represented and voting. Such vote must be made at an actual special
meeting of the shareholders called by written notice delivered to each
shareholder not less than 10 nor more than 60 days prior to the date of
the meeting. Time is of the essence as to this notice provision and no
extension of the time of the meeting or adjournment of the meeting to a
date outside the notice period shall be permitted except upon the
affirmative vote of not less than 70 percent of the shares then issued
and outstanding."
GOVERNMENT REGULATION
As we introduce new services, we may need to comply with additional licensing
regulations and regulatory requirements. Becoming licensed may be an expensive
and time-consuming process, which could divert the efforts of management. In the
event that we do not successfully become licensed under applicable state
<PAGE> 13
laws or otherwise comply with regulations necessitated by changes in current
regulations or the introduction of new services, our business, results of
operations or financial condition be materially adversely affected.
There are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, because of the increasingly popularity and
use of the Internet, it is likely that a number of laws and regulations may be
adopted at the local, state, national or international levels with respect to
commerce over the Internet, potentially covering issues such as pricing of
services and products, advertising, user privacy and expression, intellectual
property, information security, anti-competitive practices or the convergence of
traditional distribution channels with Internet commerce. In addition, tax
authorities in a number of states are currently reviewing the appropriate tax
treatment of companies engaged in Internet commerce. New state tax regulations
may subject us to additional state sales and income taxes. The adoption of any
such laws or regulations may decrease the growth of Internet usage or the
acceptance of Internet commerce which could, in turn, decrease the demand for
our services and increase our costs or otherwise have a material adverse effect
on our business, results of operations or financial condition.
ITEM 2. PROPERTIES
We currently maintain our executive offices in approximately 13,530 square feet
of space at 4100 Lafayette Center Dr. Suite 110, Chantilly, Virginia pursuant to
a five year lease agreement terminating in November 30, 2004 with an
unaffiliated third party at an annual rental of approximately $237,000. In
addition, we also lease office space from four separate unaffiliated third
parties in Charlotte, North Carolina; Costa Mesa, California; and Roanoke,
Virginia pursuant to one year leases, and Franklin, Tennessee pursuant to a
three year lease. The aggregate annual rent for these remote facilities is
approximately $67,000. In addition, we are currently attempting to sublet a
6,100 square foot facility in Chantilly, Virginia which we are leasing from an
unaffiliated third party through September 20, 2003 at an annual rent of
approximately $90,000.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None during the fourth quarter of the fiscal year ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of August 1999, Crosswalk.com, Inc.'s Common Stock is listed for trading on
the NASDAQ National Market under the symbol "AMEN." Prior to that our Common
Stock traded on NASDAQ SmallCap Stock Market(SM) ("Nasdaq SmallCap").
Crosswalk.com, Inc. Purchase Warrants had been listed for trading on Nasdaq
SmallCap through February 12, 1999, the date the Purchase Warrants were redeemed
by Crosswalk. See ITEM 6. "Management's Discussion and Analysis of Financial
Condition and Results of Operations- Liquidity and Capital Resource."
The following table sets forth the ranges of high and low sales prices of
Crosswalk Common Stock and Purchase Warrants for each quarter within the last
two fiscal years.
<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
January 1, 1998 through March 31, 1998:
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C>
AMEN $ 3.438 $ 1.875
AMENW $ .625 $ .125
April 1, 1998 through June 30, 1998:
AMEN $ 8.000 $ 3.250
AMENW $ 2.750 $ .375
July 1, 1998 through September 30, 1998:
AMEN $ 5.125 $ 1.875
AMENW $ 1.625 $ .500
October 1, 1998 through December 31, 1998:
AMEN $40.000 $ 2.000
AMENW $27.000 $ .375
January 1, 1999 through March 31, 1999:
AMEN $15.000 $ 7.375
AMENW* $ 9.250 $ 2.750
April 1, 1999 through June 30, 1999:
AMEN $23.000 $ 8.844
July 1, 1999 through September 30, 1999:
AMEN $13.500 $ 5.688
October 1, 1999 through December 31, 1999:
AMEN $10.500 $ 5.000
January 1, 2000 through March 10, 2000:
AMEN $ 7.813 $ 4.688
</TABLE>
* On January 6, 1999, pursuant to the terms and conditions of the Purchase
Warrant Agreement, we announced the redemption of our Purchase Warrants (AMENW).
The redemption notice and accompanying prospectus were mailed to the registered
holders of the Warrants by Wednesday January 13, 1999, and the redemption date
was Friday, February 12, 1999. The aggregate result of this call for redemption
was the exercise of 2,841,526 Purchase Warrants or 98.8% of the 2,875,000
Purchase Warrants outstanding which, along with the exercise of 361,500
Underwriter Warrants, raised $19,315,800 in capital.
At March 15, 2000 the closing price for Crosswalk Common Stock, as reported by
NASDAQ National Market, was $ 5.00 per share.
At March 15, 2000, the approximate number of holders of record of our Common
Stock was 5,500. A number of such holders of record are brokers and other
institutions holding shares of Common Stock in "street name" for more than one
beneficial owner.
In September 1999, we entered into a one-year Network Title Sponsorship
Agreement ("Agreement") with The Christian Network, Inc., which includes "Praise
on Pax" and "Worship on Pax." Under this Agreement, we are entitled to a
national title sponsorship on "Praise on Pax" telecasts and a national corporate
sponsorship on "Worship on Pax" telecasts. We also receive advertising and
promotional rights. The total cost for these sponsorship and advertising rights
is $1,025,000, payable by us quarterly in cash or, at our option, in shares of
our Common Stock having a fair market value equal to the required payment. We
are also obligated to issue additional shares of our common stock for each new
member generated for our Web site as a result of these sponsorship and
advertising arrangements, based on a valuation of $1.00 for each member
generated. In December 1999, we filed a registration statement on Form S-3 to
cover resales by the selling shareholders of shares of our Common Stock that we
may issue to the selling
<PAGE> 15
shareholders under the Agreement. The registration was declared effective by the
Securities and Exchange Commission. The Agreement is renewable for an additional
one-year term upon the agreement of the parties. If the agreement is renewed,
our payment obligations will increase to $1,127,500. In February 2000, 39,018
shares of Crosswalk Common Stock were issued for services rendered under this
Agreement. The sales of the securities described herein were made in reliance
upon Regulation D, Rule 506 and Section 4(2) of the Securities Act, which exempt
transactions not involving a public offering.
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
1999 (1) 1998 1997 (2) 1996 1995
----------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues $6,901.2 $1,083.3 $422.4 $180.8 $0.0
----------------------------------------------------------------------------------
Cost of goods and services 3,728.3 636.3 232.4 226.2 0.0
Crosswalk operations 4,795.0 1,529.7 959.6 800.4 173.0
Sales and marketing 6,693.7 1,242.8 837.2 901.6 140.3
General and administrative 2,979.0 1,353.7 877.7 654.9 396.2
----------------------------------------------------------------------------------
Operating loss (11,294.8) (3,679.2) (2,484.5) (2,402.3) (709.5)
----------------------------------------------------------------------------------
Other income (expense) 644.6 222.2 (1,786.7) (62.6) 4.4
Net loss ($10,650.3) ($3,457.1) ($4,271.2) ($2,464.9) ($705.1)
==================================================================================
Net loss per share (basic and diluted) (1.56) (0.98) (3.31) (4.47) (1.69)
Weighted average number of shares
outstanding (basic and diluted) 6,822.6 3,535.5 1,289.5 551.7 416.7
==================================================================================
BALANCE SHEET DATA:
Total assets 19,786.9 4,902.6 5,787.2 343.0 360.7
Working capital 5,093.1 3,293.2 5,334.3 (1,068.7) 160.4
Total stockholder's equity (deficit) 16,261.5 4,179.5 3,726.2 (2,658.1) (60.0)
</TABLE>
(1) Includes $16,338,776 cash infusion from the exercise of 2,841,526 Purchase
Warrants outstanding.
(2) Includes recognition of $1,700,000 of interest expense on the Company's
junior subordinated notes. These notes were repaid with the proceeds from
the Company's IPO during the fourth quarter of 1997.
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
Crosswalk.com, Inc. ("the Company") is primarily known as the creator of
crosswalk.com(TM), an interactive Web site, which provides information and
resources that the Company believes generally appeals to the Christian
community. The information and resources are developed and made available both
by the Company and by Christian and secular retailers, publishers, charities and
ministries. The Company generates revenues through the sale of sponsorships and
advertising (the "Advertising/sponsorship sales"); the online retailing of
Christian and family-friendly products manufactured or developed by others
(music, books, apparel, gifts, etc.) and referral fees from co-marketing
relationships ("Retail sales"); and to a lesser extent, the continuing provision
of Internet services, including services related to Web site development and
hosting to Christian organizations (the "Internet services").
The vast majority of the Company's revenue has been generated through the sale
of sponsorship and advertising opportunities on crosswalk.com, followed by
direct retail sales and royalties/fees from the sale of Christian interest
products manufactured or developed by others (primarily CDs, tapes, books, and
other articles generally appealing to the Christian marketplace). The Company's
strategy going forward is one of making crosswalk.com a community portal with
deep Channel content and a breadth of information for Christians, not just
Christian information. It is the Company's belief that this strategy, coupled
with cost-effective promotional activities, will accelerate traffic and thus
revenue growth over time. The Company plans to continue enhancing crosswalk.com
in order to maintain its leadership position as the preferred online resource
for Christians in search of information, interaction and involvement
opportunities that help them apply a Christian world view across the breadth of
their life and interests.
The Company's change in revenue composition over the years presented is evidence
that the Web site traffic generated at crosswalk.com is becoming of more value
to sponsors and advertisers. Sponsors are organizations which are given premiere
positioning for their content on various areas of Crosswalk.com and in effect
become a "sponsor" of those areas, a service for which Crosswalk.com receives a
fee. Advertisers are organizations who place ads on Crosswalk.com, for which
Crosswalk.com is paid a fee per ad impression delivered. Approximately 92% of
the Company's total 1999 revenue was generated from Advertising/sponsorship
sales as compared to 68% in 1998 and 4% in 1997. Retail sales, while decreasing
from 16% of revenue in 1997 and 12% in 1998 to 5% of revenue in 1999, increased
in volume by 155% or $343,447 in 1999 versus $134,446 in 1998. The Company's
continued emphasis on the higher margin Advertising/sponsorship sales has led to
a 14% decline from 1998 to 1999 in the labor-intensive revenue derived from
providing Internet services. Overall, the Company experienced a 537% increase in
revenue in 1999 as compared to 1998. However, up to this point, the Company has
generated most of its revenues from selling channel sponsorships, often on an
exclusive basis, and often to Christian organizations that also agreed to
provide content. This type of relationship requires certain labor-intensive
efforts on the part of the Company. The Company believes that, with the current
combination of extraordinarily deep content and achievement of the benchmark one
million membership status, it can shift emphasis to selling advertising, which
it believes will ultimately generate more revenue at lower cost.
The Company's progress in developing crosswalk.com is also evidenced by the
growth in membership and average monthly page views. Membership is free and
represents the number of registered users of the Company's content or services.
At December 31, 1999, the Company had 1,085,878 members as compared to 147,405
members at December 31, 1998, an annual growth rate of 636%. Page views are a
measure of total pages viewed by visitors to crosswalk.com in a month. Average
monthly page views tallied in the fourth quarter of 1999 reached approximately
16,300,000, up from 2,200,000 for the comparable fourth quarter a year earlier.
This represents an annual growth rate of 641%. The opportunity for the Company
to generate additional advertising and retail revenues is largely predicated
upon increasing membership and traffic in the form of page views on
crosswalk.com.
During 1999, the Company acquired Wike Associates, Inc., the parent company of
Media Management, a Christian publishing and direct mail company that is also
the owner and developer of GOSHEN.net, a Web site and email service that
primarily serves Christian leaders. The Company believes that the acquisition
adds unique content including what is generally recognized as the best Christian
Internet Directory available, to crosswalk.com along with access to churches and
opinion leaders within the Christian community.
<PAGE> 18
The content provided by crosswalk.com is presented in the form of different
online topical areas or channels, and multiple daily and weekly email
newsletters which allow for periodic content subscriptions and cost effective
promotion of site features and resources. In 1999, the Company increased its
channel offering from five to fourteen. Added to the Money, Music, Careers, Men
and Womens channels in 1999 were Bible Study Tools, Sports, Spiritual Life,
Homeschooling, Family, Health, Entertainment, Webcast Guide and News and Culture
areas.
The Company also expanded its online services significantly in 1999. The Money
Channel added strategic relationships that provided online banking, brokerage,
mortgage and insurance services within the contexts of both wealth creation and
financial stewardship. Accordingly, Online Investor magazine rated the Money
Channel one of the top ten financial sites on the Web. The Music Channel added
expanded audio streaming services and drew worldwide attention through exclusive
live broadcasts of the 30th Annual Dove Awards -- including live chats with
award-winning artists -- and the 25th Annual Christian Artists Seminar, which
featured a week of nightly concerts by noted Christian artists such as Amy
Grant, Michael W. Smith, Jars of Clay, Jaci Velasquez and Steven Curtis Chapman.
During the year, About.com recognized the Music Channel as the "#1 Christian
Music Web Site". The Careers Channel added job and resume posting, plus
personalized career counseling; the Spiritual Life Channel hosted the exclusive
broadcast and simultaneous chat for the internationally broadcast National
Broadcast Concert of Prayer; and the Homeschool Channel added the unique
"Curriculum Guide" service that lets the home schooling community shop online
for curriculum with the assistance of integrated product reviews from peer
families, making purchase decisions more relevant to each child's individual
needs and learning style. Additional sitewide service additions include:
"my.crosswalk.com" personalized Web start pages; online greeting cards; enhanced
Internet filtering for surfing and searching; and a broad-based strategy for
email newsletter publishing. The Company believes that these services increase
visits, pageviews and members for crosswalk.com by affording site visitors a
greater level of convenience and personalization.
The Company engaged in various marketing efforts in 1999 to increase awareness
of and affinity for the crosswalk.com brand and to drive visits, pageviews and
members for the site and community. Most notable were strategies to extend
messaging beyond the traditional Christian media and into general market
programming with high appeal for the broad-based Christian consumer marketplace.
Examples include network television advertising on "Dateline" (NBC), "Touched By
An Angel" (CBS affiliates), and various programs on both the CNN and the PAX
networks. Radio initiatives included sponsorship positions on "The Rush Limbaugh
Show" and "The Dr. Laura Show", the top two rated radio programs in the country,
plus hundreds of markets on the leading Christian radio networks. The Company
also sponsored over 300 live Christian music events, supported key content areas
through targeted print publications, and invested in increasingly efficient
online advertising models, email newsletter growth, and viral Internet marketing
via contests and promotions.
On the technology front, in the fourth quarter of 1999, the Company completed
its migration to an Oracle/Sun server architecture. Pursuant to the completion
of this task, the Company believes that it is well positioned to serve its
members and support continued growth in Web site traffic on crosswalk.com.
The Company has a limited operating history upon which an evaluation of the
Company and its business can be based. The Company's business must be considered
in light of the risks, expenses and problems frequently encountered by companies
in new and rapidly evolving markets, such as the Internet. The market for the
Company's services and products has only very recently begun to develop, is
rapidly evolving and is characterized by an increasing number of market entrants
who have introduced or developed services and products for use on the Internet.
As a result, the Company's mix of services and products may undergo substantial
changes as the Company reacts to competitive and other developments in the
overall Internet market. The Company has incurred net losses since inception and
expects to continue to operate at a loss until sufficient revenues are generated
to cover expenses. As of December 31, 1999, the Company had an accumulated
deficit of $22,044,497.
The Company's expense levels are based in part on possible future revenues, of
which there can be no assurance. The Company's ability to generate revenue from
the commercial sale of advertising space on crosswalk.com is tied to its ability
to generate traffic on the Web site, and the effectiveness of its sale staff.
The Company plans to significantly increase its sales efforts, however a
shortfall in revenues without commensurate reductions in cost, could have an
<PAGE> 19
immediate adverse impact on the Company's business, results of operations and
financial condition. The Company expects to experience significant fluctuations
in future quarterly operating results and believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance.
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
NET LOSS
For 1999, the Company reported a net loss of $10,650,282, or a loss of $1.56 per
diluted common share, compared to a net loss of $3,457,064, or a loss of $0.98
per diluted common share in 1998. In 1997, the Company reported a net loss of
$4,271,249, or a loss of $3.31 per diluted common share. The increase in loss in
1999 of $7,193,218 (108%) over 1998, was due primarily to an increase in
expenditures, the details of which follow, offset to an extent by an increase in
gross margin and other income. The increased loss consisted of a $13,433,491
(282%) increase in Operating expenses for 1999, ($18,196,028) as compared to
($4,762,537) in 1998, offset to an extent by a $2,725,959 (610%) increase in
gross margin and a $422,385 (190%) increase in Other income. Other income
increased primarily as a result of a $442,839 (198%) increase in interest income
resulting from the investment of funds generated from the redemption of Purchase
Warrants and exercise of Underwriter Warrants issued in the Company's initial
public offering. In 1997, Other expense was $1,786,746 as it included interest
expense of $1,700,000 associated with the repayment of a bridge loan in the
fourth quarter of 1997.
OPERATING REVENUES
Revenue for 1999 was $6,901,181 compared to $1,083,294 in 1998 and $422,368 in
1997. The 1999 performance represents a 537% revenue growth over 1998. Revenue
generated from Advertising/sponsorship sales in 1999, 1998 and 1997 was
$6,376,611, $737,676 and $16,876 respectively. Revenue generated from Retail
sales was $343,447 in 1999, $134,446 in 1998 and $66,410 in 1997. Internet
services revenue has gradually reduced per the business plan to $181,123 in 1999
from $211,172 in 1998 and $339,082 in 1997.
Barter agreements which allow for the exchange of goods and services such as
advertising, marketing, and content services, amounted to 42% percent of the
revenue generated in 1999 versus 52% of revenues in 1998 and none in 1997.
Therefore, cash revenue in 1999 was $4,025,000 versus $520,000 in 1998, a growth
of 674%. The Company enters into barter transactions only when it believes that
the services, products and sponsorship received enhance the Company's brand
recognition and market share in a manner which the Company may not have been
able to acquire through other marketing or purchasing channels without incurring
expense greater than the value of the barter received.
Recognizing that there is diversity of practice within the Internet industry in
recognizing revenue and associated cost on initial content integration and/or
development fees, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" in
December 1999 (SAB 101). Prior to the issuance of SAB 101, the Company had been
recording revenue for the content integration or development fee portion of
sponsorships of its Web site upon completion of work scope related to the
contract implementation. Pursuant to SAB 101, effective January 1, 2000, the
Company has elected to change its revenue recognition on these content
integration or development fees to a more preferable method whereby revenue will
be recognized ratably over the term of the contract. The cumulative effect of
this change is to increase the accumulated deficit by approximately $1.4 million
at January 1, 2000. Had the change been made at January 1, 1999, revenues for
the year ended December 31, 1999 would have been reduced by approximately $2.2
million and the net loss of the Company for the year ended December 31, 1999
would have been increased by $1.4 million or ($0.20) per share.
COST OF GOODS AND SERVICES
Cost of goods and services, consisting of costs related to selling advertising
space on and sponsorships of crosswalk.com; retailing Christian interest
products on crosswalk.com; and development, maintenance, and support
<PAGE> 20
of customer websites; was $3,728,276, $636,348 and $232,363 for the years ended
December 31, 1999, 1998 and 1997, respectively. The Company's gross margin for
1999 increased to 46% from 41% in 1998 and 44% in 1997. This increase is due
primarily to the decrease in barter transactions.
CROSSWALK OPERATIONS
Crosswalk.com operational expenses, consisting primarily of costs related to the
Company's development, maintenance, and enhancements of crosswalk.com, increased
to $4,795,061 in 1999 as compared to $1,529,665 and $959,619 in 1998 and 1997,
respectively. The increase from 1998 to 1999 of 214% ($3,265,396) is mostly due
to increased headcount related to the growth in crosswalk.com. Staffing and
associated costs accounted for ($1,835,794 or 56%) of this year to year
increase. Consulting expenses related to database and server migration and other
developmental needs attributed to ($272,970 or 8%) of this year to year
increase. The Company has expanded its consulting and development staff in order
to provide continuous improvements to crosswalk.com's products and services. The
next largest increase in costs ($395,771 or 12%) was due to the increase in
content expenses as the Company now purchases a larger amount of content from a
wider variety of sources and on many more topics due to the increased number of
channels and the depth of those channels. Depreciation expense grew by $313,860,
which represents 10% of this increase. This was primarily due to capital
acquisitions underlying the Company's migration to an Oracla/Sun server
architecture. Finally, with the increase in capacity and headcount and
associated software needs, licensing and maintenance fees made up ($148,504 or
5%) of this overall increase.
SALES AND MARKETING
Sales and marketing expenses increased in 1999 from 1998 by 438% ($5,450,893) to
$6,693,729, up from $1,242,836 in 1998 and $837,171 in 1997. Sales and marketing
expenses increased almost entirely due to the Company's investment in
cross-media marketing and branding advertising campaigns to promote
crosswalk.com which did not commence until the fourth quarter of 1998. Sales and
marketing expenses for the year ended December 31, 1997 included a one time
non-cash expense item of $200,000 relating to the donation by the Company of its
common stock to one of the Company's ministry partners.
GENERAL AND ADMINISTRATIVE
General & administrative (G&A) expenses in 1999 were $2,978,962, an increase of
120% ($1,625,274) over $1,353,688 in 1998 and $877,718 in 1997. The increase in
G&A expense between 1998 and 1999 is largely due to recognition of amortization
of intangible assets of $455,334 which comprised 28% of the increase, and
$444,100 of bad debt expense which accounts for 27% of the increase. Increases
in investor relations expenditure of ($230,557 or 14% of the increase),
increased legal and accounting expenditures ($92,646 or 6%), increased facility
related expenses of ($114,645 or 7%), and increased staffing and associated
costs of ($132,267 or 8%), offset to an extent by a reduction in consulting
expenses of $106,065, round out the material changes in G&A expenses necessary
to support the operations of the Company.
OTHER INCOME
Interest income in 1999 was $666,965 versus $224,126 and $90,795 in 1997. The
increase of 206% in 1999 over 1998 is due primarily to the investment of the
proceeds from the redemption of warrants issued as part of the Company's initial
public offering. The Company recorded a loss on disposal of software assets of
$22,254 in 1999.
Interest expense was $146 in 1999, $1,947 in 1998 and $1,877,541 in 1997. The
1997 expense was due primarily to the recognition of $1,700,000 of interest
expense on the Company's junior subordinated notes in 1997. These notes were
repaid with the proceeds from the Company's IPO during the fourth quarter of
1997.
RESULTS OF OPERATIONS
1998 COMPARED TO 1997
NET LOSS
<PAGE> 21
For the year ended December 31, 1998, the Company incurred a net loss of
$3,457,064 as compared to a net loss of $4,271,249 for the same period in 1997.
This reduced loss of $814,185 (19%) was due primarily to an increase in revenues
and other income, the details of which follow, offset to an extent by an
increase in product costs and expenditures. The reduced loss consisted of a
$256,941 (135%) increase in gross margin and a $2,008,925 (112%) increase in
Other income for the year ended December 31, 1998 as compared to the year ended
December 31, 1997, offset to an extent by a $1,451,681 (54%) increase in
Operating expenses. Other income increased as a result of a $133,331 (146%)
increase in interest income and a $1,875,594 (100%) decrease in interest expense
as 1997 included interest expense of $1,700,000 associated with the repayment of
a bridge loan in the fourth quarter of 1997.
OPERATING REVENUES
The Company generated $660,926 or 156% more revenue in the year ended December
31, 1998 than in the same period in 1997. The $1,083,294 of revenue earned in
1998 consisted of $737,676 from Advertising/sponsorship sales, $134,446 from
Retail sales, and $211,172 from Internet services, while the $422,368 of revenue
earned in 1997 consisted of $16,876 from Advertising/sponsorship sales, $66,410
from Retail sales, and $339,082 from Internet services. The year on year change
in revenue mix is a 4,271% ($720,800) increase in Advertising/sponsorship sales,
a 102% ($68,036) increase in Retail sales, a 38% ($127,910) decrease in Internet
services revenue. Barter agreements which allowed for equal exchanges of goods
and services such as advertising, marketing, and content services on the
Company's and the customer's Internet websites, amounted to fifty-two percent of
the revenue earned in 1998. Advertising/sponsorship sales increased because of
the Company's focus on the sponsorship business model during 1998. Retail sales
increased in 1998 due to increased marketing efforts and product offerings. The
decrease in Internet service revenue was due to the Company's transition from
being a web consulting services provider to being a community builder, as
previously described.
COST OF GOODS AND SERVICES
Cost of goods and services, consisting of costs related to selling advertising
space on and sponsorships of crosswalk.com; retailing Christian interest
products on crosswalk.com; and development, maintenance, and support of customer
websites; was $636,348 and $232,363 for the years ended December 31, 1998 and
1997, respectively. The Company's gross margin for the year ended December 31,
1998 decreased slightly to 41% from 44% for the same period in 1997. This
decrease is due primarily to the increase in barter transactions, which
accounted for fifty-two percent of revenues in 1998.
CROSSWALK OPERATIONS
Crosswalk operations, which consisted primarly of costs related to the Company's
maintenance and enhancements for the Company's intractive Web site
crosswalk.com, and labor and material costs associated with the development of
new products and services, increased to $1,529,665 for the year ended December
31, 1998, as compared to $959,619 for the same period in 1997. The majority of
this increase ($615,667 or 64%) is due to the Company's shift from being a
consulting services company to being a consumer focused community portal. A
smaller portion of salary expense was charged to cost of sales in 1998 due to
the decrease in consulting service revenues. In addition, there was an across
the board wage increase in September 1997 and a larger staff in Crosswalk
operations in 1998 as compared to 1997. There were also increases in consulting
services, content, and travel expenses which directly resulted from the
expansion of services provided via crosswalk.com.
SALES AND MARKETING
Sales and marketing expenses increased by 48% ($405,665) to $1,242,836 for the
year ended December 31, 1998, from $837,171 for the year ended December 31,
1997. Sales and marketing expenses for the year ended December 31, 1997 included
a one time non-cash expense item of $200,000 relating to the donation by the
Company of its Common Stock to one of the Company's ministry partners. Without
taking into account this one time non-cash expense item, sales and marketing
expenses increased for the year ended December 31, 1998 by $605,665, or (95%)
over 1997. This increase is a result of the Company's initiation of a
cross-media marketing campaign to promote the re-branded crosswalk.com. This
increased investment consisted of costs mostly related to advertising and
promotion
<PAGE> 22
in 150 Christian radio markets, online links from search engines, and ads in
Christian periodicals. In addition, the Company expanded its sales and marketing
staff in the first half of 1998. Finally, there was an across the board wage
increase in the end of 1997, subsequent to the Company's initial public offering
("IPO").
GENERAL AND ADMINISTRATIVE
The Company increased its general & administrative (G&A) costs by 54% or
$475,970 for the year ended December 31, 1998 versus 1997 largely in response to
the requirements of being a publicly held firm including extensive investor
relations activity aimed at increasing trading volume and Company awareness. In
order to address the Company's requirement to improve the operational processes
necessary to support crosswalk.com growth, the Company invested approximately
$76,000 in management consulting services. In addition, the Company utilized the
consulting services of the members of the former board of gofishnet to
facilitate the Company's transition into the Internet music niche. Salary
expenses increased in 1998 due to executive appointments and severance costs and
the discontinuance of salary abatements at the end of 1997. Lastly, the Company
had increases in office operating costs due to increases in headcount, satellite
locations, and bandwidth required to support traffic growth on crosswalk.com.
OTHER INCOME
Interest income increased 139% to $224,126 from $90,795 for the years ended
December 31, 1998 and 1997, respectively. This $133,331 increase is mostly due
to the investment of the proceeds from the Company's IPO.
Interest expense was $1,947 and $1,877,541 for the years ended December 31, 1998
and 1997, respectively. The $1,875,594 (99.9%) decrease in interest expense is
due primarily to the recognition of $1,700,000 of interest expense on the
Company's junior subordinated notes in 1997. These notes were repaid with the
proceeds from the Company's IPO during the fourth quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the years ended December 31, 1999, 1998, and 1997, net cash used in
operating activities was $8,766,112, $3,185,591 and $2,315,966, respectively.
Net cash used in investment activities was $10,421,778, $1,262,782, and $42,108
in the years ended December 31, 1999, 1998 and 1997, respectively. The increase
in 1999 is as a result of acquisitions, the purchase of technology tools
necessary to support the traffic growth on crosswalk.com, and investing cash
assets from the redemption of warrants issued as part of the Company's initial
public offering. Net cash provided by financing activities was $17,781,933,
$2,051,707 and $7,750,729 for the years ended December 31, 1999, 1998 and 1997,
respectively. The 1999 cash flow from financing activities consisted of the
receipt of $17,781,933 from the exercise of 2,528,451 Common Stock Purchase
Warrants, 317,500 Common Stock Underwriter Warrants and 190,870 vested stock
options. In 1998, cash flow from financing activities consists of the receipt of
$2,163,182 from the exercise of 44,000 Common Stock Underwriter Warrants and
313,075 Common Stock Purchase Warrants.
Cash used in financing activities in 1998 consisted of the repayment of $82,230
of long term debt and the incurrance of $31,370 of syndication costs related to
the Companys' IPO and registering the shares underlying the Company's 1997 Stock
Option Plan.
The Company currently anticipates that its $5,093,108 working capital balance at
December 31, 1999, consisting primarily of the proceeds from the exercise of the
Common Stock Purchase Warrants and the Common Stock Underwriter Warrants, as
previously described, and the remaining proceeds from the Company's initial
public offering after the debt liquidation and liquidation of accrued offering
costs, will be sufficient to meet the Company's anticipated working capital,
lease commitments, and capital expenditure requirements for the next twelve
months. However, the Company may seek to raise additional funds in order to
expand its marketing campaign and crosswalk.com Channel deployment, and to
pursue potential leveraged joint marketing opportunities, or in the event that
the Company's estimates of operating losses and capital requirements change or
prove inaccurate or in order that the Company may respond to increased demand or
to take advantage of other unanticipated opportunities. There can
<PAGE> 23
be no assurance that current working capital will be sufficient to meet the
Company's needs or that additional financing will be available to the Company or
that such financing will be available on acceptable terms.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
As a result of the Company's limited operating history and the rapid
technological change experienced in the Internet industry generally, the Company
has limited historical financial data upon which to base future operating
expenses. Accordingly, the Company's expense levels are based in part on its
expectations as to future revenues, of which there can be no assurance. There
can be no assurance that the Company will be able to accurately predict the
levels of future revenues, if any, and the failure to do so would have a
materially adverse effect on the Company's business, results of operations and
financial condition.
The Company expects to experience significant fluctuations in future quarterly
operating results that may be caused by multiple factors. Causes of such
significant fluctuations may include, among other factors, demand for the
Company's services, the number, timing and significance of new service
announcements by the Company and its competitors, acceptance of its marketing
initiatives, the ability of the Company to develop, market and introduce new and
enhanced versions of its services on a timely basis, the level of product and
price competition, changes in operating expenses, changes in service mix,
changes in the Company's sales incentive strategy, and general economic factors.
The Company's operating expense levels are based, in significant part, on the
Company's expectations of future revenue on a quarterly basis. If actual revenue
levels on a quarterly basis are below management's expectations, both gross
margins and results of operations are likely to be adversely affected because a
relatively small amount of the Company's costs and expenses varies with its
revenue in the short term.
YEAR 2000 COMPLIANCE STATUS
Many existing computer programs use only two digits to identify a year in the
date field. These programs, which were developed without considering the impact
of the upcoming change in the century, could fail or create erroneous results by
or at the year 2000. The Company has reviewed its internal programs, and has
determined to the best of its knowledge, that there are no material year 2000
issues within the Company's current systems or services. All hardware and
software currently in use by the Company has been year 2000 certified by the
manufacturer. The Company is acting on replies from its customers, vendors and
financial service providers to limit the extent of any risk of year 2000 issues
with all such organizations which the Company deems to be critical having
favorably responded. As of the date herein, no material year 2000 issues have
been identified, however, the Company cannot be certain that its customers,
vendors or financial services providers will not have year 2000 issues. Should
the issues as noted above, or any other year 2000 related issues that are
currently unknown to the Company occur, they could have a material adverse
effect on the Company's business, operating results and financial condition.
FORWARD LOOKING STATEMENTS
Certain information in this quarterly report on Form 10-KSB may contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact are forward-looking statements for purposes of these provisions,
including any projections of earnings, revenues or other financial items, any
statements of the plans and objectives of management for future operations, any
statements concerning proposed new products or services, any statements
regarding future economic conditions or performance, and any statement of
assumptions underlying any of the foregoing. In some cases, forward-looking
statements can be identified by the use of terminology such as "may," "expects,"
"believes," "plans," "anticipates," "estimates," "potential," or "continue," or
the negative thereof or other comparable terminology. Although the Company
believes that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the Company's
forward-looking statements.
OUTLOOK AND UNCERTAINTIES
<PAGE> 24
The Company's future financial condition and results are subject to substantial
risks and uncertainties, some of which are summarized in this section.
WE HAVE A LIMITED OPERATING HISTORY AND ARE SUBJECT TO THE RISKS ENCOUNTERED BY
DEVELOPING COMPANIES
Although we were founded in 1993, we did not start generating revenue until
1996. Accordingly, we have a limited operating history and little operating and
financial data upon which you may evaluate us. Accordingly, our business is
subject to the risks, expenses and difficulties frequently encountered by
companies with a limited operating history including:
- - Limited ability to respond to competitive developments;
- - Rapid technological changes and increased competition could adversely
affect market acceptance of our services;
- - Exaggerated effect of unfavorable changes in general economic and market
conditions;
- - Ability to develop or fully utilize relationships with strategic partners;
- - Ability to identify, attract, retain and motivate qualified personnel;
- - Ability to develop and extend the Crosswalk brand; and
- - Ability to develop and introduce new product and service offerings.
There is no assurance we will be successful in addressing these risks. If we are
unable to successfully address these risks, our business could be significantly
affected.
THE EXPECTED FLUCTUATIONS OF OUR QUARTERLY RESULTS COULD CAUSE OUR STOCK PRICE
TO FLUCTUATE OR DECLINE
We expect to experience significant fluctuations in future quarterly operating
results that may be caused by multiple factors, many of which are not within our
control, including the following:
- the level of usage of the Internet;
- the demand for Internet advertising and our products and services;
- the level of user traffic on our online services;
- the number, timing and significance of new service announcements by us
and our competitors;
- the acceptance of our marketing initiatives;
- our ability to develop, market and introduce new and enhanced versions
of our services on a timely basis;
- the level of product and price competition;
- pricing changes for Internet-based advertising;
- changes in our operating expenses, service mix, or sales incentive
strategy; and
- changes in general economic factors or conditions specific to the
Internet industry.
Our operating expense levels are based, in significant part, on management's
expectations of future quarterly revenue. If actual revenue levels on a
quarterly basis are below management's expectations, both gross margins and
results of operations are likely to be adversely affected because a relatively
small amount of our costs and expenses varies with revenue in the short term. As
a result, if our revenues are lower than we expect, our quarterly operating
results may not meet the expectations of public market analysts or investors,
which could cause the market price of our common stock to decline.
COMPETITION IN OUR INDUSTRY IS HIGHLY COMPETITIVE AND COULD REDUCE OR ELIMINATE
THE DEMAND FOR OUR SERVICES
<PAGE> 25
We face intense competition in the markets for our products and services. We
generate revenue from the sale of sponsorship and advertising space on our Web
site; the online retailing of Christian and family-friendly products and
services (including commissions and referral fees from co-marketing
relationships and affinity marketing programs); and, to an increasingly lesser
extent, Web site development and technology consulting services to various
organizations. For our retails sales commissions and fees, we compete with
traditional buying services, stores and other Web sites where the products and
services we feature are available. To sell sponsorships and advertising space on
our Web site, we compete with all other mediums of advertising such as print and
direct mail, radio and television, as well as the hundreds of thousands of Web
sites.
For example, the largest providers of online navigation, information,
entertainment, business and community services, such as Yahoo!, Lycos,
AltaVista, Microsoft, Netscape and America Online, provide Internet products and
services that target a wide range of audiences and communities which may also
appeal to our Christian and family-friendly audience. Likewise, we face
competition from companies providing similar services to other vertical markets
or targeted audiences which overlap with the interests of our audience. There
are also several other companies, including nonprofit organizations, which are
attempting or may attempt to aggregate Christian or family-friendly content on
the Internet. These competitors include iChristian.com, a Web site offering
products and services geared to the Christian marketplace; OnePlace.com, and
ICRN which was recently acquired by Salem Communications; Gospel Communications
Network, a Web site operated by a division of Gospel Films; Lightsource Online,
a Web site operated by KMA Gaylord Entertainment; and Christian Answers.Net, a
Web site operated by Eden Communications.
Many of these competitors have longer operating histories, greater name
recognition and significantly greater financial and other resources than
Crosswalk. Moreover, there are no substantial barriers to entry in our markets,
and we expect this competition to continue to intensify, especially as we expand
our own product and service offerings. For instance, the presence of these
competitors in the Internet marketplace could cause us to increase our spending
on marketing, sales and product development.
There can be no assurance that we will ever be positioned to compete
successfully with our current or future competitors nor can there be any
assurance that the competitive pressures we face will not result in increased
marketing costs, decreased Internet traffic or loss of market share or otherwise
will not materially adversely affect our business, results of operations and
financial condition.
WE COMPETE IN A MARKET SUBJECT TO RAPID TECHNOLOGICAL CHANGES AND MUST CONTINUE
TO ENHANCE OUR PRODUCTS AND SERVICES TO COMPETE EFFECTIVELY
The market in which we compete is characterized by rapidly changing technology,
evolving industry standards, frequent new service and product announcements,
introductions and enhancements and changing customer demands. For example, to
the extent that higher bandwidth Internet access becomes more available, we may
be required to make significant changes to the design and content of our
products and services. In addition, the ever changing nature of the Internet and
the continual increase in the number of companies from a multitude of industries
offering Internet-based products and services indicate that our future success
will depend in significant part on our ability to adapt to rapidly changing
technologies, the ability to adapt our services and products to evolving
industry standards, and to continually improve the performance, features and
reliability of our services and products in response to both evolving demands of
the marketplace and competitive service and product offerings.
For example, we must continue to enhance and improve the content, features and
functionality of our Web site. There is no assurance that we will be able to
successfully identify new product and service opportunities or successfully
design, develop, test and introduce new services and products in a timely
manner. Furthermore, even if we are able to successfully identify, develop and
introduce new products and service, there is no assurance that a market for
these products and services will materialize to the size and extent that we
anticipate. If a market does not materialize as we anticipate, our business,
operating results, and financial condition could be materially adversely
affected. The following factors could affect the success of our products and
services:
<PAGE> 26
- - The failure of our business plan to accurately predict the rate at which
the market for Internet products and services will grow;
- - The failure of our business plan to accurately predict the types of
products and services the future Internet marketplace will demand;
- - Our limited experience in marketing our products and services;
- - The failure of our business plan to accurately predict our future
participation in the Internet marketplace;
- - The failure of our business plan to accurately predict the estimated sales
cycle, price, and acceptance of our products and services;
- - The development by others of products and services that render our products
and services noncompetitive or obsolete; and
- - Our failure to keep pace with the rapidly changing technology, evolving
industry standards, and frequent new product and service introductions that
characterize the Internet marketplace.
OUR REVENUE MODEL DEPENDS ON THE ADOPTION AND EFFECTIVENESS OF THE INTERNET AS
AN ADVERTISING MEDIUM AND OUR ABILITY TO ATTRACT AND EXPAND OUR USER AND
ADVERTISER BASE
We currently derive and expect to continue deriving a significant portion of our
revenues from advertisements and sponsorships on our Web site. Accordingly, our
future success is highly dependent on the acceptance and growth of the Internet
as an advertising medium and our ability to attract and expand our user and
advertiser base. Our ability to sustain and increase our current level of
advertising revenues depends, in part, on our ability to hire, retain, manage,
train and motivate our internal sales force. If a significant portion of our
sales force leaves, we may not be able to compete effectively for or retain
current and potential advertisers.
In addition, for the adoption of the Internet as an advertising mechanism to
increase, particularly to those companies that have historically relied upon
other forms of media, companies must be convinced that advertising or promoting
their products or services on the Internet is more effective than other forms of
media. Most of our current and potential advertising customers, however, do not
have a long history of using the Internet as an advertising medium and continue
to allocate only a limited portion of their advertising budgets to Internet
advertising. Moreover, because the Internet advertising market is new and
rapidly evolving, there are no widely accepted standards or measurements for
gauging its effectiveness. As a result, our advertisers may challenge or refuse
to accept our internal or third-party measurements of advertisement delivery,
and such measurements may contain errors. If advertisers determine that banner
advertisements, or other forms of Internet advertising, are not an effective
advertising medium, then we may not be able to increase or sustain our current
advertising revenues. Likewise, since companies advertising on the Internet
typically prefer to advertise on high-traffic sites, our ability to increase our
advertising revenue will depend in large part on our ability to attract more
users to our Web site.
The intense competition we face in the sale of advertising has resulted and will
continue to result in a wide range of rates quoted by different vendors for a
variety of products and services. This, combined with a limitation on the type
and content of advertising acceptable to management for use on crosswalk.com,
makes it very difficult to project our future levels of Internet advertising
revenue.
WE MUST CONTINUE TO DEVELOP AND INCREASE AWARENESS OF A "BRAND IDENTITY" IN
ORDER TO ATTRACT AND EXPAND OUR USER AND ADVERTISER BASE
With the growing number of Internet sites and low barriers to entry in our
industry, we believe that developing and maintaining the "crosswalk.com" brand
is critically important to our future success in attracting and expanding our
audience and advertiser base. Promotion and enhancement of our brand will depend
in large part on our ability to continue product high-quality products and
services to the users of our Web site. We may also find it necessary to
<PAGE> 27
substantially increase our expenditures for creating and maintaining a distinct
brand loyalty among Internet users. In addition, if there is a breach (or
alleged breach) of our security or the privacy of our users, or if any third
party undertakes illegal or harmful activity that affects our services or users,
we could suffer substantial adverse publicity which may harm our brand
reputation. Therefore, if we (1) cannot provide high quality online products and
services, (2) introduce new online products and services that are not favorably
received by users, (3) fail to adequately promote and maintain our brands, (4)
incur excessive expenses in attempting to enhance our brand images or promote
our products and services, or (5) are subject to unfavorable publicity due to
breaches of our security systems, our business, results of operations and
financial condition could be materially effected.
WE MAY NOT BE ABLE TO SECURE FUNDING IN THE FUTURE TO OPERATE OUR BUSINESS
We require substantial working capital to fund our business. We have had
significant operating losses and negative cash flow from operations since
inception and expect this to continue for the foreseeable future. Although we
believe that our present cash and cash equivalents, working capital and
commitments for additional equity investments will be adequate to sustain our
current level of operations throughout 2000, we may need to raise additional
funds to expand our marketing initiatives and to accelerate the growth of the
business. We may also need to raise additional funds sooner in order to fund
more rapid expansion, to develop new or enhanced services or products, to
respond to competitive pressures or to acquire complementary products,
businesses or technologies. In addition, we may discover that we have
underestimated our working capital needs, and we may need to obtain additional
funds to sustain our operations. If additional funds are raised through the
issuance of equity or convertible debt securities, the percentage ownership of
the our shareholders will be reduced and such securities may have rights,
preferences or privileges senior to those of our existing shareholders. There
can be no assurance that additional financing will be available on favorable
terms, or at all. If adequate funds are not available or are not available on
acceptable terms, we may not be able to fund growth, take advantage of
acquisition opportunities, develop or enhance services or products or respond to
competitive pressures. Such inability could have a material adverse effect on
our business, results of operations and financial condition.
COMPUTER SYSTEMS AND SOFTWARE ARE CRITICAL TO OUR OPERATION AND ANY SIGNIFICANT
DISRUPTION WOULD ADVERSELY AFFECT OUR BUSINESS
A key element of our strategy is to generate a high volume of traffic on our Web
site. Accordingly, the performance of our services and products is critical to
our reputation, our ability to attract customers to crosswalk.com and market
acceptance of these services and products. Any system failure, including
network, software or hardware failure, that causes interruptions in the
availability or increased response time of our services would reduce traffic to
crosswalk.com and, if sustained or repeated, would reduce the attractiveness of
our services to advertisers and other future potential customers or Internet
users. An increase in the volume of traffic conducted through our services and
products could strain the capacity of our software or hardware which could lead
to slower response time or system failures. In addition, as the number of Web
sites and Internet users increases, there can be no assurance that our services
and products will be able to compete with firms who may have greater financial
resources than we do. We are also dependent upon Web browsers and Internet and
online service providers for access to our services and consumers may experience
difficulties due to system failures unrelated to our own internal systems,
services and products. To the extent that the capacity constraints described
above are not effectively addressed by management, such constraints would have a
material adverse effect on our business, results of operations and financial
condition.
We are also vulnerable to damage from fire, floods, earthquakes, power loss,
telecommunications failures, break-ins and similar events. Although we carry
property insurance, our coverage may not be adequate to compensate for all
losses that may occur. Despite the implementation of network security measures,
our servers are also vulnerable to computer viruses, physical or electronic
break-ins and similar disruptive problems. Computer viruses, break-ins or other
problems caused by third parties could lead to interruptions, delays or
cessations in service to users of our services and products. The occurrence of
any of these risks could have a material adverse effect on our business, results
of operations and financial condition.
WE RELY ON A NUMBER OF STRATEGIC RELATIONSHIPS WITH THIRD PARTIES TO SUPPLY THE
TECHNOLOGY TO OPERATE OUR BUSINESS
<PAGE> 28
We currently license several technologies from third parties. There can be no
assurance that these third party technology licenses will be available on
commercially reasonable terms, if at all. Our inability to obtain any of these
technology licenses could result in delays or reductions in the introduction of
new services or product shipments or could materially and adversely affect the
performance of our services until equivalent technology could be identified,
licensed and integrated. Any such delays or reductions in the introduction of
services or product shipments or adverse impact on service quality could
materially adversely affect our business, results of operations and financial
condition.
We have entered into certain material agreements with numerous businesses which
provide us necessary services and products. The following table provides
information pertinent to these relationships:
<TABLE>
<CAPTION>
Name Service Provided Term Consideration
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exodus Communications Hosting 14 Month contract Company pays monthly fixed rate
to March 2001
GTE Interworking Hosting Month to month Company pays monthly fixed rate
ichat Chat Technology Annual Renewal Company pays annual license fee
Microsoft Site Server(3) Retail Application One Time Charge Company paid one time fee
Cybercash Internet secure Month to month Company pays fee per transaction
transaction capability
Eliance Internet secure Month to month Company pays fee per transaction
transaction capability
Real Media Ad server software Perpetual license Company paid one time license fee
Accrue Internet Statistical Perpetual license Company paid one time license fee
Reporting Software
Vignette Internet Publishing Annual Renewal Company paid one time license fee
Software and annual renewal license fee
N2H2 Filtering Software Month to month Company paid one time license fee
and pays monthly usage fees
Oracle Database Management Annual Renewal Company pays one time license fee
Software and annual maintenance fee
RealNetworks Streaming Media Annual Renewal Company pays fees for services
Services rendered
</TABLE>
If these arrangements and activities with such companies were lessened,
curtailed, or otherwise modified, we may not be able to replace or supplement
such services alone or with other companies. If these companies were to cease to
jointly provide their services, our business, results of operations, and
financial condition could be materially and adversely affected.
<PAGE> 29
WE MAY ENCOUNTER DIFFICULTIES MANAGING OUR GROWTH THAT COULD ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS
A key part of our strategy is to grow, which may strain our managerial,
operational and financial resources. The rapid execution necessary for us to be
established as a leader in the developmental market for Internet-based sales of
Christian related products, sponsorship and advertising requires an effective
planning and management process. Our development has placed, and is expected to
continue to place, a significant strain on managerial, technical, sales and
marketing and administrative personnel as well as our financial resources. To
manage our growth, we must implement operational and financial systems and train
and manage our employee base. There can be no assurance that we will be able to
successfully implement such systems on a timely basis, if at all. Further, we
will be required to manage multiple relationships with consumers, strategic
partners and other third parties. There can be no assurance that our systems,
procedures or controls will be adequate to support our future operations. Our
future operating results will also depend on our ability to expand our sales and
marketing organizations, implement and manage new services to penetrate broader
markets and further develop and expand our organization. If we are unable to
manage growth effectively, our business, results of operations and financial
condition will be materially adversely affected. There can be no assurance that
we will be able to effectively manage such change.
OUR SUCCESS IS TIED TO THE CONTINUED GROWTH AND USE OF THE INTERNET AND THE
ADEQUACY OF THE INTERNET INFRASTRUCTURE
Our success is dependent in large part upon the continued growth in the use of
the Internet. The number of users and advertisers on the Internet may not
increase and commerce over the Internet may not become more accepted and
widespread for a number of reasons, including:
- inconsistent quality of service;
- actual or perceived lack of security of information;
- lack of access and ease of use;
- the failure of the Internet's infrastructure to support Internet usage
or electronic commerce;
- the failure of businesses developing and promoting Internet commerce;
- regulation of the Internet; and
- lack of availability of cost-effective, high speed service or
communications equipment.
Published reports also indicate that as the Internet has grown, users
increasingly experience delays, transmission errors and other problems with
their use. The use of the Internet may not grow if there are delays in the
development or adoption of modifications by third parties to the current
configuration of the Internet to support the increased levels of activity. If
none of the foregoing changes occurs, or if the Internet does not become a
viable commercial medium, our business, results of operation, an financial
conditions could be materially adversely affected. Moreover, even if those
changes occur, we may need to spend substantial resources to adapt our services
to any new technologies relating to the Internet.
WE MUST RETAIN KEY PERSONNEL TO SUCCESSFULLY MANAGE OUR BUSINESS
We believe our most important asset is our people. Our performance is
substantially dependent on the performance of our senior management, including
William Parker, our Chief Executive Officer and President, and other key members
of management. Although the Company has employment agreements, which include
non-compete provisions, with its senior management, these agreements may be
terminated upon thirty days' written notice. If these members of senior
management leave the Company, there could be a material adverse effect on our
business, results of operations and financial condition due to the loss of their
knowledge regarding the development, opportunities and challenges of our
business. Our future success will also depend on our continuing ability to
attract and retain additional qualified marketing, sales and technical
personnel. There is currently a shortage of qualified personnel with the skills
we require, and this shortage is likely to continue. If we are unable to
attract, motivate and retain qualified personnel, there could be a material
adverse effect on our business, results of operations and financial condition.
OUR CLASSIFICATION AS A "RELIGIOUS CORPORATION" MAY LIMIT OUR ABILITY TO ATTRACT
AND RETAIN PERSONNEL AND COULD SUBJECT US TO LEGAL LIABILITY
<PAGE> 30
Our bylaws provide that we are a "religious corporation." In general our policy
is to include (1) among our officers and directors, unconditionally, and (2)
among our employees where a bona-fide occupational qualification exists, only
persons who, upon request, subscribe to our Christian statement of faith. We
believe that this is necessary to best identify with and service our selected
Christian market niche and to generate our Internet product which is heavily
content laden. We believe that our use of these religious criteria in our
employment practices does not violate federal law relating to equal employment
opportunities because we qualify as an exempt religious corporation for purposes
of federal employment law. Federal employment law has been subject to limited
judicial and regulatory interpretation on the question of what type of religious
corporation would be exempt from the reach of the law. Federal employment law is
enforced, in part, by a federal regulatory agency that is vested with broad
discretion in interpreting its meaning. Our policies and procedures with respect
to hiring have not been examined by federal or state authorities. For these
reasons, there can be no assurance that a review of our hiring practices or the
operation of our business will not result in determinations that materially
adversely affect our business, results of operations and financial condition or
our ability to attain our objectives.
WE ARE SUBJECT TO U.S. AND FOREIGN GOVERNMENT REGULATION OF THE INTERNET THAT
COULD IMPACT OUR BUSINESS
We are subject to existing federal, state and local laws and regulations that
are applicable to businesses generally on such issues as advertising,
sweepstakes, promotions, quality of products and services, and intellectual
property ownership and infringement. In addition, although we are not currently
subject to direct regulation by any government agency, there are currently a few
laws and regulations directly applicable to access to or commerce on the
Internet. The United States federal government, as well as various state and
local governments, have recently passed legislation that regulates various
aspects of the Internet relating to issues such as user privacy, online content,
copyright infringement, taxation, access charges, liability for third-party
activities, and jurisdictions. For example, the federal government recently
enacted a law imposing a three-year moratorium on new taxes on Internet-based
transactions. This moratorium relates to new taxes on Internet access fees and
state taxes on e-commerce. We have not been able to determine how we will be
affected by this moratorium, but to the extent that it provides a material
benefit, its expiration could have a material adverse effect on our financial
condition and results of operations.
Due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet,
covering issues such as libel, pricing, user privacy and characteristics and
quality of products and services. In addition, the European Union has recently
enacted privacy and copyright directives that could impose additional burdens
and costs on our operations as we expand internationally. Due to the global
nature of the Internet, it is possible that the governments of other nations
might attempt to regulate its transmissions, and we may unintentionally violate
such laws and be prosecuted for such violations. The adoption of any additional
laws or regulations may decrease the growth of the Internet, which could in turn
decrease the demand for our services and products and increase our cost of doing
business or otherwise have an adverse effect on our business, results of
operations and financial condition. Moreover, the applicability to the Internet
of existing laws in various jurisdictions governing issues such as property
ownership, libel and personal privacy is uncertain. Any such new legislation or
regulation could have a material adverse effect on our business, results of
operations and financial condition.
WE MAY BE SUBJECT TO LIABILITY FOR OUR ONLINE SERVICES
Our online products and services allow our users to exchange information,
generate and download content, and conduct business. The liability issues for
providers of these types of online services for the actions of their users is
unsettled. There is a potential that claims could be made against us for
defamation, negligence, personal injury, infringement of intellectual property
rights, or other theories based on the content of the information available from
our Web site. Similar types of claims have been brought, and sometimes
successfully asserted, against other online service providers or through content
and materials that may have been posted by users in our bulletin boards,
classifieds or chat room services.
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR PROPRIETARY TECHNOLOGY
<PAGE> 31
We regard our technology as proprietary and attempt to protect it with
copyrights, trademarks, trade secret laws, restrictions on disclosure and
transferring title and other methods. We also generally enter into
confidentiality or license agreements with our consultants and business
partners, and generally control access to and distribution of documentation and
other proprietary information. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use our products or technology
without authorization, or to develop similar technology independently. Policing
unauthorized use of our technology is also difficult. There can be no assurance
that the steps taken by management will prevent misappropriation or infringement
of our technology. In addition, litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our business, results of operations and
financial condition.
WE MAY BE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS OF THIRD PARTIES
We cannot assure you that third parties will not claim that our products or
services infringe upon their intellectual property rights. We have not conducted
a search to determine whether any of our services or technologies may be
infringing upon the rights of any third parties. However, a number of Internet
companies are actively developing search, indexing, e-commerce and other
Web-related technologies. We expect that many of these companies will take steps
to protect these technologies, including obtaining patent protection. In
addition, we are aware that a number of patents have been issued in the areas of
e-commerce, online direct marketing, common Web graphics formats and Web-based
information indexing and retrieval. Third parties may assert claims against us
alleging that we infringe their intellectual property rights. We may incur
substantial expenses in defending ourselves against such claims regardless of
their merit. If we determine that licensing any third party's proprietary rights
is appropriate, we cannot guarantee that we will be able to obtain a license on
reasonable terms. As a result of these developments, we could incur substantial
costs that could have a material adverse effect on our business, results of
operation or financial condition.
WE MAY BE LIABLE IF THIRD PARTIES MISAPPROPRIATE OUR USER'S PERSONAL INFORMATION
If third parties were able to penetrate our network security and misappropriate
our users' personal information, we could be subject to liability. For instance,
if a third party misappropriates credit card information of one of our users, we
could be liable for unauthorized purchases with the information or other similar
fraud claims. In addition, such misappropriation could result in liability for
other misuses of personal information, such as unauthorized marketing purpose.
OUR STOCK PRICE HAS HISTORICALLY BEEN VOLATILE AND COULD AFFECT YOUR ABILITY TO
RESELL SHARES AT ATTRACTIVE PRICES
The price of our common stock has been highly volatile due to factors that will
continue to affect the price of our stock. Our common stock traded as high as
$18.938 per share and as low as $5.00 between January 1, 1999 and December 31,
1999. This volatility may continue. Some of the factors that could lead to this
type of volatility include:
- - Price and volume fluctuations in the stock market at large that do not
relate to our operating performance;
- - Fluctuations in our quarterly revenue and operating results;
- - Structure of future capitalization, if any;
- - Announcements of product releases by us or our competitors;
- - Failure to meet or exceed estimates by securities analysts;
- - Any loss of key management;
<PAGE> 32
- - Announcements of acquisitions and/or partnerships by us or our competitors;
- - General economic conditions and general market volatility of
Internet-related stocks; and
- - Increases in outstanding shares of common stock, including upon exercise or
conversion of derivative securities.
These factors may continue to affect the price of our common stock in the
future.
WE CANNOT PREDICT THE EFFECT THAT THE EXERCISE OF EXISTING OPTIONS WILL HAVE ON
OUR STOCK
As of December 30, 1999, there were 7,592,972 shares of common stock outstanding
and 2,309,280 shares of common stock issuable upon the exercise of outstanding
warrants and options. We are unable to predict the effect that any subsequent
sales of securities by our existing shareholders, under Rule 144 or otherwise,
may have on the then-prevailing market price of our common stock, although such
sales could have depressive effect on such market price. Nevertheless, the
possibility that substantial amounts of common stock may be sold in the public
market may adversely affect prevailing market prices of the common stock and
could impair our ability to raise capital through the sale of its equity
securities.
OUR STOCKHOLDERS' ABILITY TO RECOVER MONETARY DAMAGES FROM OUR OFFICERS AND
DIRECTORS IS LIMITED
Section 145 of the General Corporation Law of the State of Delaware contains
provisions entitling our directors and officers to indemnification from
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorney's fees, as a result of an action or proceeding in which they may be
involved by reason of being or having been a director or officer of
Crosswalk.com provided the officers or directors acted in good faith. Our
certificate of incorporation contains provisions indemnifying our officers and
directors to the fullest extent provided by Delaware law. As a result, the
rights of our shareholders to recover monetary damages from directors of
Crosswalk.com for breaches of directors' fiduciary duties may be significantly
limited.
WE HAVE NOT HISTORICALLY PAID DIVIDENDS AND DO NOT ANTICIPATE PAYING DIVIDENDS
IN THE NEAR FUTURE.
We have not paid any dividends on capital stock to date and do not currently
intend to pay dividends in the foreseeable future. The payment of dividends, if
any, will be contingent upon our revenue and earnings, if any, our capital
requirements and our general financial condition. The payment of any dividends
will be within the discretion of our Board of Directors. It is the Board's
current intention to retain all earnings, if any, for use in business operations
and, accordingly, we do not anticipate paying any cash dividends in the
foreseeable future.
WE ARE SUBJECT TO THE NASDAQ NATIONAL MARKET SYSTEM LISTING ELIGIBILITY AND
MAINTENANCE REQUIREMENTS AND OUR STOCK COULD BE AFFECTED IF WE FAIL TO MAINTAIN
THESE REQUIREMENTS
Under the current rules relating to the continued listing of securities on the
Nasdaq National Market System, a company must maintain (a) at least $4,000,000
in net tangible assets (b) public float of at least 750,000 shares, (c) market
value of public float of at least $5,000,000, and (d) a minimum bid price of
$1.00 per share. If we are not able to maintain these listing requirements, we
may be downgraded to Nasdaq SmallCap status.
If we should experience losses from operations, we may be unable to maintain the
standards for continued listing and our common stock could be subject to
delisting from the Nasdaq National Market System or furthermore from the Nasdaq
SmallCap Market. Trading, if any, in our common stock would thereafter be
conducted in the over-the-counter market on an electronic bulletin board
established for securities that do not meet the Nasdaq SmallCap listing
requirements or in what are commonly referred to as the "pink sheets." As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, our common stock.
If our common stock were delisted from Nasdaq, and no other exclusion from the
definition of a "penny stock" under applicable SEC regulations were available,
our common stock may become subject to the penny stock rules that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally defined as investors with net worth in excess of $1,000,000
<PAGE> 33
or annual income exceeding $200,000, or $300,000 together with spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase and must have received the
purchaser's written consent to the transaction prior to sale. Consequently,
delisting from Nasdaq, if it were to occur, could materially adversely affect
the ability of broker-dealers to sell the securities. and the liquidity and
trading price of our common stock.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
ITEM 8. FINANCIAL STATEMENTS
The Financial Statements prepared in accordance with Regulation S-X are included
in this report commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Incorporated by reference to the Company's definitive Proxy Statement to be
filed in accordance with Rule 14a-101, Schedule 14A.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's definitive Proxy Statement to be
filed in accordance with Rule 14a-101, Schedule 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's definitive Proxy Statement to be
filed in accordance with Rule 14a-101, Schedule 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive Proxy Statement to be
filed in accordance with Rule 14a-101, Schedule 14A.
<PAGE> 34
Crosswalk.com, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT AUDITOR F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance sheets at December 31, 1998 and 1999 F-3
Statements of operations for the years ended December 31,
1997, 1998, and 1999 F-4
Statements of stockholders' equity (deficit) for the years ended December 31,
1997, 1998, and 1999 F-5
Statements of cash flows for the years ended December 31,
1997, 1998, and 1999 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F7-F16
</TABLE>
F-1
<PAGE> 35
To the Board of Directors and Stockholders
Crosswalk.com, Inc. and Subsidiaries
We have audited the consolidated balance sheet of Crosswalk.com, Inc.
and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for 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. The financial statements of Crosswalk.com, Inc.
for the years ended December 31, 1997 and 1998 were audited by other auditors
whose report dated February 16, 1999 expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1999 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Crosswalk.com,
Inc. and subsidiaries at December 31, 1999 and the consolidated results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
February 10, 2000
McLean, Virginia
<PAGE> 36
INDEPENDENT AUDITORS' REPORT
================================================================================
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
DIDAX INC. AND SUBSIDIARY
Chantilly, Virginia
We have audited the accompanying consolidated balance sheets of DIDAX INC. AND
SUBSIDIARY (development stage companies) as of December 31, 1997 and 1998, and
the related consolidated statements of operations and cash flows for the years
then ended and stockholders' equity (deficit) for the period May 12, 1993 (date
of inception) to December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of DIDAX
INC. AND SUBSIDIARY as of December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Note A to the financial statements, DIDAX INC. purchased all of
the outstanding shares of gofishnet.com, inc. for 130,292 shares of DIDAX INC's.
common stock. DIDAX INC. accounted for the merger as a pooling-of-interests
based on the provisions set forth in Accounting Principles Board Opinion No. 16,
"Business Combinations." The accompanying consolidated financial statements
presented have been restated to reflect the change in reporting entity.
McLean, Virginia
February 16, 1999
<PAGE> 37
CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,047,115 $ 1,641,157
Short-term investments 422,536 4,538,906
Accounts receivable including unbilled receivables of $110,381 and
$566,515 at December 31, 1998 and 1999, respectively 352,408 2,157,991
Deferred costs 44,930 142,910
Notes receivable from officers 93,000 37,500
Other current assets 10,039 27,750
------------ ------------
Total current assets 3,970,028 8,546,214
LONG TERM INVESTMENTS 508,077 2,774,747
PROPERTY AND EQUIPMENT, net 321,794 1,847,703
OTHER ASSETS:
Deposits 56,063 161,275
Deferred costs - 18,216
Intangible assets, net 46,621 6,438,697
------------ ------------
Total other assets 102,684 6,618,188
------------ ------------
$ 4,902,583 $ 19,786,852
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 110,675 $ 2,527,650
Accrued liabilities 541,441 861,451
Deferred revenue 24,730 64,005
------------ ------------
Total current liabilities 676,846 3,453,106
OTHER LIABILITIES:
Accounts payable 46,243 72,210
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Preferred stock, $.001 par value, 5,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.01 par value, 20,000,000 shares authorized
4,034,956 and 7,592,972 shares issued and outstanding
at December 31, 1998 and 1999, respectively 40,349 75,930
Common stock warrants 666,722 127,660
Additional paid-in capital 14,868,630 38,156,922
Accumulated deficit (11,394,216) (22,044,497)
Accumulated other comprehensive loss:
Net unrealized loss on available-for-sale securities (1,991) (54,479)
------------ ------------
Total stockholders' equity 4,179,494 16,261,536
------------ ------------
$ 4,902,583 $ 19,786,852
============ ============
</TABLE>
See accompanying notes. F3
<PAGE> 38
CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING REVENUES:
Advertising/sponsorship sales $ 16,876 $ 737,676 $ 6,376,611
Retail sales 66,410 134,446 343,447
Internet services 339,082 211,172 181,123
------------ ------------ ------------
Total operating revenues 422,368 1,083,294 6,901,181
OPERATING EXPENSES:
Cost of goods and services 232,363 636,348 3,728,276
Crosswalk operations 959,619 1,529,665 4,795,061
Sales and marketing 837,171 1,242,836 6,693,729
General and administrative 877,718 1,353,688 2,978,962
------------ ------------ ------------
Total operating expenses 2,906,871 4,762,537 18,196,028
------------ ------------ ------------
LOSS FROM OPERATIONS (2,484,503) (3,679,243) (11,294,847)
OTHER INCOME (EXPENSE):
Interest income 90,795 224,126 666,965
Interest expense (1,877,541) (1,947) (146)
Loss on sale of property and equipment - - (22,254)
------------ ------------ ------------
Total other income (expense) (1,786,746) 222,179 644,565
------------ ------------ ------------
NET LOSS $ (4,271,249) $ (3,457,064) $(10,650,282)
============ ============ ============
Net loss per common share (basic and diluted) $ (3.31) $ (0.98) $ (1.56)
============ ============ ============
Weighted average number of common
shares outstanding 1,289,460 3,535,487 6,822,575
============ ============ ============
</TABLE>
See accompanying notes. F4
<PAGE> 39
CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM DECEMBER 31, 1996 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Common Stock
------------------------------- Additional Common
(rounded to whole shares) Paid-in Stock
Shares Amount Capital Warrants
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 674,998 6,750 889,876 111,187
Issuance of common stock throughout 1997,
net of offering costs of $1,899,805 2,423,449 24,234 10,075,784 -
Issuance of common stock warrants 555,535
Net loss - - - -
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 3,098,447 30,984 10,965,660 666,722
Issuance of common stock throughout 1998
net of offering costs of $29,245 579,434 5,794 1,743,359 -
Common stock issued pursuant to exercise of
underwriter warrants 44,000 440 362,560 -
Common stock issued pursuant to warrants exercised 313,075 3,131 1,797,051 -
Net loss - - - -
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 4,034,956 $ 40,349 $ 14,868,630 $ 666,722
Issuance of common stock throughout 1999 26,350 264 202,619 -
Issuance of common stock pursuant to business
combination, net of offering cost of $9,901 494,845 4,948 4,785,146 -
Common stock issued pursuant to exercise of
underwriter warrants 317,500 3,175 2,676,527 -
Common stock issued pursuant to warrants exercised
net of offering costs of $33,647 2,528,451 25,285 15,018,724 (539,062)
Common stock issued pursuant to exercise of stock options 190,870 1,909 605,276 -
Net loss - - - -
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 7,592,972 $ 75,930 $ 38,156,922 $ 127,660
============ ============ ============ ============
<CAPTION>
Accumulated
Other Total
Accumulated Comprehensive Equity
Deficit Loss (Deficit)
------------ ------------- ------------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 (3,665,903) - (2,658,090)
Issuance of common stock throughout 1997,
net of offering costs of $1,899,805 - - 10,100,018
Issuance of common stock warrants - - 555,535
Net loss (4,271,249) - (4,271,249)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1997 (7,937,152) - 3,726,214
Issuance of common stock throughout 1998
net of offering costs of $29,245 - - 1,749,153
Common stock issued pursuant to exercise of
underwriter warrants - - 363,000
Common stock issued pursuant to warrants exercised - - 1,800,182
Net loss (3,457,064) (1,991) (3,459,055)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1998 $(11,394,216) $ (1,991) $ 4,179,494
Issuance of common stock throughout 1999 - - 202,883
Issuance of common stock pursuant to business
combination, net of offering cost of $9,901 - - 4,790,094
Common stock issued pursuant to exercise of
underwriter warrants - - 2,679,702
Common stock issued pursuant to warrants exercised
net of offering costs of $33,647 - - 14,504,947
Common stock issued pursuant to exercise of stock options - - 607,185
Net loss (10,650,282) (52,488) (10,702,770)
------------ ------------ ------------
BALANCE, DECEMBER 31, 1999 $(22,044,497) $ (54,479) $ 16,261,536
============ ============ ============
</TABLE>
See accompanying notes. F-5
<PAGE> 40
CROSSWALK.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER 31,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,271,249) $ (3,457,064) $(10,650,282)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 80,605 130,353 453,656
Amortization 142,462 4,165 457,262
Loss on disposal of property and equipment - 12,010 22,254
Amortization of debt discount charged to interest expense 86,270 - -
Stock compensation expense 11,062 - 105,576
Common stock donated 200,000 - -
Common stock issued in lieu of cash for
interest on repayment of long term debt 1,733,750 - -
Changes in operating assets and liabilities:
Accounts receivable (46,076) (259,882) (1,805,583)
Notes receivable from officer (83,000) - 55,500
Deposits - (55,813) (105,212)
Deferred costs 28,868 (43,885) (116,196)
Other current assets 3,488 6,826 (17,711)
Accounts payable (186,033) 84,054 2,475,339
Accrued liabilities (28,006) 384,933 320,010
Deferred revenue 11,893 8,712 39,275
------------ ------------ ------------
Net cash used in operating activities (2,315,966) (3,185,591) (8,766,112)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (42,108) (325,178) (2,001,862)
Business acquisitions, net of cash acquired - (5,000) (1,982,397)
Sales and maturities of investments - 5,021,027 9,589,960
Purchase of investments - (5,953,631) (16,027,479)
------------ ------------ ------------
Net cash used in investing activities (42,108) (1,262,782) (10,421,778)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayment of short-term debt (135,759) - -
Proceeds from notes payable 82,230 - -
Repayment of notes payable - (82,230) -
Net repayment of short-term debt, officer and director (835,000) - -
Net proceeds from issuance of common stock and warrants 8,639,258 2,133,937 17,781,933
------------ ------------ ------------
Net cash provided by financing activities 7,750,729 2,051,707 17,781,933
------------ ------------ ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,392,655 (2,396,666) (1,405,957)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 51,126 5,443,781 3,047,115
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,443,781 $ 3,047,115 $ 1,641,157
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Interest paid $ 80,312 $ 3,508 $ 73
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
</TABLE>
Purchase of "Investigator" software methodolgy for Common Stock totaling $50 and
Additional Paid in Capital of $49,950 in August of 1998
Purchase of "GraceWeb" Web site for Common Stock totaling $100 and Additional
Paid in Capital of $97,400 in August
Purchase of "Wike Associates" for Common Stock totaling $4,948 and Additional
Paid in Capital of $4,795,049 in August
See accompanying notes. F-6
<PAGE> 41
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION
Crosswalk.com, Inc. ("Crosswalk" or the "Company"), (formerly DIDAX INC.),
closed on its initial public offering (IPO) of securities listed on the Nasdaq
Small Cap Market on October 3, 1997 with gross proceeds of $10,539,063,
comprised of $10,000,000 from the issuance of 2,000,000 shares of common stock,
$468,750 from the issuance of 2,500,000 purchase warrants, and $70,313 for the
over-allotment of an additional 375,000 purchase warrants. Proceeds, net of
underwriter commission and offering costs, amounted to approximately $8,639,000.
The proceeds from the IPO were used to repay approximately $2,645,000 in
outstanding debt. In August of 1999, Crosswalk began trading on the Nasdaq
National Market System.
In the quarters ended December 31, 1998 and March 31, 1999, Crosswalk received
an aggregate of $16,338,776 from the exercise of 2,841,526 (or 98.8%) of the
purchase warrants outstanding. The purchase warrants were exercised mostly in
response to the Company's action to call the purchase warrants consistent with
the term's of the Purchase Warrant Agreement submitted as an Exhibit to the IPO.
The redemption date was February 12, 1999.
The Company's business includes the development and aggregation of Internet
content and services; advertising, sponsorship and royalty sales; and the resale
of products specifically designed to meet the needs of Christian users of the
Internet and the World Wide Web. The Company intends to build traffic and
membership to its Web site www.crosswalk.com(TM) ("crosswalk.com"), through
efficient marketing and product development activities, with the goal of
building market awareness and acceptance of its product, which it believes will
result in revenue growth and profitability. The Company operates in one business
segment.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation - The consolidated financial statements include the
accounts of the Company and its subsidiaries. Intercompany balances and
transactions have been eliminated. Certain items in the accompanying 1997 and
1998 financial statements have been reclassified to conform with the 1999
presentation.
Use of estimates - Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could vary from the estimates
that were used.
Cash equivalents - Cash and cash equivalents include cash and investments with
initial maturities of three months or less.
Short and long-term investments - The Company invests in U.S. government bonds
and treasury notes, municipal bonds, and corporate bonds. Investments with
current maturities greater than three months but less than twelve months from
the balance sheet date are considered short-term investments. Those investments
with maturities greater than twelve months from the balance sheet date are
considered long-term investments.
The Company's marketable securities are classified as available-for-sale as of
the balance sheet dates and are reported at fair value, with unrealized gains
and losses, net of tax, recorded in shareholders' equity. Realized gains or
losses and permanent declines in value, if any, on available-for-sale securities
are reported in other income or expense as incurred.
Depreciation and amortization - Property and equipment are stated at cost.
Depreciation is determined using the straight-line method over estimated useful
lives ranging from three to seven years. Leasehold improvements are amortized
over the life of the related lease. Intangible assets are amortized over useful
lives of five to ten years using the straight-line method.
Revenue recognition - The Company's revenues are primarily derived from the sale
of banner advertising and sponsorship contracts. In addition, revenue is
generated from electronic commerce transactions, primarily consisting of
Christian music sales, and referral fees. The Company also generates revenue
from various client based Internet services, including Web consulting, hosting,
access and events management. Advertising revenues are recognized ratably in the
period in which the advertisement is displayed, provided that no significant
Company obligations remain and collection of the resulting receivable is
probable. Company obligations typically include guarantees of minimum number of
"impressions," or times that an advertisement appears in pages viewed by users
of crosswalk.com. To the extent that minimum guaranteed impressions are not met,
the Company defers recognition of the corresponding revenues until the remaining
guaranteed impression levels are achieved. On sponsorship contracts for prime
website exposure where impressions are not guaranteed and revenue sharing
follows from the sale of the sponsors' products, initial content integration
and/or
F-7
<PAGE> 42
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development fees are recorded as revenue upon completion of work scope related
to the contract, which in most cases is consistent with the time the sponsor is
first positioned on crosswalk.com. Any revenue sharing for customer products
sold as part of the sponsorship are recorded by the Company net of any of the
customers' share portion. Retail revenue is based on the sales price of products
offered before application of sales tax, if applicable. Internet services
revenue is recognized as earned ratably in accordance with the provisions of the
individual customer contracts. Referral fees are recognized upon recognition of
earned value in accordance with the terms of contracts on which they are earned.
Hosting and Internet access revenues are recognized in the period earned based
on the number of active users and the contractual rate remitted by the Internet
provider.
Barter transactions, amounting to approximately forty-two percent of revenues
for the year ended December 31, 1999, are recorded at the lower of estimated
fair value of the goods or services received or the estimated fair value of the
services given based on like-cash transactions. Barter transactions consist of
providing hosting services in return for product price discounts, web
development services in return for advertising space in the customer's magazine,
and website presence on crosswalk.com in exchange for advertising space on the
customer's website, other web related services, magazine advertisements,
promotions at conferences or other related marketing services. The revenues and
equivalent cost of sales from these barter transactions are recorded in the
month in which the services are provided and/or received and are recorded in the
revenue category commensurate with the product or service rendered.
Net loss per common share - The Company reports basic and diluted earnings per
share ("EPS"). Basic EPS excludes dilution and is computed by dividing net
income (loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted EPS is computed by dividing
net income (loss) available to common stockholders, adjusted by the assumed
conversion of any potential common share equivalents, by the weighted number of
common shares and common share equivalents (unless their effect is
anti-dilutive) outstanding.
Capital structure - The Company's outstanding stock is completely comprised of
voting common stock. The Company has issued 2,841,526 shares of common stock
upon the exercise of 2,841,526 Redeemable Common Stock Purchase Warrants,
166,500 shares of common stock upon the exercise of 166,500 Common Stock
Underwriter Warrants, 195,000 shares of common stock upon the exercise of
195,000 Common Stock Warrant Underwriter Warrants, and 514,845 shares of common
stock for the purchase of intangible assets.
Comprehensive income - Effective January 1, 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income." This pronouncement established standards
for the reporting and display of comprehensive income and its components in the
financial statements. Comprehensive income is defined as the change in equity of
a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Accordingly, the Company presents the
elements of comprehensive income, which included net loss and unrealized losses
on available-for-sale securities. For the years ended December 31, 1998 and
1999, the Company's comprehensive loss was $3,459,055 and $10,704,762,
respectively.
Stock-based compensation - The Company has elected to continue to account for
its stock-based compensation in accordance with APB 25, "Accounting for Stock
Issued to Employees", which uses the intrinsic value method, however, as
required by SFAS No. 123, "Accounting for Stock-Based Compensation", the Company
has disclosed the pro forma impact on the consolidated financial statements
assuming the measurement provisions of SFAS No. 123 had been adopted. See Note
L. The Company accounts for all other issuances of equity instruments in
accordance with SFAS No. 123.
Deferred costs - Deferred costs at December 31, 1998 consisted of content fees,
conference fees, and legal fees. The content and conference fees were charged to
expense once the services associated with these fees had been delivered to the
Company. The legal fees were charged to expense in 1999.
Deferred costs at December 31, 1999 consisted of software maintenance, training
and license fees along with content and conference fees and insurance and
investor relations fees. The software maintenance and license fees are ratably
expensed over the life of the maintenance and license agreements, and training
is expensed as utilized. The content, conference and investor relations fees are
charged to expense once the services associated with these fees have been
delivered to the Company. Insurance costs are ratably expensed over the life of
the policy for which premiums have been paid.
F-8
<PAGE> 43
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes - Crosswalk accounts for income taxes using the liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Fair value of financial instruments - The carrying value of cash and cash
equivalents, investments, accounts receivable and notes payable approximate fair
value because of the relatively short maturity of these instruments.
Derivative instruments and hedging activities - In June 1998, the FASB issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 is required to be adopted by the Company in the first quarter of
fiscal year 2001. It establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. Management believes that the adoption of this
standard will not have a material effect on the Company's financial position or
results of operations.
Advertising expense - All advertising costs are expensed when incurred.
Advertising expenses were approximately $5,092,000, $522,000 and $95,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
C. CASH AND CASH EQUIVALENTS, SHORT AND LONG-TERM INVESTMENTS
Securities available-for-sale in the accompanying balance sheets at December 31,
1998 and 1999 include investments of $2,235,200 and $4,793,805, at December 31,
1998 and 1999, respectively, (of which $1,812,664 and $254,899, respectively,
are included in Cash and Cash Equivalents since they have original maturities of
three months or less), with contractual maturities of one year or less, and
$508,077 and $2,774,747, at December 31, 1998 and 1999, respectively, with
contractual maturities of one through five years. Expected maturities may differ
from contractual maturities as a result of the Company's intent to sell these
securities prior to maturity.
The aggregate market value, cost basis, and unrealized gains and losses of
securities available for sale, by major security type, as of December 31, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
Gross Unrealized Gross Unrealized
Market Value Cost Basis Gains Losses
------------ ---------- ---------------- ----------------
<S> <C> <C> <C> <C>
U.S. Govt. Debt Securities $2,407,143 $2,406,362 $ 2,754 $ (1,973)
Municipal Debt Securities --- --- --- ---
Corporate Debt Securities 336,134 338,906 --- (2,772)
---------- ---------- ---------- ----------
Total at December 31, 1998 $2,743,277 $2,745,268 $ 2,754 $ (4,745)
========== ========== ========== ==========
U.S. Govt. Debt Securities $3,671,880 $3,699,741 $ 730 $ (28,591)
Municipal Debt Securities 1,006,082 1,009,860 --- (3,778)
Corporate Debt Securities 2,890,590 2,913,430 405 (23,245)
---------- ---------- ---------- ----------
Total at December 31, 1999 $7,568,552 $7,623,031 $ 1,135 $ (55,614)
========== ========== ========== ==========
</TABLE>
The Company recorded a net realized gain of $11,051 for the year ended December
31, 1998 and a net realized loss of $59,815 for the year ended December 31,
1999, both which are included in interest income (expense).
F-9
<PAGE> 44
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Computer equipment $ 365,601 $ 1,330,878
Office furniture 47,593 236,519
Leasehold improvements 10,611 57,975
Office equipment 29,801 57,894
Software 143,653 880,951
----------- -----------
597,259 2,564,217
Less: accumulated depreciation and
amortization (275,465) (716,514)
----------- -----------
$ 321,794 $ 1,847,703
=========== ===========
</TABLE>
E. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accrued advertising expense $239,372 $256,250
Accrued wages and benefits 70,183 326,558
Other 231,886 278,643
-------- --------
$861,451 $541,441
</TABLE>
F. NOTES PAYABLE
On January 9, 1997, the Company closed on the minimum portion of a private
placement offering dated December 3, 1996, placed by the underwriter of the
Company's IPO, for units consisting of junior convertible subordinated notes
with total gross proceeds to the Company from this offering of $750,000. The
maximum portion of the offering for an additional $750,000 was oversubscribed
and the Company closed this offering on February 21, 1997, with $950,000 in
additional gross proceeds. In accordance with this offering, 340,000
unregistered shares were issued at no additional cost to the note holders at the
time of the IPO by dividing the principal of each holder's note by the IPO price
of $5 per share. The issuance of these shares was recognized as $1,700,000 of
interest expense, or the fair value of the shares issued, representing an
effective rate of interest of approximately 150%. Additionally, the note holders
were repaid the principal of $1,700,000 on the closing of the IPO. The Company
incurred total offering costs of $135,759 relating to this debt placement. These
costs were captured as deferred costs until the offering closed, at which point
they were amortized using the straight line method over the life of the notes.
Once the notes were repaid, the remaining balance in deferred costs was charged
to expense.
G. INCOME TAXES
There were no income tax expenses or benefits to report for the years ended
December 31, 1997 through December 31, 1999.
A reconciliation of income taxes at the statutory rate to the Company's
effective rate is as follows for the years ended December 31,:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Computed at the expected statutory rate $(1,402,000) $(1,170,000) $(3,621,000)
State income tax - net of Federal tax benefit (164,000) (138,000) (426,000)
Decrease related to pre-merger net loss on
merger accounted for as a pooling of
interests 273,200 6,500 -
Goodwill amortization on purchase of subsidiary - - 162,500
Interest expense on restricted stock - - (114,900)
Less valuation allowance 1,292,800 1,301,500 3,999,400
----------- ----------- -----------
Income Taxes $ - $ - $ -
=========== =========== -----------
</TABLE>
F-10
<PAGE> 45
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities at December 31, 1998 and 1999 were as
follows:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward 1,859,300 6,591,000
Interest expense 646,000 -
Amortization 73,000 -
Depreciation 16,000 2,700
----------- -----------
Gross deferred tax assets 2,594,300 6,593,700
Deferred tax liability - -
----------- -----------
Valuation allowance (2,594,300) (6,593,700)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
</TABLE>
The Company has net operating loss carryforwards totaling approximately
$4,890,000 and $17,344,000 at the end of 1998 and 1999, respectively, for
federal and state income tax purposes expiring in 2012 and 2019.
H. BUSINESS COMBINATIONS
On August 13, 1999, Crosswalk completed the purchase of Wike Associates, Inc.
(dba "Media Management, Inc."), proprietors of the GOSHEN.net Web site for an
aggregate purchase price of $6,915,494, including closing costs, payable in
494,845 restricted and non-registered shares of the Company's common stock and
$1,982,397. The transaction was accounted for as a purchase and the intangible
assets acquired are being amortized on a straight line basis over five to ten
years. Pursuant to the terms of the agreement, Mr. Stephen Wike, President of
Wike Associates, Inc. joined the Company and currently acts as Chief Operating
Officer of Crosswalk and a member of the Company's Board of Directors. Other key
employees also executed employment agreements with the Company. Operations of
Media Management, Inc. have been included in the Statement of Operations since
August 13, 1999.
Unaudited proforma consolidated results of operations, assuming the acquisition
of Media Management, Inc. had occurred on January 1, 1998, would have been as
follows:
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
Year Ended December 31,
-----------------------
1998 1999
------------ ------------
<S> <C> <C>
Operating revenue $ 3,114,149 $ 8,825,061
Net loss $ (4,543,774) $(11,173,520)
Net loss per common share (basic and diluted) $ (1.13) $ (1.57)
</TABLE>
The pro forma information above is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had the business
been acquired at the beginning of 1998, nor is it indicative of future results
of operations.
On February 23, 1998, Crosswalk purchased all of the outstanding shares of
gofishnet.com, inc. for 130,292 shares of Crosswalk's common stock.
gofishnet.com, inc. ("gofishnet"), an Internet retailer of Christian music and
videos, operates as a wholly owned subsidiary of Crosswalk. Crosswalk accounted
for the merger as a pooling of interests based on the guidelines described in
Accounting Principles Board ("APB") No. 16, "Business Combinations".
F-11
<PAGE> 46
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. RELATED PARTY TRANSACTIONS
At December 31, 1998 and 1999, the Company had notes receivable due from
officers of the Company totaling $93,000, and $37,500, respectively, as one of
the notes was retired in 1999. The Company is collecting interest on the
remaining note through payroll deductions at the minimum federal statutory rate
at the time of issuance of 5.7%. The note outstanding is due to be repaid on
April 28, 2000.
In August and September of 1997, an officer and three directors advanced
$250,000 to the Company. This was repaid with the proceeds from the Company's
IPO.
To enhance process and achieve product efficiencies, the Company hired Corporate
Resource Development, Inc. ("CRD") in February 1998, for consulting services for
the period March 1, 1998 through May 31, 1998. A member of Crosswalk's board of
directors is CRD's Chairman and Chief Executive Officer. The Company paid out a
total of $62,500, plus out of pocket expenses and granted options to purchase a
total of 17,145 shares of the Company's Common Stock at $2.185 per share, which
was the market price at the time of the grant.
J. COMMITMENTS
The Company leases office space in Chantilly, Virginia; Costa Mesa, California;
Franklin, Tennessee; Charlotte, North Carolina; and Roanoke, Virginia; and
certain equipment under non-cancelable operating leases. The California, North
Carolina and Roanoke office leases provide for a one year term. The Tennessee
office lease provides for a three and one half-year term, an annual increase in
base rent based on the previous year's CPI index, and additional rent
representing the Company's pro-rata share of operating expenses as defined in
the lease agreement. The Tennessee office lease expires on December 31, 2002. In
October 1999, the Company moved its headquarters office to a 13,530 square foot
facility in Chantilly, Virginia. The lease provides for a five-year renewable
term, with an annual escalator in base rent of 3%, and additional rent
representing the Company's pro-rata share of operating expenses as defined in
the lease agreement. The Chantilly office lease expires on November 30, 2004.
The new facility increases by over 100% the floor space available for Company
expansion. The Company also maintains a lease of 6,115 square feet in Chantilly
for which the Company currently is in the market for a subtenant. The prime
lease for this facility provides for a five-year renewable term, with an annual
escalator in base rent of 3%, and additional rent representing the Company's
pro-rata share of operating expenses as defined in the lease agreement. This
Chantilly office lease expires on September 30, 2003. The equipment leases
provide for three-year lease terms.
Minimum future lease payments under non-cancelable operating leases are as
follows for each of the years ending December 31:
<TABLE>
<S> <C>
2000 397,388
2001 392,199
2002 399,764
2003 358,521
2004 268,876
---- ----------
$1,816,748
==========
</TABLE>
Rent expense for the years ended December 31, 1998 and 1999 was $77,212 and
$172,292 and is included in general and administrative expenses.
In September 1999, the Company entered into a one-year Network Title Sponsorship
Agreement ("Agreement") with The Christian Network, Inc., which includes "Praise
on Pax" and "Worship on Pax." Under this Agreement, the Company is entitled to a
national title sponsorship on "Praise on Pax" telecasts and a national corporate
sponsorship on "Worship on Pax" telecasts. The Company also receives advertising
and promotional rights. The total cost for these sponsorship and advertising
rights is $1,025,000, payable quarterly in cash or, at the Company's option, in
shares of the Company's common stock having a fair market value equal to the
required payment. The Company is also obligated to issue additional shares of
common stock for each new member generated for Crosswalk.com as a result of
these sponsorship and advertising arrangements, based on a valuation of $1.00
for each member generated. The Agreement is renewable for an additional one-year
term upon the agreement of the parties. If the agreement is renewed, the
Company's payment obligation will increase to $1,127,500. In February 2000,
39,018 shares of Crosswalk common stock were issued for services rendered under
this Agreement.
F-12
<PAGE> 47
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
K. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and short-term
investments. The Company maintains its cash accounts in commercial banks located
in Virginia and California. At December 31, 1998 and 1999, there were no
uninsured cash balances.
Cash equivalents are maintained in money market funds. These cash equivalents
are not insured by the FDIC, but are collateralized by the underlying assets of
the federal government or corporate entities issuing debt obligations. In
addition, the brokerage firms may or may not carry insurance from the Securities
Investment Protection Corporation (SIPC). The SIPC insures a minimum balance of
$500,000 (including $100,000 for cash), however all brokerage firms are not
required to offer this coverage to their clients. Therefore, the Company had
uninsured investments of $136,762 and $52,659 at December 31, 1998 and 1999,
respectively.
During 1997 and 1998, revenue was generated from major customers in amounts
exceeding 10% of total revenue as follows. In 1999, no one customer accounted
for over 10% of revenues. However, the corresponding revenue derived from those
providing over 10% in prior years is also provided for 1999:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1998 December 31, 1999
------------------------------ ------------------------------ ------------------------------
Accounts Accounts Accounts
Receivable Receivable Receivable
Revenue % Balance Revenue % Balance Revenue % Balance
------------------------------ ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Customer #1 $ - - % $ - $260,000 24% $ 38,900 $ 41,915 1% $ -
Customer #2 $148,623 44% $ 31,074 $ 73,678 7% $ 18,763 $ 97,654 1% $ 29,441
Customer #3 $ 64,109 19% $ 4,063 $ 50,217 5% $ 25,927 $ 67,663 1% $ 389
Customer #4 $ - - % $ - $109,650 10% $ - $551,316 8% $116,827
</TABLE>
The Company's customers are located throughout the United States. In the normal
course of business, the Company extends unsecured credit to its customers.
L. STOCK OPTION PLAN
Since the inception of the Company, various options have been granted by the
Board of Directors to founders, directors, employees, consultants and ministry
partners. The 1998 Stock Option Plan ("1998 Plan") was approved by the Board of
Directors in April, 1998, with approved amendment in May, 1999. The 1998 Plan
gives the Company the authority to issue 800,000 options to purchase Crosswalk
common stock. If any stock options granted under the 1998 Plan terminate, expire
or are canceled, new stock options may thereafter be granted covering such
shares. In addition, any shares purchased under the 1998 Plan subsequently
repurchased by the Company pursuant to the terms hereof may again be granted
under the 1998 Plan. The shares issued upon exercise of stock options under the
1998 Plan may, in whole or in part, be either authorized but unissued shares or
issued shares reacquired by the Company. As of December 31, 1999, 363,713 of
these options have been granted.
In February 1997, the Incorporators authorized 268,400 additional shares of
common stock to underlie additional options reserved for key employees and for
future compensation to members of the Board of Directors. The Board of Directors
also adopted and the Stockholders approved, the 1997 Stock Option Plan ("1997
Plan"), which provides for the granting of either qualified or non-qualified
options to purchase an aggregate of up to 2,057,937 shares of common stock,
inclusive of the 268,400 shares mentioned above, and any and all options or
warrants granted in prior years by the Company. As of December 31, 1999, all
options available under the 1997 Plan have been granted.
All options are stated in common stock of Crosswalk.com. The Board of Directors
determines the option price (not less than fair market value) at the date of
grant. The objectives of the stock plan are to advance the interests of
Crosswalk.com by providing an opportunity to its selected key employees,
consultants, and ministry partners, to purchase shares of Crosswalk.com. By
encouraging stock ownership, Crosswalk.com seeks to attract, retain and motivate
key employees, consultants, and ministry partners. Both the 1997 Plan and the
1998 Plan will be administered by the Compensation Committee of the Board of
Directors or by the Board of Directors as a whole.
F-13
<PAGE> 48
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. STOCK OPTION PLAN (CONTINUED)
At December 31, 1998 and 1999, the Company had outstanding options to sell
1,334,456 and 1,398,456 shares of common stock, respectively, to various
officers and directors of the Company at exercise prices ranging from $1.50 to
$9.75 per share. As of December 31, 1998 and 1999, options for 588,626 and
965,130 shares are vested, respectively.. The options expire ten years from the
date granted, except 185,000 options granted to directors in 1997, which expire
five years from the date exercisable.
At December 31, 1998 and 1999, the Company had outstanding options to sell
129,985 and 102,454 shares of common stock, respectively, to various outside
consultants and a ministry partner at exercise prices ranging from $1.66 to
$15.34 per share. As of December 31, 1998 and 1999, options for 82,985 and
60,454 were vested, respectively. Of these, 75,704 options expire five years
from the date granted. All other options expire ten years from the date granted.
At December 31, 1998 and 1999, the Company granted to employees options for
410,926 and 557,231 shares of common stock, respectively, at exercise prices
ranging from $2.00 to $15.75 per share. The grant prices of $2.00 to $15.75 were
determined by the Board of Directors to represent fair value. As of December 31,
1998 and 1999, options for 307,024 and 239,598 shares are vested, respectively.
The options expire through 2009. A summary of activity for the three years ended
December 31, 1999, is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Number of Per Unit
Shares Exercise Price
---------- --------------
<S> <C> <C>
OUTSTANDING, DECEMBER 31, 1996 1,220,062 $1.50 - $5.00
Options granted 439,920 $3.89 - $5.00
Options exercised - -
Options expired 54,350 $2.00 - $5.00
---------- -------------
OUTSTANDING, DECEMBER 31, 1997 1,605,632 $1.50 - $5.00
Options granted 410,915 $2.00 - $4.00
Options exercised - -
Options expired 141,180 $2.19 - $5.00
---------- -------------
OUTSTANDING, DECEMBER 31, 1998 1,875,367 $1.50 - $5.00
========== =============
Options granted 535,669 $6.63 - $15.75
Options forfeited 149,025 $5.00 - $12.50
Options exercised 190,870 $1.66 - $5.00
Options expired 13,000 $5.00
---------- -------------
OUTSTANDING, DECEMBER 31, 1999 2,058,141 $1.50 - $15.75
========== ==============
</TABLE>
The Company accounts for the fair value of its options granted to employees in
accordance with APB 25. Had compensation expense been determined based on the
fair value of the options at the grant dates consistent with the method of
accounting under SFAS 123, the Company's net loss and net loss per share would
have been increased to the proforma amounts indicated below:
<TABLE>
<CAPTION>
1997 1998 1999
-----------------------------------------------------
<S> <C> <C> <C>
Net loss
As reported $(4,271,249) $(3,457,064) $(10,650,282)
Proforma $(4,368,892) $(4,010,384) $(15,758,026)
Net loss per common share
Basic
As reported $(3.31) $(0.98) $(1.56)
Proforma $(3.39) $(1.13) $(2.31)
Diluted
As reported $(3.31) $(0.98) $(1.56)
Proforma $(3.39) $(1.13) $(2.31)
</TABLE>
F-14
<PAGE> 49
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. STOCK OPTION PLAN (CONTINUED)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants during the year ended December 31, 1997: dividend yield of 0%, risk-free
interest rate based on the 10-year bond Treasury yield at the date of grant, and
expected term of 10 years. For grants made prior to the IPO, the Company used a
volatility of 0%. For grants made subsequent to the IPO, the Company used a
volatility of 13.9%. For the year ended December 31, 1998, the following
assumptions were used: dividend yield of 0%; risk-free interest rates based on
the Treasury bond yield at the date of grant for three to five year bonds,
depending on the expected term; volatility ranging from 27.6% to 124.0%,
depending on the grant date; and an expected term of two-and-a-half to five
years. For the year ended December 31, 1999, the following assumptions were
used: dividend yield of 0%; risk-free interest rates based on the Treasury bond
yield at the date of grant for three to five year bonds, depending on the
expected term; volatility ranging from 78.3% to 376.7%, depending on the grant
date; and an expected term of two-and-a-half to five years. All options granted
to employees have been granted at an exercise price of $1.50 to $15.75 per
share.
In April 1998, the Board of Directors resolved to amend the 1997 Plan. The
substance of this change was to amend the actual administration of the plan by
making all options subject to the approval of the Board of Directors, and in the
case of a merger or a similar reorganization that the Company does not survive,
to cause only non vested stock options to be subject to termination should the
surviving entity not assume the obligation of all granted options. This term was
carried forward and is included in the 1998 Plan approved by the stockholders.
M. EMPLOYEE BENEFIT PLANS
In January 1998, the Company adopted an Employee Benefit Plan, in the form of a
401K Plan, that covers all full time and permanent part time employees, the cost
of which was substantially covered through additional after-tax payroll
deductions of participants. Employees may elect to participate by contributing a
percentage of their compensation. Participation is at approximately 40% and the
maximum contribution allowed is 15% or $10,000, whichever is lower. The Company
is not required to contribute to the 401K Plan and has made no contributions
since its inception.
On June 1, 1998, the Company implemented an Internal Revenue Code Section 125
"Premium Only Plan", which allows participating employees of the Company to
contribute toward the cost of medical and dental plan expenses with pretax
dollars. Through this plan, set on a calendar year, employees contribute toward
paying 20% of the cost of the medical and dental plans.
N. NET LOSS PER COMMON SHARE
The following is a reconciliation of the basic and diluted EPS calculations for
the periods presented:
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net loss (numerator) $(4,271,249) $(3,457,064) $(10,650,282)
Weighted average shares (denominator) 1,289,460 3,535,487 6,822,575
Basic net loss per share $ (3.31) $ (0.98) $ (1.56)
------------ ------------ ------------
Dilutive shares (denominator) 1,289,460 3,535,487 6,822,575
Diluted net loss per share $ (3.31) $ (0.98) $ (1.56)
------------ ------------ ------------
</TABLE>
O. ACCOUNTING CHANGE
Recognizing that there is diversity of practice within the Internet industry in
recognizing revenue and associated cost on initial content integration and/or
development fees, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" in
December 1999 (SAB 101). Prior to the issuance of SAB 101, the Company had been
recording revenue for the content integration or development fee portion of
sponsorships of its Web site upon completion of work scope related to the
contract implementation. Pursuant to SAB 101, effective January 1, 2000, the
Company has elected to change its revenue recognition on these content
integration or development fees to a more preferable method whereby revenue will
be recognized ratably over the term of the contract. The cumulative effect of
this change is to increase the accumulated deficit by approximately $1.4 million
at January 1, 2000. Had the change been made at January 1, 1999, revenues for
the year ended December 31, 1999 would have been reduced by approximately $2.2
million and the net loss of the Company for the year ended December 31, 1999
would have been increased by $1.4 million or ($0.20) per share.
F-15
<PAGE> 50
CROSSWALK.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. SUBSEQUENT EVENT
In March 2000, the Board of Directors resolved to amend the 1997 and 1998 Stock
Option Plans (the "Plans") to clarify the treatment of vested stock options upon
termination of services and death of the optionee. All vested stock options
granted to outside Board members for services rendered while on the Board, will
remain in place until their normal expiration, whether the individual remains an
active Board member or not, as the options were granted in recognition of
services rendered while the individual was an active Board member. All vested
stock options granted to consultants and ministry partners for services rendered
while contracted by the Company, will remain in place until their normal
expiration, as the options were granted in recognition of services rendered
while the individual was contracted by the Company. In the original language of
the Plans it was unclear as to the treatment of vested options upon termination
of services provided in this regard.
If an optionee dies at a time when the option was exercisable by him, then his
estate, personal representative or beneficiary to whom it has been transferred
may exercise the option over the period of its natural expiration, or thirty
days after the date of death, whichever is later. Prior to this amendment, the
optionee's estate, personal representative or beneficiary had thirty days from
date of death, or option expiration date, whichever is sooner, to exercise
vested options.
F-16
<PAGE> 51
CROSSWALK.COM, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning of Costs and End of
Description Period Expenses Deductions Period
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts -
accounts receivable:
Years ended December 31,:
1999 $ 20,000 $ 387,287 (A) $ 53,124 (B) $ 354,163
1998 - 20,000 (A) - 20,000
1997 - - - -
Valuation allowance for deferred tax assets:
Years ended December 31,:
1999 $ 2,594,300 $ 3,999,400 (C) $ - $ 6,593,700
1998 1,292,800 1,301,500 (C) - 2,594,300
1997 - 1,292,800 (C) - 1,292,800
</TABLE>
(A) Increase in allowance for doubtful accounts
(B) Write-off of uncollectible receivables
(C) Increase in allowance for gross deferred tax assets
<PAGE> 52
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) EXHIBITS:
EXHIBIT
NUMBER DESCRIPTION
2+ Articles and Certificates of Merger and Reorganization of DIDAX ON-LINE
L.C. and DIDAX INC. into the Registrant
3.1+ Certificate of Incorporation and Certificates of Amendments thereto of
DIDAX INC.
3.1(a)+ Certificate of Correction regarding Certificate of Incorporation
3.1(b) Certificate of Amendment thereto of DIDAX INC.
3.2+ Bylaws and amendments thereto of the Registrant
4.5+ Form of Stock Option Agreement
5.1+ Opinion of Berman Wolfe & Rennert, P.A.
5.2+ Opinion of Gammon & Grange, P.C.
10.1+ Office Building Lease by and between 4501 Daly Dr. Inc. and the
Registrant dated September 12, 1995
10.2+ Amended office Building Lease by and between 4501 Daly Dr. Inc. and the
Registrant dated January 30, 1996
10.3+ 1997 Stock Option Plan
10.3A* 1997 Stock Option Plan, as amended April 6, 1998
10.4+ Promissory Note and Warrant Certificate between the Registrant and
Robert Varney dated July 10, 1996
10.5+ Promissory Note and Warrant Certificate between the Registrant and
Robert Varney dated September 26, 1996
10.6+ Amendment to terms of promissory notes between Registrant and Robert
Varney dated November 13, 1996
10.7+ Amendment to terms of promissory notes between Registrant and Robert
Varney dated July 10, 1997
10.8+ Promissory note and Warrant Certificate between the Registrant and
Bruce Edgington dated July 30, 1996
10.9+ Promissory note and Warrant Certificate between the Registrant and
Bruce Edgington dated October 30, 1996
<PAGE> 53
10.10+ Amendment to terms of promissory notes between Registrant and Bruce
Edgington dated November 13, 1996
10.11+ Amendment to terms of promissory notes between Registrant and Bruce
Edgington dated July 24, 1997
10.12+ Promissory note between the Registrant and John and Holli Meindl dated
January 9, 1997
10.13+ Form of Promissory Note between Registrant and Holders of Junior Notes
10.14+ Agreement between the Registrant and NetRadio dated June 21, 1996
10.15+ Agreements between the Registrant and Digital Nation dated March 19,
1997 and November 12, 1996
10.16+ Agreement between the Registrant and Promise Keepers dated March 13,
1996 with amendment dated February 10, 1997
10.17+ Agreement between the Registrant and World Vision dated February 11,
1997
10.18+ Employment Agreement between the Registrant and Robert Varney, Ph.D.
dated as of June 6, 1997
10.19+ Employment Agreement between the Registrant and Dane West dated as of
June 6, 1997
10.19A* Employment Agreement between the Registrant and Dane West dated as of
March 23, 1998
10.20+ Employment Agreement between the Registrant and William Bowers dated as
of June 6, 1997.
10.20A* Employment Agreement between the Registrant and William Bowers dated as
of March 23, 1998
10.21+ Employment Agreement between the Registrant and Gary Struzik dated as
of June 6, 1997.
10.21A* Employment Agreement between the Registrant and Gary Struzik dated
March 23, 1998
10.22+ Agreement between the Registrant and ichat, Inc. dated February 28,
1997
10.23+ Agreement between the Registrant and Spring Arbor Distribution Company
dated October 1, 1996
10.24+ Agreement between the Registrant and Intermind Corporation dated
January 19, 1997
10.25+ Agreement between the Registrant and CyberCash, Inc. dated February 11,
1997
10.26+ Promissory note between Registrant and Bruce Edgington dated August 8,
1997
10.27+ Promissory note between Registrant and Bruce Edgington dated August 22,
1997
10.28+ Promissory note between Registrant and Bruce Edgington dated September
5, 1997
10.29+ Promissory note between Registrant and Robert Varney dated August 22,
1997
10.30+ Promissory note between Registrant and Robert Varney dated September 5,
1997
10.31# Promissory note between Registrant and Dane West dated October 31, 1997
10.32# Promissory note between Registrant and William Bowers dated October 31,
1997
<PAGE> 54
10.33# Agreement between the Registrant and Corporate Resource Development,
Inc. dated February 18, 1998
10.34# Agreement between the Registrant and GTE Internetworking dated December
15, 1997
10.35# Agreement for Conclusion of Employment Agreement between the Registrant
and Robert Varney dated February 17, 1998
10.36* Form of Noncompetition and Proprietary Information Agreement between
the Registrant and Messrs. Bowers, West, Parker, and Struzik dated as
of March 23, 1998
10.37* Employment Agreement between Registrant and William M. Parker dated
March 23, 1998
10.38* 1998 Stock Option Plan
10.39** Office Building Lease by and between Richard P. Van Curen and Caprice
Company and the Registrant dated August 10, 1998
10.40** Amended office Building Lease Memoranda by and between Richard P. Van
Curen and Caprice Company and the Registrant dated February 5, 1999
10.41** Agreements between the Registrant and Quantum American, Inc. dated
November 20, 1998
10.42** Agreement between the Registrant and Vignette Corporation dated June 1,
1998
10.43## 1998 Stock Option Plan, as amended March 3, 2000
10.44 Employment Agreement between Registrant and Stephen M. Wike dated
August 13, 1999
10.45 Office Building Lease by and between Enterprise Center Limited
Partnership Number Two and the registrant dated August 23, 1999
10.46 1998 Stock Option Plan, as amended February 26, 1999
10.47 Agreement between the Registrant and Exodus Communications dated
January 9, 2000
11 Statement of computation of earnings per share
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hoffman, Morrison & Fitzgerald, PC
27.1 Financial Data Schedule - Restated For Fiscal Year 1998
27.2 Financial Data Schedule - For Fiscal Year 1999
+ Incorporated by reference to the Company's Registration Statement on Form SB-2
declared effective by the Securities and Exchange Commission on September 24,
1997, SEC File No. 333-25937
* Incorporated by reference to the Company's Registration Statement Post
Effective Amendment No. 1 to Form SB-2 declared effective by the Securities and
Exchange Commission on July 2, 1998, SEC File No. 333-25937
# Incorporated by reference to the Company's Registration Statement on Form
10-KSB declared effective by the Securities and Exchange Commission on March 20,
1998, SEC File No. 333-25937
<PAGE> 55
** Incorporated by reference to the Company's Registration Statement on Form
10-KSB declared effective by the Securities and Exchange Commission on March 22,
1999, SEC File No. 333-25937
## Filed as an Appendix to the Company's Proxy Statement on Schedule 14-A to be
filed with the Securities and Exchange Commission in connection with the
Company's 2000 Annual Meeting of Stockholders
(b) Reports on Form 8-K
During the fourth quarter of the fiscal year ended December 31, 1999, the
Company filed a Form 8K with the Securities and Exchange Commission on December
23, 1999 in recognition of the Company's change in certifying account from
Hoffman, Morrison & Fitzgerald, P.C. to Ernst & Young LLP.
The Company also filed a Form 8KA with the Securities and Exchange Commission on
October 25, 1999 to provide certain financial information with respect to the
Plan of Reorganization and Agreement (the "Agreement") entered into on July 30,
1999, by and among the Company, Media Management, Inc., a Virginia corporation
and a wholly-owned subsidiary of the Company, Wike Associates, Inc., a Virginia
Corporation, and its sole stockholder, Stephen M. Wike (Stockholder), providing
for Wike to become a wholly-owned subsidiary of the Company by merger of Wike
with and into Media, and for Stockholder, by such merger to become a stockholder
of the Company. This financial information regarding this merger was
impracticable to provide at the time the Company filed a Form 8-K pursuant to
the merger on August 13, 1999.
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Crosswalk.com, Inc.
March 20, 2000 By: /s/ William M. Parker
---------------------------------------
William M. Parker,
Chief Executive Officer and President and director
March 20, 2000 By: /s/ Gary A. Struzik
---------------------------------------
Gary A. Struzik, Chief Financial Officer
and Secretary, Chief Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
March 20, 2000 By: /s/ William M. Parker
---------------------------------------
William M. Parker,
Chief Executive Officer and President and director
March 20, 2000 By: /s/ James G. Buick
---------------------------------------
James G. Buick,
Chairman of the Board of Directors
<PAGE> 56
March 20, 2000 By: /s/ Stephen M. Wike
---------------------------------------
Chief Operating Officer and director
March 20, 2000 By: /s/ Gary A. Struzik
---------------------------------------
Gary A. Struzik, Chief Financial Officer
and Secretary, Chief Accounting Officer
March 20, 2000 By: /s/ Robert C. Varney
---------------------------------------
Robert C. Varney, PhD., director
March 20, 2000 By: /s/ Dane B. West
---------------------------------------
Dane B. West, director
March 20, 2000 By: /s/ William H. Bowers
---------------------------------------
William H. Bowers, director
March 20, 2000 By: /s/ Bruce E. Edgington
---------------------------------------
Bruce E. Edgington, director
March 20, 2000 By: /s/ Clay T. Whitehead
---------------------------------------
Clay T. Whitehead, director
March 20, 2000 By: /s/ Earl E. Gjelde
---------------------------------------
Earl E. Gjelde, director
March 20, 2000 By: /s/ W.R. `Max' Carey
---------------------------------------
W.R. `Max' Carey, director
<PAGE> 57
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1(b) Certificate of Amendment thereto of DIDAX INC.
10.44 Employment Agreement between Registrant and Stephen M. Wike dated
August 13, 1999
10.45 Office Building Lease by and between Enterprise Center Limited
Partnership Number Two and the registrant dated August 23, 1999
10.46 1998 Stock Option Plan, as amended February 26, 1999
10.47 Agreement between the Registrant and Exodus Communications dated
January 9, 2000
11 Statement of computation of earnings per share
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hoffman, Morrison & Fitzgerald, PC
27.1 Financial Data Schedule - Restated For Fiscal Year 1998
27.2 Financial Data Schedule - For Fiscal Year 1999
<PAGE> 1
EXHIBIT 3.1(b)
State of Delaware
Office of the Secretary of State
----------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "DIDAX INC.", CHANGING ITS NAME FROM "DIDAX INC." TO
"CROSSWALK.COM, INC.", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF MAY, A.D.
1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
State of Delaware Seal AUTHENTICATION: 9749367
DATE: 05-18-99
<PAGE> 2
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
The undersigned, being an Authorized Officer of DIDAX INC., a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of DIDAX INC. on January 26,
1999, a resolution was duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling for consideration thereof at the annual meeting of the
stockholders of said corporation. The resolution setting forth the proposed
amendment is as follows (in relevant part):
RESOLVED that the following items be presented to the stockholders for
vote at the Annual Stockholders Meeting to be held Wednesday, May 5,
1999:
2. Proposal to amend the Company's Certificate of Incorporation
to change the name of the Company to Crosswalk.com, Inc., as
herein adopted by the Board of Directors;
* * * *
4. Proposal to amend the Company's Certificate of Incorporation
to provide for an authorized class of Preferred Stock,
consisting of five million shares of Preferred Stock, par
value $.001 per share, with rights, preferences and
designation of such shares to be determined by the Company's
Board of Directors;
* * * *
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a
meeting of the stockholders of said corporation was duly called and held, upon
notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
<PAGE> 3
FOURTH: That pursuant to said resolution of said corporation's Board of
Directors and said vote of said corporation's stockholders, paragraph one (1) of
the Certificate of Incorporation of this corporation is amended so that, as
amended, it shall be and read as follows:
"1. The name of the Corporation is CROSSWALK.COM, INC."
FIFTH: That pursuant to said resolution of said corporation's Board of Directors
and said vote of said corporation's stockholders, paragraph four (4) of the
Certificate of Incorporation of this corporation shall be and hereby is amended
so that, as amended, it shall be and read as follows:
"4. The total number of shares of all classes of stock that the
Corporation is authorized to issue is twenty million
(20,000,000) shares of Common Stock with a par value of $0.01
per share, and five million (5,000,000) shares of Preferred
Stock with a par value of $.001 per share, with rights,
preferences and designation of such shares to be determined by
the Corporation's Board of Directors."
SIXTH: That the capital of said corporation shall not be reduced under or by
reason of said amendments.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by William M. Parker, an Authorized Officer, this twelfth day of May,
1999.
By: /s/ William M. Parker
---------------------
(Authorized Officer)
Name: William M. Parker
Title: President and Chief Executive Officer
Attest: By: /s/ Gary A. Struzik
-----------------------
Name: Gary A. Struzik
Title: Secretary and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into as of August 13, 1999,
by and between Stephen Wike ("Employee"), 17805 Battle Creek Court, Hamilton, VA
20158, and Crosswalk.com, Inc., a Delaware business corporation with its
principal place of business at 4206F Technology Court, Chantilly, VA 20151
("CROSSWALK"), each a "party" and collectively the "parties." In consideration
of the Plan of Reorganization and Agreement, entered into on or about the date
hereof by and among CROSSWALK, Wike Associates, Inc. and Employee, and the
employment of Employee by CROSSWALK, CROSSWALK and Employee hereby agree as
follows:
1. Employment, Complete Agreement, and Modification. CROSSWALK agrees to employ
Employee and Employee agrees to be employed by CROSSWALK on the terms and
conditions set forth herein. This Agreement supersedes all previous
representations, either written or oral, between the parties. No provision of
this Agreement may be modified except by a writing signed by both parties.
2. Position. Subject to the Bylaws of CROSSWALK and to the direction of the CEO
and President of CROSSWALK, Employee shall serve as Editor-in-Chief for
Crosswalk.com, performing such duties and carrying out such responsibilities
related to management of content provided on Crosswalk.com and other CROSSWALK
owned and operated Web sites, along with oversight of the Ministry Values for
Growing Churches (MVGC) mail packet business, and other tasks as may be assigned
from time to time by the CEO and President. As a bona fide occupational
qualification for this position, Employee will subscribe to the Statement of
Faith as stated in Article XIII, Section 2 of the Bylaws of CROSSWALK. The Board
shall either vote, or recommend to the shareholders of CROSSWALK, as
appropriate, that during the Term of this Agreement, Employee be nominated for
election as a director at each meeting of shareholders held for the election of
directors.
3. Compensation. During the Term of this Agreement, CROSSWALK shall pay to
Employee for all his services a base salary in periodic installments in
accordance with CROSSWALK's usual practice for its similarly situated employees,
at an annual rate of $180,000.
4. Incentive Compensation. In addition to the compensation provided in Section
3, Employee shall be entitled to receive payments under a CROSSWALK incentive
compensation plan, the terms of which will be mutually agreed upon within 90
days of the date of this Agreement. It is understood that this plan will provide
for an opportunity to generate an additional $50,000 in annualized compensation,
to be retroactively effective to the date of this Agreement. Any incentive
compensation which is not deductible, in the opinion of CROSSWALK's counsel,
under Section 162(m) of the Internal Revenue Code shall be deferred and paid,
without interest, in the first year or years when and to the extent such payment
may be deducted.
5. Benefits. During the Term of this Agreement:
5.1.Employee shall be entitled to four (4) weeks of paid vacation time per
year, to be taken at times mutually acceptable to Employee and CROSSWALK.
5.2.CROSSWALK shall provide paid accident and health insurance for Employee
and his family comparable to that which CROSSWALK provides for other
CROSSWALK employees and their families.
5.3.CROSSWALK shall obtain at its expense (subject to Employee's
insurability) an insurance policy on the life of Employee, adjusted at
policy anniversary date, subject to the last sentence of this Section 5.3,
in the minimum face amount of Employee's current annual base salary.
Employee shall have the exclusive right to designate the beneficiaries of
such policy and change such beneficiaries
<PAGE> 2
from time to time. Such policy and the proceeds and cash value thereof
shall be the sole property of Employee and CROSSWALK shall not retain any
benefit therein.
5.4.Employee shall be entitled to sick leave benefits in accordance with
the customary policies of CROSSWALK for its executive officers, but in no
event less than one (1) week per year. In the event of Employee's
Disability, CROSSWALK shall provide disability insurance that shall provide
for the payment of Employee's annualized salary at the time of the
Disability, for a period of not less than one (1) year from the date of
Disability. For purposes of this Agreement, "Disability" shall mean a
written determination by a physician mutually agreeable to CROSSWALK and
Employee (or, in the event of Employee's total physical or mental
disability, Employee's legal representative) that Employee is physically or
mentally unable to perform his duties of Editor-in-Chief under this
Agreement and that such disability has continued for ninety (90) days and
can reasonably be expected to continue for a period of six (6) consecutive
months or for shorter periods aggregating one hundred and eighty (180) days
in any twelve (12) month period.
5.5.In addition to the vacation provided pursuant to Section 5.1 hereof,
Employee shall be entitled to not less than ten (10) paid holidays (other
than weekends) per year, generally on such days consistent with CROSSWALK's
employment policies.
5.6.Employee shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by him (in accordance with the policies and
procedures established by CROSSWALK or the Board for similarly situated
employees of CROSSWALK) in performing services hereunder.
5.7.Employee shall be eligible to participate in benefits not inconsistent
or duplicative of those set forth in this Section 5 as CROSSWALK shall
establish or maintain for its employees or executives generally. Employee
shall be solely responsible for any applicable income taxes relating to
benefits provided under this Section 5.
6. Term and Termination. The Term of this Agreement shall begin on the date of
execution stated above and shall continue until this Agreement is terminated by
either party as provided herein. Either party may terminate this Agreement and
Employee's employment hereunder at any time, with or without cause, upon thirty
(30) days prior written notice of termination to the other party. CROSSWALK may
terminate this Agreement without notice if it determines, in its sole but
reasonable discretion, that employee has engaged in substantial misconduct
including, but not limited to, willfully disregarding CROSSWALK's interests,
violating employee rules, or disregarding standards of behavior, i.e., for
"cause."
7. Severance. Upon termination of his employment by CROSSWALK without cause, as
defined in Section 6 above, and execution of a termination agreement, Employee
shall continue to receive as severance his current base salary and such benefits
as are provided under Sections 5.2 and 5.3 for an additional six (6) months.
8. Protective Covenant. During the period of his employment by CROSSWALK,
Employee shall: (8.1) to the best of his ability, devote his full professional
and business time and best efforts to the performance of his duties for
CROSSWALK and its subsidiaries and affiliates; and (8.2) not acquire, assume, or
participate in, directly or indirectly, any position, investment, action or
interest adverse or antagonistic to CROSSWALK, its business or prospects,
financial or otherwise.
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9. Conciliation. The parties agree that any claim or dispute arising from or
related to this Agreement shall be settled by biblically based mediation and, if
necessary, legally binding arbitration in accordance with the Rules of Procedure
for Christian Conciliation of the Institute for Christian Conciliation, 1537
Avenue D, Suite 352, Billings, MT 59102. Judgment upon an arbitration decision
may be entered in any court otherwise having jurisdiction. These methods shall
be the sole remedy for any controversy or claim arising out of this Agreement
and the parties expressly waive their respective right to file a lawsuit in any
civil court against one another for such disputes, except to enforce an
arbitration decision. The parties agree that any claim or dispute hereunder
shall expire if not brought within one (1) year of arising. Any claim or dispute
arising from or related to Section 10 hereof, Noncompetition and Proprietary
Information Agreement, between CROSSWALK and Employee, or any subsequent
noncompetition, nonsolicitation, confidentiality, and/or proprietary information
agreement or covenant between CROSSWALK and Employee, shall not be subject to
this Section 9.
10. Noncompetition and Proprietary Information Agreement.
10.1 Except with the prior written consent of the Board of Directors of
CROSSWALK (the "Board"), for a period of five (5) years from the date of
the closing on the Plan and Reorganization Agreement referred to above,
Employee shall not participate, directly or indirectly, as an employee,
owner, stockholder, joint venturer, subcontractor, supplier, manager,
partner, agent, consultant, representative or otherwise, in any business,
firm or corporation that manufactures, produces, sells, leases or otherwise
provides any products or services similar to, or directly or indirectly
competitive with, the products and services of the Acquired Business or
attempt to solicit business or customers from the Acquired Business (as
that term is defined in the Plan and Reorganization Agreement). This
Section 10.1 shall terminate, however, if CROSSWALK, its successors and
assigns, shall cease to do business in any form.
10.2 All ideas, concepts, information, and written material disclosed by
CROSSWALK to Employee, or acquired from a customer or prospective customer
of CROSSWALK, are and shall remain, during employment with CROSSWALK and
for a period of five (5) years from the date of the closing on the Plan of
Reorganization and Agreement, the sole and exclusive property and
proprietary information of CROSSWALK or such customers, and are disclosed
in confidence by CROSSWALK or permitted to be acquired from such customers
in reliance on Employee's agreement to maintain them in confidence and not
to use or disclose them to any other person except in furtherance of
CROSSWALK's business.
10.3 Employee agrees to hold as CROSSWALK's property all trade secrets,
processes, proprietary information, know-how, memoranda, books, papers,
letters, customer lists, processes, computer software, records, financial
information, policy and procedure manuals, training and recruiting
procedures, and other data, and all copies thereof and therefrom, in any
way relating to CROSSWALK's business and affairs, whether made by him or
otherwise coming into his possession ("Confidential Information") and on
termination of his employment, or demand of CROSSWALK at any time, to
deliver to CROSSWALK all tangible copies of Confidential Information.
Employee recognizes and acknowledges that CROSSWALK's Confidential
Information are valuable, special, and unique assets of CROSSWALK's
business, access to and knowledge of which are essential to the performance
of the Employee's duties under the Employment Agreement with CROSSWALK.
Employee will not, during or after the term of his employment by CROSSWALK,
in whole or in part,
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<PAGE> 4
disclose such Confidential Information to any person or entity for any
reason or purpose whatsoever, nor shall Employee make use of any such
Confidential Information for his own purposes or for the benefit of any
person or entity (except CROSSWALK) under any circumstances during or after
the term of his employment, provided that after the term of his employment
these restrictions shall not apply to such Confidential Information that
are then in the public domain (provided that Employee was not directly
responsible for such Confidential Information entering the public domain
without CROSSWALK's consent). Employee shall have no obligation hereunder
to keep confidential any Confidential Information if and to the extent
disclosure thereof is specifically required by law; provided, however, that
in the event disclosure is required by applicable law, Employee shall
provide CROSSWALK with prompt notice of such requirement, prior to making
any disclosure, so that CROSSWALK may seek an appropriate protective order.
Employee shall use his best efforts to cause all persons or entities to
whom any Confidential Information shall be disclosed by him hereunder to
observe the terms and conditions set forth herein as through each such
person or entity were bound hereby.
10.4 Any and all inventions, discoveries, improvements, processes,
apparatus, methods, designs, records, files, drawings, documents,
equipment, or other scientific, literary or artistic creations
(collectively "Creations") that Employee has invented, discovered,
conceived, originated, or made, or may invent, discover, conceive,
originate, or make, by himself or in conjunction with any other person or
entity, during the period of his employment by CROSSWALK in any way,
directly or indirectly, connected with CROSSWALK's business shall be the
sole and exclusive property of CROSSWALK. Employee agrees that all
copyrightable works created by Employee or under CROSSWALK's direction in
connection with CROSSWALK's business are "works made for hire" and shall be
the sole and complete property of CROSSWALK, and that any and all
copyrights to such works belong to CROSSWALK. To the extent such works are
not deemed to be "works made for hire," Employee hereby assigns all
proprietary rights, including copyright, in these works to CROSSWALK
without further compensation. Employee agrees to disclose to CROSSWALK
every patent application, notice of copyright, or other action taken by
Employee or any assignee or affiliate to protect intellectual property
during the twelve (12) months following termination of Employee's
employment with CROSSWALK, for whatever reason, so that CROSSWALK may
determine whether to assert a claim under this section or any other
provisions of hereof.
11. Governing Law. This Agreement shall be governed and interpreted in
accordance with the laws of the State of Virginia without regard to principles
of conflict of laws.
12. Severability. Should any provision or clause of this Agreement be held to be
void, invalid, or unenforceable, the remaining provisions of this Agreement
shall not be affected and shall continue in effect and the invalid provision
shall be deemed modified to the least degree necessary to remedy such
invalidity.
13. Assignment. This Agreement and the rights and obligations of the parties
shall bind and inure to the benefit of each of the parties hereto and shall also
bind and inure to the benefit of any successor or successors of CROSSWALK, but,
except as to any such successor of CROSSWALK, neither this Agreement nor any
rights or benefits hereunder may be assigned by either party without the prior
written consent of the other party.
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<PAGE> 5
14. Notice. Any notice required or permitted to be given hereunder shall be
effective when received and shall be sufficient if in writing and if personally
delivered or send by prepaid express delivery service, to the party to receive
such notice at its address set forth at the beginning of this Agreement or at
such other address as a party may be notice specify to the other.
15. No Conflicting Obligations. Each party represents and warrants that it is
under no obligation or restriction, nor will it assume any such obligation or
restriction, that does or would in any way violate, interfere, or conflict with
the performance to be rendered under this Agreement.
16. Agreement Read, Understood, and Fair. Employee has carefully read and
considered all provisions of this Agreement and agrees that all of the
restrictions set forth are fair and reasonable and are reasonably required for
the protection of the interests of CROSSWALK.
17. Severability; No Waiver. Should any provision or clause of this Agreement be
held to be void, invalid, or unenforceable, the remaining provisions of this
Agreement shall not be affected and shall continue in effect and the invalid
provision shall be deemed modified to the least degree necessary to remedy such
invalidity. If any tribunal of competent jurisdiction construes any provision or
clause of this Agreement, or any portion thereof, to be illegal, void, or
unenforceable because of the duration of such provision or the area or matter
covered thereby, such tribunal shall reduce the duration, area, or matter of
such provision, and, in its reduced form, such provision shall then be
enforceable and shall be enforced. The failure of either party to partially or
fully exercise any right or the waiver by either party of any breach, shall not
prevent a subsequent exercise of such right or be deemed a waiver of any
subsequent breach of the same or any other term of this Agreement.
18. Assignment. This Agreement and the rights and obligations of the parties
shall bind and inure to the benefit of each of the parties hereto and shall also
bind and inure to the benefit of any successor or successors of CROSSWALK, but,
except as to any such successor of CROSSWALK, neither this Agreement nor any
rights or benefits hereunder may be assigned by either party without the prior
written consent of the other party.
IN WITNESS WHEREOF, THE PARTIES HERETO HAVE DULY EXECUTED THIS AGREEMENT AS OF
THE DATE FIRST WRITTEN ABOVE.
STEPHEN WIKE CROSSWALK.COM, INC.
- ------------------------ -----------------------
Stephen Wike William M. Parker
("Employee") Chief Financial Officer and President
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<PAGE> 1
EXHIBIT 10.45
DEED OF LEASE
THIS DEED OF LEASE (this "Lease") is made this ____ day of August 1999,
by ENTERPRISE CENTER LIMITED PARTNERSHIP NUMBER TWO, a Virginia limited
partnership ("Landlord"), and CROSSWALK.COM, INC. a Delaware corporation
("Tenant").
Landlord and Tenant, intending legally to be bound, hereby covenant and
agree as set forth below.
ARTICLE 1
BASIC LEASE PROVISIONS
The following terms, when used herein, shall have the meanings set
forth below.
1.1 Premises. The Premises is deemed to be 10,585 square feet of
rentable area as outlined on Exhibit A attached hereto. The Premises are located
on the first floor of the Building and are known as Suite 110.
1.2 Building. The building in which the Premises are located. The
Building has three (3) floors, contains 79,420 square feet of rentable area, and
includes all alterations, additions, improvements, restorations or replacements
now or hereafter made thereto. The address of the Building is 4100 Lafayette
Center, Enterprise Center in Lafayette Business Park, Chantilly, Virginia 22021.
1.3 Term. If the Commencement Date is the first day of a month, the
Term shall be 61 full months. If the Term is not the first day of a calendar
month, the Term shall be 61 full months plus the time period from the
Commencement Date to the last day of the month in which the Commencement Date
falls.
1.4 Commencement Date. November 1, 1999, subject to adjustment as set
forth in Article 4.
1.5 Expiration Date. November 30, 2004, subject to adjustment as set
forth in Article 4.
1.6 Base Rent. The Base Rent shall be as follows:
MONTHLY BASE
LEASE YEAR ANNUAL BASE RENT RENT
1 $201,115.00 $16,759.58
2 $207,148.45 $17,262.37
3 $213,362.90 $17,780.24
4 $219,763.79 $18,313.65
5 $226,356.70 $18,863.06
6 (I.E., the 61ST $233,147.41 $19,428.95
MONTH)
<PAGE> 2
Notwithstanding the foregoing, one-half of Monthly Base Rent for the sixth and
twelfth full months of the Term shall be abated.
1.7 Security Deposit. $100,000.00, subject to adjustment as set forth
in Article 6.
1.8 Complex. That complex of buildings owned by Landlord known as
"Enterprise Center" containing one hundred eighty-nine thousand, one hundred
twenty (189,120) rentable square feet (of which the Building is a part), as
outlined on Exhibit E attached hereto, and including any easements, rights and
appurtenances thereto (including private streets, storm detention facilities and
any other service facilities).
1.9 Lafayette Business Park. That Complex of buildings in Chantilly,
Virginia known by the same name, of which the Complex, Building and premises are
a part, and including any easements, rights and appurtenances thereto.
1.10 Base Year for Operating Expenses. Calendar year 2000.
1.11 Base Year for Real Estate Taxes. Calendar year 2000.
1.12 Tenant's Proportionate Share of Operating Expenses. 13.33% of the
Operating Expenses allocable to the Building ("Tenant's Proportionate Share of
Building Operating Expenses"), and 5.60% of the Operating Expenses allocable to
the Complex ("Tenant's Proportionate Share of Complex Operating Expenses")
(collectively, "Tenant Proportionate Share of Operating Expenses).
1.13 Tenant's Proportionate Share of Real Estate Taxes. 5.60%
("Tenant's Proportionate Share of Real Estate Taxes").
1.14 Parking Space Allocation. 3.6 parking spaces per each 1,000
rentable square feet of the Premises, including any expansion space. The parking
spaces shall be unreserved, non-exclusive parking spaces in the Parking
Facilities.
1.15 Permitted Use. General office use and for no other purpose.
1.16 Broker(s).
(a) Landlord's: Spaulding & Slye (Robert B. Shue and Harry Klaff).
(b) Tenant's: The Irving Group (Casey Veatch).
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1.17 Landlord's Address for Payment of Rent.
Enterprise Center Limited .Partnership
Number Two
c/o ELV Associates, Inc. 3340 Peachtree
Road, NE, Suite 2675
Atlanta, GA 30326
Attn: Ms. Theresa F. McLaughlin
1.18 Landlord's Address for Notice Purposes.
c/o ELV Associates, Inc.
1076 Thomas Jefferson Street, N.W.
Washington, DC 20007
Attn: Ms. Theresa F. McLaughlin
Telephone: (202) 625-6100
1.19 Tenant's Address.
Before occupancy:
Crosswalk.com, Inc.
4206F Technology Court
Chantilly, Virginia 20151-1214
Attention: Mr. Gary Struzik
After Occupancy:
Crosswalk.com, Inc.
4100 Lafayette Center, Suite 110
Chantilly, Virginia 22021
Attention: Mr. Gary Struzik
ARTICLE 2
DEFINITIONS
The following terms, when used herein, shall have the meanings set forth
below.
2.1 Additional Rent. As defined in Article 5.3.
2.2 Agents. Officers, partners, directors, employees, agents,
licensees, customers, invitees and affiliates.
2.3 Alterations. Alterations, decorations, additions or improvements of
any kind or nature to the Premises or the Building, whether structural or
non-structural, interior, exterior or otherwise, including Cabling.
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<PAGE> 4
2.4 Association. The Lafayette Business Center Association, which is
governed by a Declaration of Covenants, Conditions and Restrictions dated
November 16, 1984 as recorded among the land records of Fairfax County, Virginia
in Deed Book 6057 at page 396, as amended from time to time (as amended, the
"Covenants").
2.5 Cabling. All cabling and wiring installed by Tenant in the Building
at any time in connection with any telephone, computer, telecommunications or
other system.
2.6 Common Area. All areas, improvements, facilities and equipment from
time to time designated by Landlord for the common use or benefit of Tenant,
other tenants of the Complex and their Agents, including roadways, entrances and
exits, landscaped areas, open areas, exterior lighting, service drives, loading
areas, pedestrian walkways, sidewalks, stairs, ramps, maintenance and utility
rooms and closets, exterior utility lines, common window areas, common trash
areas and Parking Facilities.
2.7 Event of Default. As defined in Article 22.
2.8 Guarantor. None.
2.9 Hazardous Materials. As defined in Article 26.
2.10 Herein, hereafter, hereunder and hereof. Under this Lease,
including all Exhibits.
2.11 Holidays. As defined in the Rules and Regulations attached as
Exhibit D.
2.12 Interest Rate. Fifteen percent (15%) per annum, but in no event
greater than the maximum rate permitted by law.
2.13 Land. The piece or parcel of land upon which the Complex is
located and all rights, easements and appurtenances thereunto belonging or
pertaining.
2.14 Lease Year. The first Lease Year shall commence on the
Commencement Date and terminate on the last day of the twelfth (12th) full
calendar month after the Commencement Date. Each subsequent Lease Year shall
commence on the date immediately following the last day of the preceding Lease
Year and shall continue for a period of twelve (12) full calendar months, except
that the last Lease Year of the Term shall terminate on the date this Lease
expires or is otherwise terminated.
2.15 Legal Requirements. All laws, statutes, ordinances, orders, rules,
ordinances, regulations and requirements (including any and all energy
conservation requirements applicable to the Complex and customary industry
indoor air quality standards and practices) of all federal, state and municipal
governments, and the appropriate agencies, officers, departments, boards and
commissions thereof whether now or hereafter in force which relate or are
applicable to the Land, Premises, the Building or the Complex or any part
thereof.
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2.16 Mortgage. Any mortgage, deed of trust, security interest or title
retention interest affecting the Building, the Land or the Complex.
2.17 Mortgagee. The holder of any note or obligation secured by a
mortgage, deed of trust, security interest or title retention interest affecting
the Complex, the Building or the Land, including lessors under ground leases,
sale-leasebacks and lease-leasebacks.
2.18 Operating Expenses. As defined in Article 7.
2.19 Parking Facilities. All parking areas now or hereafter made
available by Landlord for use by tenants, including open-air parking within the
Complex, whether reserved, exclusive, non-exclusive or otherwise.
2.20 Real Estate Taxes. As defined in Article 8.
2.21 Rent. Base Rent and Additional Rent.
2.22 Substantial Completion. As defined in the Work Agreement attached
hereto and made a part hereof as Exhibit B.
2.23 Substantial Part. More than fifty percent (50%) of the rentable
square feet of the Premises, the Building or the Complex, as the case may be.
2.24 Tenant's Property. Any and all personal property, furniture,
business trade fixtures, inventory and equipment located in the Premises and
owned by Tenant together with all leasehold and tenant improvements and
Alterations installed in or performed by Tenant or its Agents or on behalf of
Tenant or by Landlord on behalf of Tenant pursuant to the Work Agreement (as
hereinafter defined) or the terms of this Lease but expressly excluding those
items of standard base building work insured by Landlord and provided at
Landlord's sole cost and expense, if any, as more fully described in the Work
Agreement.
2.25 Work Agreement. Attached hereto as Exhibit B.
ARTICLE 3
THE PREMISES
3.1 Lease of Premises. In consideration of the agreements contained
herein, Landlord hereby leases the Premises to Tenant, and Tenant hereby leases
the Premises from Landlord, for the Term and upon the terms and conditions
hereinafter provided. The Premises are leased subject to, and Tenant agrees not
to violate, all present and future covenants, conditions and restrictions of
record which affect the Land. The Premises shall not include an easement for
light, air or view.
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<PAGE> 6
3.2 Landlord's Reservations. In addition to the other rights of
Landlord under this Lease, Landlord reserves the right to (i) change the street
address and/or name of the Building or the Complex, (ii) install, erect, use,
maintain and repair mains, pipes, conduits and other such facilities to serve
the Complex and the Building in and through the Premises, (iii) grant to anyone
the exclusive right to conduct any particular business or undertaking in the
Complex, (iv) control the use of the roof and exterior walls of the Building and
the Complex for any purpose, subject to any roof rights of Tenant hereunder, and
(v) perform such other acts and make such other changes with respect to the
Common Area, the Complex and the Building as Landlord, in the exercise of sound
business judgment, deems appropriate. Provided there is no unreasonable, adverse
impact on Tenant's business operations, Landlord may exercise any or all of the
foregoing rights without being deemed guilty of an eviction, actual or
constructive.
ARTICLE 4
TERM
4.1 Lease Term. The Term shall commence on the Commencement Date and
expire at midnight on the Expiration Date. If Substantial Completion of the
Premises has not occurred on the date set forth in Article 1 as the Commencement
Date, then the Commencement Date shall be the date of Substantial Completion;
provided, that if Tenant uses or accepts the Premises before Substantial
Completion or the date set forth in Article 1 as the Commencement Date, then the
Commencement Date shall be the date upon which Tenant uses or accepts the
Premises (subject to Tenant's right to early access to the Premises under the
Work Agreement). In such event, the Expiration Date shall be adjusted
accordingly so that the period of the Term is not changed. If requested by
Landlord, Tenant shall within fifteen (15) days of such request sign a
declaration acknowledging the Commencement Date and the Expiration Date in the
form attached hereto and made a part hereof as Exhibit C.
ARTICLE 5
RENT
5.1 Base Rent. Tenant shall pay to Landlord the Base Rent as specified
in Article 1.6
5.2 Payment of Base Rent. Base Rent for each Lease Year shall be
payable in equal monthly installments, in advance, without demand, notice,
deduction, offset or counterclaim, on or before the first day of each and every
calendar month during the Term, except that, if the Commencement Date occurs on
a date other than on the first day of a calendar month, Base Rent prorated from
the Commencement Date to the end of the month in which the Commencement Date
falls shall be due and payable on the Commencement Date. Tenant shall pay the
Base Rent and all Additional Rent, by good check or in lawful currency of the
United States of America, to Landlord at Landlord's Address, or to such other
address or in such other manner as Landlord from time to time specifies by
written notice to Tenant. Any payment made by Tenant to Landlord on account of
Base Rent may be credited by Landlord to the payment of any late charges then
due and payable and to any Base Rent or Additional Rent then past due before
being credited to Base Rent currently due.
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5.3 Additional Rent. All sums payable by Tenant under this Lease, other
than Base Rent, shall be deemed "Additional Rent," and, unless otherwise set
forth herein, shall be payable in the same manner as set forth above for Base
Rent.
5.4 Late Payment. If Tenant fails to pay any Rent within ten (10) days
after such Rent becomes due and payable, Tenant shall pay to Landlord a late
charge of five percent (5%) of the amount of such overdue Rent. In addition, any
such late Rent payment shall bear interest from the date such Rent became due
and payable to the date of payment thereof by Tenant at the Interest Rate. Such
late charge and interest shall be due and payable within two (2) days after
written demand from Landlord.
ARTICLE 6
SECURITY DEPOSIT
6.1 General. Simultaneously with the execution of this Lease, Tenant
shall deposit with Landlord the Security Deposit in cash or in the form of a
letter of credit, which shall be held by Landlord, without obligation for
interest, as security, for the performance of Tenant's obligations and covenants
under this Lease. The Security Deposit is not an advance rental deposit or a
measure of Landlord's damages in case of an Event of Default. If an Event of
Default shall occur or if Tenant fails to surrender the Premises in the
condition required by this Lease, Landlord, after the expiration of any
applicable notice and cure period and upon five (5) days' prior notice to
Tenant, may, without prejudice to any other remedy that Landlord may have on
account thereof, apply the amount of the Security Deposit required to cure such
default or to remedy the condition of the Premises. If Landlord so applies the
Security Deposit or any portion thereof before the Expiration Date or earlier
termination of this Lease, Tenant shall deposit with Landlord, upon demand, the
amount necessary to restore the Security Deposit to its original amount. If
Landlord shall sell or transfer its interest in the Building or the Complex,
Landlord shall have the right to transfer the Security Deposit to such purchaser
or transferee, in which event Tenant shall look solely to the new landlord for
the return of the Security Deposit, and Landlord thereupon shall be released
from all liability to Tenant for the return of the Security Deposit. Landlord
shall give Tenant notice of this transfer, but this notice may be given within a
reasonable time after the transfer occurs. Although the Security Deposit shall
be deemed the property of Landlord, any remaining balance of the Security
Deposit shall be returned to Tenant within forty-five (45) days after the
Expiration Date or earlier termination of this Lease that all of Tenant's
obligations under this Lease have been fulfilled. Landlord shall conduct a "Post
Move-Out Inspection" of the Premises within fifteen (15) days after the
Expiration Date or earlier termination of this Lease.
6.2 Security in the Form of a Letter of Credit. If the Security Deposit
is a letter of credit, such letter of credit shall (i) be unconditional and
irrevocable, (ii) in form and substance reasonably satisfactory to Landlord,
(iii) be issued by a commercial bank that is located in the Washington, D.C.
metropolitan area, is federally insured, has a net worth of at least
$100,000,000, and is otherwise reasonably acceptable to Landlord, (iv) be
transferable and assignable to the owner from time to time of the Complex, and
(v) not expire until at least sixty (60) days after the Expiration Date. If the
letter of credit is issued for one (1) year (or other
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period) at a time, the letter of credit must be automatically renewed on an
annual (or other periodic) basis at least thirty (30) days prior to the
expiration of the existing letter of credit. If Landlord draws on the letter of
credit in accordance with this Lease, Tenant shall promptly provide Landlord
with a replacement letter of credit or with cash so that the Security Deposit is
restored to the amount then required to be maintained under Article 6.3.
6.3 Reduction of the Security Deposit.
(a) The Security Deposit shall be reduced by 20% of the original
amount (i.e., $100,000) upon the commencement of the second and each successive
Lease Year provided that: (i) an Event of Default does not then exist, and (ii)
a monetary Event of Default has not occurred during the immediately preceding
Lease Year. Notwithstanding the foregoing, provided, in no event shall the
Security Deposit be reduced to less than $19,428.95.
(b) In addition to subarticle (a) above, the Security Deposit
shall be reduced to $19,428.95 if Tenant maintains profitable operations, total
assets of at least $50,000,000, and current assets of at least $25,000,000 for
the duration of one fiscal year of Tenant.
ARTICLE 7
OPERATING EXPENSES
7.1 Tenant's Proportionate Share of Operating Expenses. Commencing
January 1, 2001 and continuing throughout the remainder of the Term, Tenant
shall pay to Landlord, as Additional Rent, Tenant's Proportionate Share of the
amount by which the Operating Expenses during each calendar year exceed the
Operating Expenses during the Base Year for Operating Expenses. If the
Expiration Date is other than the last day of a calendar year, Tenant's
Proportionate Share of Operating Expenses shall be adjusted to reflect the
actual period of occupancy during the calendar year.
7.2 Operating Expenses Defined.
(a) As used herein, the term "Operating Expenses" shall mean all
expenses, disbursements and costs of every kind and nature which Landlord incurs
because of or in connection with the ownership, maintenance, management, repair,
alteration, replacement and operation of the Building and Complex (which
expressly includes the Land, the Parking Facilities and the Common Area)
including the following:
(1) Wages and salaries of all employees, including an on-site
management agent and staff, whether employed by Landlord or its management
company and all costs related to or associated with such employees or the
carrying out of their duties, including uniforms and their cleaning, taxes, auto
allowances and insurance and benefits (including contributions to pension and/or
profit sharing plans and vacation or other paid absences), but only to the
extent that such wages and salaries are for the performance of services by such
personnel in connection with the management, operation, repair or maintenance of
the Complex;
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(2) All supplies and materials, including janitorial and
lighting supplies;
(3) All utilities, including electricity, telephone (including
all costs and expenses of telephone service for the sprinkler alarm system, if
any), water, sewer, power, gas, heating, lighting and air conditioning for the
Building, except to the extent such utilities are charged directly to or paid
directly by, a tenant of the Building;
(4) All insurance (including any reasonable deductibles)
purchased by Landlord or its management company relating to the Building and any
equipment or other property contained therein or located thereon including
casualty, liability, rental loss, sprinkler and water damage insurance;
(5) All repairs to the Building and all mechanical components
and equipment therein (excluding repairs paid for by the proceeds of insurance
or by Tenant or other third parties other than as a part of the Operating
Expenses), including interior, exterior, structural or non-structural, and
regardless of whether foreseen or unforeseen;
(6) All maintenance of the Building and all mechanical
components and equipment therein including painting, ice and snow' removal.
landscaping, groundskeeping and the patching, painting and resurfacing of
driveways and parking lots;
(7) A commercially reasonable management fee payable to
Landlord and/or the company or companies managing the Complex, including a
separate fee for the Parking Facilities, if any;
(8) All maintenance, operation and service agreements for the
Building, and any equipment related thereto, including service and/or
maintenance agreements for the sprinkler system in the Building, if any
(excluding those paid for by Tenant or any third parties other than as a part of
Operating Expenses);
(9) Reasonable accounting, consulting and legal fees (whether
attributable to Landlord's in-house attorneys or paralegals);
(10) Any reasonable additional services not provided to the
Building or the Complex at the Commencement Date but thereafter provided by
Landlord as Landlord shall deem necessary in maintaining, repairing or operating
the Building or the Complex;
(11) All condominium dues and related charges and all
assessments, whether general, special or otherwise, levied against Landlord, the
Building or Complex pursuant to any condominium regime or any declaration or
other instrument affecting the Building or any part or component thereof;
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(12) All computer rentals for energy management or security
monitoring systems, if any;
(13) Any capital improvements made to the Building after the
Commencement Date (other than those made for the addition of rentable square
footage to the Building or for the sole benefit or a Building tenant pursuant to
its lease), the cost of which shall be amortized over such reasonable period as
Landlord shall determine [but not less than five (5) years], together with
interest on the unamortized balance of such cost at a rate equal to the lesser
of two (2) percentage points above the then prime rate of interest per annum as
published in the Money Rates section of The Wall Street Journal or the actual
rate as may have been paid by Landlord on funds borrowed for the purposes of
constructing said capital improvements, but only to the extent that such capital
improvement is (i) intended by Landlord to result in the reduction of Operating
Expenses, (ii) necessary or advisable to comply with Legal Requirements that
become effective after the Commencement Date, or (iii) necessary or advisable to
comply with insurance requirements or recommendations of Landlord's insurer or
Mortgagee;
(14) All costs incurred in implementing and operating any
transportation management program, ride sharing program or similar program
including the cost of any transportation program fees, mass transportation fees
or similar fees charged or assessed by any governmental or quasi-governmental
entity or pursuant to any Legal Requirements;
(15) Any payments made by the Landlord under any easement or
license agreement, declaration, restrictive covenant or instrument pertaining to
the payment of sharing of costs among property owners; and
(16) Reasonable reserves for replacements, repairs and
contingencies.
(b) If during any calendar year (including the Base Year for
Operating Expenses), the average occupancy rate for the Building is less than
ninety-five percent (95%) or Landlord is not supplying services to 95% of the
rentable area of the Building at any time during any such calendar year,
Operating Expenses for such calendar year shall be deemed to include all
additional costs and expenses of ownership, maintenance, management and
operation of the Building which Landlord determines that it would have paid or
incurred during any such calendar year if such average occupancy rate for the
Building had been 95% and had Landlord been supplying services to 95% of the
rentable square feet of the Building throughout such calendar year. If any
amounts comprising Operating Expenses are incurred not just with respect to the
office area of the Building, but also with respect to the retail area of the
Building, if any, then Landlord shall endeavor in good faith and use its
reasonable efforts to allocate such amounts between the office and retail areas
of the Building. Such allocation shall be made on a fair and equitable basis,
based on the usage of or benefits received from the service, utility or item in
question.
7.3 Exclusions from Operating Expenses.
(a) Operating Expenses shall not include the following:
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(1) Legal fees, space planners' fees, real estate brokers'
leasing commissions and advertising expenses incurred in connection with the
original or future leasing of space in the Building;
(2) Costs and expenses of alterations or improvements of the
Premises or the leasehold premises of other individual tenants in the Building;
(3) Costs of correcting defects in, or inadequacy of, the
design or construction of the Building or the materials used in the construction
of the Building or the equipment or appurtenances thereto to the extent covered
by warranties and recovered by Landlord;
(4) Depreciation, interest and principal payments on mortgages
and other financing or refinancing costs, if any, other than amortization of and
the interest factor attributable to permitted capital improvements;
(5) Costs and expenses associated with the operation of the
business of the person or entity which constitutes Landlord as the same are
distinguished from the costs of operation of the Building, including accounting
and legal matters, costs of defending any lawsuits with any Mortgagee (except to
the extent the actions of Tenant or any other tenant may be in issue), costs of
selling or financing any of Landlord's interest in the Building and outside fees
paid in connection with disputes with other tenants;
(6) Costs and expenses directly resulting from the gross
negligence or willful misconduct of Landlord or its Agents to the extent
provable by Tenant;
(7) Real Estate Taxes;
(8) Landlord's income taxes;
(9) Landlord's costs of any service sold or provided to any
tenant or occupant of the Building for which Landlord is reimbursed as an
additional charge or rental over and above the base rent and escalations payable
under the lease or occupancy agreement with that tenant or other occupant
(including after-hours HVAC costs or over-standard electrical consumption costs
incurred by other tenants or occupants or excess insurance costs arising from a
tenant's specific use or equipment) and costs of services provided to some
tenants, but not to Tenant;
(10) The initial cost of construction of the Building;
(11) Expenses for repairs or replacements to the extent such
expenses are covered by and reimbursed to Landlord by virtue of warranties from
contractors or suppliers;
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(12) The cost of any item of service or repair to the extent
covered by and reimbursed to Landlord under any warranty, guaranty or insurance
policy maintained or held by Landlord;
(13) Any Operating Expenses which are payable by any tenant
directly to the provider of the service or for which Landlord is entitled to be
and is reimbursed directly by a tenant, or by insurance proceeds;
(14) Legal or accounting fees, costs and disbursements for
negotiating leases or enforcing the lease obligations of other tenants in the
Complex;
(15) Damage and repairs attributable to condemnation, fire or
other casualty to the extent covered by insurance actually maintained or
required under the provisions of this Lease to be maintained by Landlord and
collected by Landlord;
(16) Interest, penalties or other costs arising out of
Landlord's failure to make timely payments of its obligations, unless such
failure is caused by Tenant's conduct;
(17) Repairs required to correct violations of Legal
Requirements existing as of the Commencement Date;
(18) Compensation of officers or executives of Landlord above
the level of property manager;
(19) Costs to acquire sculpture, paintings or other objects of
act;
(20) Costs arising from the presence of Hazardous Materials (as
defined in Article 26) in, about or below the Building or Complex; and
Landlord shall not collect more than one hundred percent (100%) of
the Operating Expenses actually incurred by Landlord and shall not recover any
items of cost more than once.
7.4 Estimated Payments. Commencing on January 1, 2001, Landlord shall
submit to Tenant, before the beginning of each calendar year, a statement of
Landlord's estimate of the Operating Expenses payable by Tenant during such
calendar year. In addition to the Base Rent, Tenant shall pay to Landlord on or
before the first day of each month during such calendar year an amount equal to
one-twelfth (1/12) of the estimated Operating Expenses payable by Tenant for
such calendar year as set forth in Landlord's statement. If Landlord fails to
give Tenant notice of its estimated payments due under this Article for any
calendar year, then Tenant shall continue making monthly estimated payments in
accordance with the estimate for the previous calendar year until a new estimate
is provided by Landlord. If Landlord determines that, because of unexpected
increases in Operating Expenses or other reasons, Landlord's estimate of the
Operating Expenses was too low, then Landlord shall have the right to give a new
statement of the estimated Operating Expenses due from Tenant for such calendar
year or the balance
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thereof and to bill Tenant for any deficiency which may have accrued during such
calendar year, and Tenant shall thereafter pay monthly estimated payments based
on such new statement.
7.5 Actual Operating Expenses. Within one hundred eighty (180) days
after the end of each calendar year, Landlord shall submit a statement to Tenant
showing the actual Operating Expenses for such calendar year and Tenant's
Proportionate Share of the amount by which such Operating Expenses exceed the
Operating Expenses during the Base Year. If for any calendar year, Tenant's
estimated monthly payments exceed Tenant's Proportionate Share of the amount by
which the actual Operating Expenses for such calendar year exceed the Operating
Expenses during the Base Year, then Landlord shall give Tenant a credit in the
amount of the overpayment toward Tenant's next monthly payments of estimated
Operating Expenses. If for any calendar year Tenant's estimated monthly payments
are less than Tenant's Proportionate Share of the amount by which the actual
Operating Expenses for such calendar year exceed the Operating Expenses during
the Base Year, then Tenant shall pay the total amount of such deficiency to
Landlord within thirty (30) days after receipt of the statement from Landlord.
Landlord's and Tenant's obligations with respect to any overpayment or
underpayment of Operating Expenses shall survive the expiration or earlier
termination of this Lease.
7.6 Tenant's Right to Audit. Tenant shall pay to Landlord all amounts
payable pursuant to Articles 7.4 and 7.5 herein without off-set or deduction
within the time periods provided for in each respective Article notwithstanding
that Tenant may object to Landlord's statement rendered pursuant thereto. In the
event Tenant shall dispute the amount set forth in Landlord's statement as
described in Article 7.5 herein and Tenant pays the full amount set forth in
Landlord's reconciliation statement then, Tenant shall have the right, not later
than sixty (60) days following receipt of such statement, to cause Landlord's
books and records with respect to the preceding calendar year to be audited by
an independent Certified Public Accountant mutually acceptable to Landlord and
Tenant, and who shall not be compensated on a contingency basis. Such audit
shall occur upon not less than twenty (20) days prior written notice to
Landlord, at Landlord's place of business or the actual location of Landlord's
books and records if different from Landlord's place of business, during
Landlord's normal business hours. The amounts payable under this Article by
Landlord to Tenant or by Tenant to Landlord, as the case may be, shall be
appropriately adjusted on the basis of such audit. If such audit discloses a
liability for further refund by Landlord to Tenant in excess of five percent
(5%) of the payments previously made by Tenant for such calendar year, the
actual out-of-pocket cost of such audit incurred by Tenant shall be borne by
Landlord and paid within thirty (30) days of demand from Tenant subject to
Landlord's right to dispute the results of Tenant's audit as hereinafter
described; otherwise, the cost of such audit shall be borne by Tenant.
Notwithstanding the foregoing, in no event shall Landlord's cost for such audit
exceed Three Thousand Dollars ($3,000). If Tenant's audit discloses a liability
for further refund by Landlord to Tenant of one percent (1%) or less or a
liability for further payment by Tenant, then in that event the actual
out-of-pocket cost to respond to Tenant's audit incurred by Landlord (including
reasonable consultants' and attorneys' fees) shall be borne by Tenant and paid
within thirty (30) days of demand from Landlord. In the event that the Landlord
disputes the results of the Tenant's audit, Landlord shall notify Tenant within
thirty (30) days of delivery of the results of the Tenant's audit together with
reasonably detailed documentation related thereto. If Landlord disputes the
Tenant's audit, Landlord shall within said 30-day period, designate an
independent Certified
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Public Accounting firm from one of the "Big-Five" (i.e., Arthur Anderson & Co.
or similar company) and said firm shall review the Tenant's audit and, if
necessary, shall re-audit the Landlord's books and records and issue a final
report within ninety (90) days of the expiration of said 30-day period. Tenant
shall fully cooperate and instruct its auditor to fully cooperate with the
review conducted by the Big-Five firm. The findings of the Big-Five firm shall
be conclusive and binding on the parties hereto as it relates to the statement
at issue. In the event that the Big-Five firm's report confirms the Tenant's
audit then the Landlord shall pay the cost of the Big-Five audit which shall be
in addition to any obligation Landlord may have to pay Tenant's expenses as
aforesaid. If the report discloses a liability by Landlord to Tenant of less
than the amount of Tenant's audit, Tenant shall pay the cost (not to exceed
$3,000) of the Big-Five audit which shall be in addition to any obligation
Tenant may have to pay Landlord's expenses as aforesaid. If Tenant shall not
request an audit in accordance with the provisions of this Article within sixty
(60) days of receipt of Landlord's reconciliation statement of actual Operating
Expenses, such statement shall be conclusive and binding upon Landlord and
Tenant.
ARTICLE 8
TAXES
8.1 Tenant's Proportionate Share of Real Estate Taxes. Commencing
January 1, 2001 and continuing throughout the remainder of the Term, Tenant
shall pay to Landlord, as Additional Rent, Tenant's Proportionate Share of the
amount by which the Real Estate Taxes during each calendar year exceed the Real
Estate Taxes for the Base Year for Real Estate Taxes. Real Estate Taxes for the
Base Year for Real Estate Taxes and for each successive calendar year during the
Term shall, if necessary, be adjusted by Landlord, in its reasonable discretion,
to reflect a fully assessed Complex. If the Expiration Date is other than the
last day of a calendar year, Tenant's Proportionate Share of Real Estate Taxes
shall be adjusted to reflect the actual period of occupancy during the calendar
year.
8.2 Definition of Real Estate Taxes. As used herein, the term "Real
Estate Taxes" shall mean all taxes and assessments, general or special, ordinary
or extraordinary, foreseen or unforeseen, assessed, levied or imposed by any
governmental authority upon the Complex and upon the fixtures, machinery,
equipment or systems in, upon or used in connection with any of the foregoing,
and the rental, revenue or receipts derived therefrom, under the current or any
future taxation or assessment system or modification of, supplement to, or
substitute for such system. Real Estate Taxes also shall include-special
assessments which are in the nature of or in substitution for real estate taxes,
including road improvement assessments, special use area assessments, school
district assessment, vault space rentals and any business, professional and
occupational license tax payable by Landlord in connection with the Building. If
at any time the method of taxation prevailing on the date hereof shall be
altered so that in lieu of, as a substitute for or in addition to the whole or
any part of the taxes now levied or assessed, there shall be levied or assessed
a tax of whatever nature, then the same shall be included as Real Estate Taxes
hereunder. Further, for the purposes of this Article, Real Estate Taxes shall
include the reasonable expenses (including attorneys' fees) incurred by Landlord
in challenging or obtaining or attempting to obtain a reduction of such Real
Estate Taxes, regardless of the outcome of such challenge. Notwithstanding the
foregoing, Landlord shall have no obligation to challenge Real Estate Taxes. If
as a result of any such challenge, a tax refund is made to Landlord, then the
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amount of such refund less the expenses of the challenge shall be deducted from
Real Estate Taxes due in the Lease Year such refund is received.
8.3 Estimated and Actual Payments. Landlord shall charge Tenant for its
Proportionate Share of Real Estate Taxes and Tenant shall pay such charges in
accordance with the procedures established under Articles 7.4 and 7.5 for
payment of Operating Expenses.
ARTICLE 9
PARKING
9.1 Parking Spaces. During the Term, and at no additional fee, Tenant
shall have the non-exclusive right to use the Parking Facilities.
9.2 Changes to Parking Facilities. Landlord shall have the right, from
time to time, with Tenant's consent (which shall not be unreasonably withheld,
conditioned or delayed), to change, alter, add to, temporarily close or
otherwise affect the Parking Facilities; provided, that Landlord shall endeavor
in good faith and use its reasonable efforts to minimize any material
interference with Tenant's beneficial use of the Premises. Tenant shall not use
more spaces than have been allotted to Tenant hereunder.
ARTICLE 10
USE
10.1 General. Tenant shall occupy the Premises solely for the Permitted
Use. The Premises shall not be used for any other purpose without the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
conditioned or delayed. Tenant shall comply, at Tenant's expense, with (i) all
Legal Requirements, and (ii) any reasonable requests of Mortgagee or any
insurance company providing coverage with respect to the Premises. Tenant shall
not use or occupy the Premises in any manner that is unlawful or dangerous or
that shall constitute waste, unreasonable annoyance or a violation of the
Covenants. Notwithstanding the foregoing, Landlord warrants that, as of the
Commencement Date, the Premises shall comply with all then existing Legal
Requirements, including the laws and regulations promulgated under the Americans
with Disabilities Act.
10.2 Tenant's Personal Property. Tenant shall pay before delinquency
any business, rent or other tax or fee that is now or hereafter assessed or
imposed upon Tenant's use or occupancy of the Premises, the conduct of Tenant's
business in the Premises or Tenant's Property. If any such tax or fee is enacted
or altered so that such tax or fee is imposed upon Landlord or so that Landlord
is responsible for collection or payment thereof, then Tenant shall pay the
amount of such tax or fee as Additional Rent.
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ARTICLE 11
ASSIGNMENT AND SUBLETTING
11.1 Consent. Tenant shall not assign, transfer, mortgage or otherwise
encumber this Lease or sublet or rent (or permit a third party, to occupy or
use) the Premises, or any part thereof, nor shall any assignment or transfer of
this Lease or the right of occupancy hereunder be effected by operation of law
or otherwise, without the prior written consent of Landlord, which consent shall
not be unreasonably withheld, conditioned or delayed (any such valid assignment,
sublease or any of the other foregoing shall sometimes be hereinafter referred
to as a "transfer"). For purposes of the foregoing prohibitions, a transfer at
any one time or from time to time of twenty percent (20%) or more of an interest
in Tenant (whether stock, partnership interest or other form of ownership or
control) by any person(s) or entity(ties) having an interest in ownership or
control of Tenant shall constitute an assignment of this Lease, except for the
transfer of stock which is traded on a nationally recognized stock exchange. Any
assignment, encumbrance, or sublease without Landlord's written consent shall be
voidable by Landlord and, at Landlord's election, constitute an Event of Default
hereunder. Notwithstanding the foregoing, in any event, Tenant shall be strictly
prohibited from assigning or subletting its interest in or rights under this
Lease in any way during the final Lease Year of the Term. This Article 11.1 is
subject to Article 11.6.
11.2 Landlord's Options. If at any time or from time to time during the
Term, Tenant desires to effect a transfer, Tenant shall deliver to Landlord
written notice ("Transfer Notice") setting forth the terms and provisions of the
proposed transfer and the identity of the proposed assignee, sublessee or other
transferee (sometimes referred to hereinafter as a "Transferee"). Tenant shall
also deliver to Landlord with the Transfer Notice, a current financial statement
for the Transferee and such other information as Landlord may reasonably
request. Landlord shall have the option, exercisable by written notice delivered
to Tenant within ten (10) days after Landlord's receipt of the Transfer Notice,
such financial statements and other information, either to:
(a) approve or disapprove such transfer; or
(b) terminate this Lease with respect to the entire Premises (or,
in the case of a proposed sublease, only that portion of the Premises which the
Tenant has requested to Sublease), which termination shall be effective thirty
(30) days after Tenant's receipt of Landlord's notice; provided, however, that
this clause (b) shall not apply unless the proposed transfer (either by itself
or when taken together with all prior transfers hereunder) would result in the
transfer of 50% or more of the Premises, and provided, further, that if Landlord
exercises its option to terminate under this clause (b), Tenant may withdraw its
Transfer Notice upon notice to Landlord within five (5) days after Landlord's
notice is given to Tenant.
11.3 Assignment or Sublet Premium. If Landlord approves an assignment
or subletting of all or any portion of the Premises, Tenant shall pay to
Landlord as Additional Rent, as and when received by Tenant, an amount equal to
fifty percent (50%) of the amount by which (i) all sums paid to Tenant or its
agent by or on behalf of such assignee or subtenant under the assignment or
sublease (after Tenant recoups its reasonable, direct subleasing or assignment
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costs, such as improvement costs, advertising costs, real estate commissions and
legal fees), exceeds (ii) the then applicable Monthly Base Rent and Additional
Rent paid by Tenant under this Lease and attributable to the portion of the
Premises assigned or sublet.
11.4 Release. No transfer shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. If Landlord
consents to the proposed assignment or subletting, Landlord may require that any
Transferee remit directly to Landlord on a monthly basis all monies due Tenant
by said Transferee, subject to Article 11.3. The acceptance of rent by Landlord
from any other person shall not be deemed to be a waiver by Landlord of any
provision hereof. Consent by Landlord to one transfer shall not be deemed
consent to any subsequent transfer. If an Event of Default occurs by any
Transferee of Tenant or any successor of Tenant in the performance of any of the
terms hereof, Landlord may proceed directly against Tenant without the necessity
of exhausting remedies against such Transferee or successor. Landlord may
consent to subsequent assignments of the Lease or sublettings or amendments or
modifications to the Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and any such actions shall not relieve Tenant of liability, under this Lease.
11.5 Administrative and Attorneys' Fees. If Tenant effects a transfer
or requests the consent of Landlord to any transfer, then Tenant shall, upon
demand, pay Landlord a non- refundable administrative fee of Five Hundred
Dollars ($500.00), plus any consultants', engineers' and reasonable attorneys'
fees incurred by Landlord in connection with such transfer or request for
consent (whether attributable to Landlord's in-house attorneys or paralegals or
otherwise). Acceptance of the $500.00 administrative fee and reimbursement of
Landlord's attorneys' and paralegal fees shall in no event obligate Landlord to
consent to any proposed transfer.
11.6 Assignment or Sublease with an Affiliate. Tenant, without
Landlord's consent, may enter into a transfer with an "Affiliate" (as defined
below) provided (i) in Landlord's reasonable discretion, the financial condition
of the Affiliate is equal to or greater than the financial condition of Tenant
as of the date hereof, (ii) Tenant remains liable under this Lease, and (iii)
the parties execute an assignment of lease on a form approved by Landlord.
Articles 11.3, 11.4 and 11.5 shall apply to a transfer to an Affiliate, but
Article 11.2 shall not apply. In this Lease, the term "Affiliate" means an
entity at least 50% of which is under common ownership or control with Tenant.
ARTICLE 12
MAINTENANCE AND REPAIR
12.1 Landlord's Obligation. Landlord shall not be responsible to make
any repairs, renovations or maintenance to any part of the Premises except as
expressly provided herein. Except for repairs that Tenant is required to make
pursuant to Article 12.2, Landlord shall (i) keep and maintain in good repair
and working order the Building and roof area (excluding Tenant's Property), and
(ii) comply with all Legal Requirements pertaining to the Common Area, including
the common areas of the Building. The cost of such maintenance and
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repairs to the Building (exclusive of those resulting from Landlord's negligence
or willful misconduct) and the cost of such compliance with Legal Requirements
shall be included in Operating Expenses and paid by Tenant to the extent allowed
in Article 7. Tenant shall immediately give Landlord written notice of any
defect or need for repairs of which the Tenant becomes aware. After such notice,
Landlord shall have a reasonable opportunity to repair or cure such defect.
Landlord's liability with respect to any defects, repairs or maintenance for
which Landlord is responsible under any of the provisions of this Lease shall be
limited to the cost of such repairs or maintenance or the curing of such defect.
12.2 Tenant's Obligation. Tenant shall, at its own expense, maintain
all parts of the Premises and Tenant's Property (except those for which Landlord
is either expressly responsible or elects to undertake pursuant to Article 12.1
or 12.3 of this Lease) in good condition, promptly making all necessary, repairs
and replacements, including interior, windows, glass and plate glass, doors,
interior walls and finish work, floors and floor covering, lighting and
electrical systems (except for building standard light bulbs, which will be
replaced by Landlord), HVAC and mechanical systems (including fixtures and
equipment), and plumbing work and fixtures.
12.3 Landlord's Right to Pay, Maintain or Repair. If, within five (5)
days following written notice to Tenant, Tenant fails to pay any amount Tenant
has agreed to pay hereunder or fails to commence to repair or replace any item
which is Tenant's obligation to perform, and diligently pursue timely completion
of such repair and replacement, Landlord may cause all such payments, required
maintenance, repairs or replacements to be made. Tenant shall pay Landlord all
costs incurred in connection therewith (including reasonable attorneys' fees and
costs of collection) within thirty (30) days of the receipt by the Tenant of an
invoice from Landlord. Interest shall accrue thereon at the Interest Rate if not
paid within said 30-day period from the due date until paid.
12.4 Renovation of Common Corridors. Before the end of 1999, Landlord,
at its cost, will make the following improvements to the common corridors on the
first floor of the Building: (i) install new carpet, (ii) paint, and (iii)
replace ceiling tiles and light fixtures, as needed (collectively, "Landlord's
Renovations"). All materials and plans for Landlord's Renovations shall be
subject to Landlord's exclusive choice, but at a minimum shall be building
standard.
ARTICLE 13
INITIAL CONSTRUCTION; ALTERATIONS
13.1 Initial Construction. Landlord and Tenant agree that the
construction of the Landlord Work and other initial construction with respect to
the Premises shall be performed in accordance with Exhibit B (Work Agreement)
attached hereto.
13.2 Alterations. Except with regard to decorative or non-structural
Alterations which do not exceed One Dollar ($1.00) per rentable square foot in
the aggregate per Lease Year, Tenant shall not make or permit any Alterations
without the prior written consent of Landlord which consent shall not be
unreasonably withheld or delayed. Landlord may impose
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any reasonable conditions to its consent, including (i) delivery to Landlord of
written and unconditional waivers of mechanic's and materialmen's liens as to
the Premises, the Building, the Complex and the Land for all work, labor and
services to be performed and materials to be furnished, signed by all
contractors, subcontractors, materialmen and laborers participating in the
Alterations, (ii) prior approval of the plans and specifications and Tenant's
contractor(s) with respect to the Alterations, (iii) supervision by Landlord's
representative at Landlord's expense of the Alterations and (iv) delivery to
Landlord of payment and performance bonds naming Landlord and Mortgagee as
obligees. The Alterations shall conform to the requirements of Landlord's and
Tenant's insurers and of any Legal Requirements applicable to the Premises,
shall be performed in accordance with the terms and provisions of this Lease in
a good and workmanlike manner befitting a first class office/industrial building
and shall not adversely affect the value, utility or character of the Premises.
If the Alterations are not performed as herein required, Landlord shall have the
right, at Landlord's option, to halt any further Alterations, or to require
Tenant to perform the Alterations as herein required or to require Tenant to
return the Premises to its condition before such Alterations. Notwithstanding
the foregoing, if any mechanic's or materialmen's lien is filed against the
Premises, the Building or the Land for work claimed to have been done for, or
materials claimed to have been furnished to or for the benefit of, Tenant, such
lien shall be discharged of record by Tenant within twenty (20) business days
after notice by the payment thereof or the filing of any bond required by law.
If Tenant shall fail to discharge any such lien, Landlord may (but shall not be
obligated to) discharge the same, the cost of which shall be paid by Tenant
within three (3) business days of demand by Landlord. Such discharge by Landlord
shall not be deemed to waive or release the default of Tenant in not discharging
the same. Neither Landlord's consent to the Alterations nor anything contained
in this Lease shall be deemed to be the agreement or consent of Landlord to
subject Landlord's interest in the Premises, the Building, the Complex or the
Land to any mechanic's or materialmen's liens which may be filed in respect of
the Alterations.
13.3 Removal of Alterations.
(i) Except to the extent Tenant requests and Landlord designates
otherwise at the time Landlord approves such Alterations, all or any part of the
Alterations made after the Commencement Date of this Lease (including
wall-to-wall carpet), whether made with or without the consent of Landlord,
shall, at the election of Landlord, either be removed by Tenant at its expense
before the expiration of the Term or shall remain upon the Premises and be
surrendered therewith at the Expiration Date or earlier termination of this
Lease as the property of Landlord without disturbance, molestation or injury. If
Landlord requires the removal of all or part of the Alterations, Tenant, at its
expense, shall repair any damage to the Premises or the Building caused by such
removal. If Tenant fails to remove the Alterations within thirty (30) days after
Landlord's request, then Landlord may remove the same and the cost of such
removal and repair of any damage caused by the same, together with any and all
damages which Landlord may suffer and sustain by reason of the failure of Tenant
to remove the same, shall be charged to Tenant and paid upon demand. This clause
(i) is subject to clause (ii) below.
(ii) At least thirty (30) days before the Expiration Date,
Landlord shall notify Tenant of any Cabling to be removed. On or before the
Expiration Date, Tenant shall remove any Cabling so designated by Landlord, and
shall repair any damage to the Building
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caused by this removal. Landlord shall reimburse Tenant for one-half of the
removal and repair costs incurred by Tenant under this clause (ii). Any Cabling
not designated for removal by Landlord shall be left in the Building and shall
become Landlord's property upon the expiration of the Term.
13.4 Landlord Alterations. Subject to Article 12.1, 13.1 and Exhibit B,
Landlord shall have no obligation to make any Alterations in or to the Premises.
Except as expressly provided in the preceding sentence, Tenant shall accept the
Premises in its "AS-IS" condition.
ARTICLE 14
SIGNS
14.1 General. Landlord, at Tenant's cost, shall install (i) one (1)
suite entry sign for the Premises, the form and location of which shall be
approved in writing in advance by Landlord, and (ii) a listing for Tenant on the
Building lobby directory. Except as provided in the previous sentence, no sign,
advertisement or notice shall be inscribed, painted, affixed, placed or
otherwise displayed by Tenant or such subtenant on any part of the Land or the
outside or the inside (including windows) of the Complex, the Building or the
Premises without the Landlord's prior written approval, which approval shall not
be unreasonably withheld, conditioned or delayed. If any prohibited sign,
advertisement or notice is nevertheless exhibited by Tenant, Landlord shall have
the right to remove the same, and Tenant shall pay any and all expenses incurred
by Landlord in such removal, together with interest thereon at the Interest
Rate. upon demand. Landlord shall have the right to prohibit any sign,
advertisement, notice or statement to the public by Tenant in Landlord's
reasonable discretion.
14.2 Monument Sign. If Landlord constructs a monument sign for the
Complex or Building, Tenant, at its cost, may install thereon a sign with its
name and logo ("Tenant's Monument Sign"). The design and location of Tenant's
Monument Sign shall be approved by Landlord. Tenant, at its cost, shall maintain
Tenant's Monument Sign in good condition at all times, shall remove it at the
end of the Term, and shall repair any damage caused by this removal.
14.3 Exterior Building Sign.
(i) As of the date hereof, Landlord does not permit any tenant to
have signage on the exterior of the Building. If Landlord, in its sole
discretion, decides to allow tenants occupying office space in the Building to
have exterior building signage, Tenant, at its cost and subject to the remaining
terms of this Article 14.3, may install a sign with its name and logo on the
exterior facade of the Building ("Tenant's Exterior Sign").
(ii) The design and location of Tenant's Exterior Sign shall be
approved by Landlord. Tenant, at its cost, shall maintain Tenant's Exterior Sign
in good condition at all times, shall remove it at the end of the Term, and
shall repair any damage caused by this removal.
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(iii) The rights granted to Tenant in this Article with respect to
Tenant's Exterior Sign shall apply only as long as Tenant is leasing more
rentable square feet in the Building than any other tenant. If at any time
Tenant is not leasing more rentable square feet in the Building than any other
tenant, Landlord may require Tenant, at Tenant's cost, to remove the Exterior
Sign and to repair any damage caused by this removal.
ARTICLE 15
TENANT'S EQUIPMENT AND PROPERTY
15.1 Moving Tenant's Property. Any and all damage or injury to the
Premises caused by installation, removal or moving of the Tenant's Property into
or out of the Premises, or due to the same being on the Premises, shall be
promptly repaired by Tenant.
15.2 Installing and Operating Tenant's Equipment. Except as provided in
the Work Agreement, without first obtaining the written consent of Landlord
which consent Landlord shall not unreasonably withhold or delay, Tenant shall
not install or operate in the Premises (i) any electrically operated equipment
or other machinery, other than normal and customary equipment reasonably
necessary for Tenant's Permitted Use of the Premises and that does not require
wiring, cooling or other service in excess of existing Building systems, (ii)
any equipment of any kind or nature whatsoever which will require any changes,
replacements or additions to, or changes in the use of, any water, heating,
plumbing, air conditioning or electrical system of the Premises or the Building,
or (iii) any equipment which causes the floor load to exceed the load limits set
by Landlord for the Building. Machines and equipment which cause noise or
vibration that may be transmitted to the structure of the Building or to any
space therein so as to be objectionable to Landlord shall be installed and
maintained by Tenant, at its expense, on vibration eliminators or other devices
sufficient to eliminate such noise and vibration.
ARTICLE 16
RIGHT OF ENTRY
16.1 General. Tenant shall permit Landlord or its Agents, with
reasonable prior notice, during normal business hours and accompanied by a
representative of Tenant (except in the case of an emergency), to enter the
Premises (i) to examine, inspect and protect the Premises, (ii) to make such
alterations and repairs or perform such maintenance which in the sole judgment
of Landlord may be deemed necessary or desirable, or (iii) to exhibit the same
to present or future Mortgagee.
ARTICLE 17
INSURANCE
17.1 Insurance Rating. Tenant shall not conduct or permit any activity,
or place any equipment or material, in or about the Premises, the Building, the
Complex or the Common Area which will increase the rate of fire or other
insurance on the Building or the Complex; and if any increase in the rate of
insurance is stated by any insurance company or by the applicable insurance
rating bureau to be due to any activity, equipment or material of Tenant in or
about the
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Premises, the Building, the Complex or the Common Area, such statement shall be
conclusive evidence that the increase in such rate is due to the same and, as a
result thereof, Tenant shall pay such increase to Landlord upon demand.
17.2 Liability Insurance. Tenant shall, at its sole cost and expense,
procure and maintain throughout the Term a commercial general liability policy
insuring against claims, demands or actions for bodily injury, death, personal
injury, and loss or damage to property arising out of or in connection with: (i)
the Premises; (ii) the condition of the Premises; (iii) Tenant's operations in,
maintenance and use of the Premises, Building and Common Area, and (iv) Tenant's
liability assumed under this Lease. Such insurance shall have such combined
single limit as reasonably required by Landlord from time to time, but in no
event less than Three Million Dollars ($3,000,000.00) per occurrence, on an
occurrence basis, and shall be primary over any insurance carried by Landlord.
Endorsements shall be obtained for cross-liability and contractual liability.
17.3 Insurance for Tenant's Property. Tenant shall, at its sole cost
and expense, procure and maintain throughout the Term a property insurance
policy (written on an "All Risk" basis) insuring all of Tenant's Property, for
not less than the full replacement cost of said property. All proceeds of such
insurance shall be used to repair or replace Tenant's Property. If this Lease is
terminated as the result of a casualty in accordance with Article 21 herein, the
proceeds of said insurance attributable to the repair and/or replacement of any
leasehold improvements, tenant improvements or Alterations performed by or on
behalf of Tenant or by Landlord pursuant to the terms of the Work Agreement or
this Lease shall be the property, of the Landlord and paid to Landlord upon
demand together with interest thereon at the Interest Rate until paid.
17.4 Additional Insurance.
(a) Tenant shall, at its sole cost and expense, procure and
maintain business interruption insurance in an amount not less than the Base
Rent due hereunder for the first Lease Year, which amount shall be revised from
time to time upon the reasonable request of the Landlord or its Mortgagee.
(b) Tenant shall, at all times during the term hereof, maintain in
effect workers' compensation insurance as required by applicable Legal
Requirements.
17.5 Requirements of Insurance Coverage. All such insurance required to
be carried by Tenant herein shall be with an insurance company licensed to do
business in the Commonwealth of Virginia and rated not lower than A-XII in the
A.M. Best Rating Guide. Such insurance (i) shall contain an endorsement that
such policy shall remain in full force and effect notwithstanding that the
insured has released its right of action against any party before the occurrence
of a loss; (ii) shall name Landlord as an additional insured party and loss
payee; and (iii) shall provide that the policy shall not be canceled, failed to
be renewed or materially amended without at least thirty (30) days' prior
written notice to Landlord and, at Landlord's reasonable request, any Mortgagee.
On or before the Commencement Date and, thereafter, not less than thirty (30)
days before the expiration date of the insurance policy, an original of the
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policy (including any renewal or replacement policy) or a certified copy
thereof, together with evidence satisfactory to Landlord of the payment of all
premiums for such policy, shall be delivered to Landlord.
17.6 Waiver of Subrogation. Notwithstanding anything to the contrary in
this Lease, each party hereby releases the other party hereto from liability,
for any loss or damage to any building, structure or tangible personal property,
or any resulting loss of income, or losses under worker's compensation laws and
benefits, notwithstanding that such loss, damage or liability may arise out of
the negligent or intentionally tortious act or omission of the other party or
its Agents, if such loss or damage is covered by insurance benefiting the party,
suffering such loss or damage or was required to be covered by insurance
pursuant to this Lease. Each party, hereto shall use reasonable efforts to have
a waiver of subrogation clause (providing that such waiver of right of recovery,
against the other party shall not impair the effectiveness of such policy or the
insured's ability, to recover thereunder) included in its said policies, and
shall promptly notify the other in writing if such clause cannot be included in
any such policy; if such waiver of subrogation clause shall not be available,
then the foregoing waiver of right of recovery shall be void.
17.7 Security. Tenant may enter into a contract to maintain the
security, system for the Premises. Such engagement shall in no way increase
Landlord's liability, for occurrences and/or consequences which such a system is
designed to detect or avert and Tenant shall look solely to its insurer as set
out above for claims for damages or injury to any person or property.
17.8 Landlord's Insurance. Landlord shall maintain liability, fire and
extended coverage insurance on the Complex, together with such other types of
insurance coverage as are customarily maintained by owners of comparable
projects in the Northern Virginia area and such other insurance coverage as
Landlord may elect in its reasonable discretion to carry.
ARTICLE 18
LANDLORD SERVICES AND UTILITIES
18.1 Ordinary Services to the Premises. As long as no Event of Default
has occurred and is continuing and subject to Legal Requirements and Force
Majeure events, Landlord shall furnish to the Premises throughout the Term (i)
electricity appropriate for the Permitted Use, (ii) heating and air conditioning
appropriate for the Permitted Use during the following hours (collectively, the
"Building Hours"): 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m.
to 1:00 p.m. on Saturday, exclusive of Holidays, (iii) reasonable janitorial
service (including regular trash removal from the Premises), in a manner
comparable to janitorial service provided in similar office buildings in the
Chantilly, Virginia area, (iv) hot and cold water from points of supply, (v)
adequate supplies for restrooms located in the Common Area, (vi) elevator
service, provided that Landlord shall have the right to remove such elevators
from service as may be required for moving, freight or for maintaining the
elevators or the Building or for security reasons, and (vii) replacement of
building standard light bulbs. Tenant shall have access to the Premises seven
(7) days per week, twenty-four (24) hours per day, every day of the year. The
cost of all services provided by Landlord hereunder shall be included within
Operating Expenses, unless charged directly (and not as part of Operating
Expenses) to Tenant or another
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tenant of the Building, or otherwise excluded from Operating Expenses under
Article 7. The foregoing services shall be furnished by Landlord and reimbursed
by Tenant as part of Operating Expenses; provided, however, that Landlord shall
be under no responsibility or liability for failure, defect or interruption in
such services caused by Force Majeure, breakage, accident, strikes, repairs or
for any other cause or causes beyond the control of Landlord, nor in any event
for any indirect or consequential damages; and failure or omission on the part
of Landlord to furnish such service shall not be construed as an eviction of
Tenant, nor work an abatement of Rent, nor render Landlord liable in damages,
nor release Tenant from prompt fulfillment of any of the covenants under this
Lease. Landlord shall use commercially reasonable efforts to cause the
restoration of services in the event of any failure, delay or diminution
described in this Article 18.1. Notwithstanding the foregoing, if as a result of
the failure or delay of services (i) not due to the acts of Tenant or its
Agents, (ii) due to circumstances within the reasonable control of Landlord, and
(iii) the Premises cannot be used by Tenant for the normal conduct of its
business for a period of three (3) consecutive days, then Rent shall abate for
the portion(s) of the Premises rendered unusable commencing after said 3-day
period and continuing until the condition(s) causing such untenantability is
remedied. Landlord may comply with voluntary controls or guidelines promulgated
pursuant to any Legal Requirements relating to the use or conservation of
energy, water, gas, light, or electricity or the reduction of automobile or
other emissions without creating any liability of Landlord to Tenant under this
Lease. Landlord shall not be responsible if the normal operation of the Building
air-conditioning system shall fail to provide conditioned air within comfortable
temperatures levels (A) in any portions of the Premises which have a connected
electrical load for all purposes (including lighting and power) or which have a
human occupancy in excess of the average electrical load and human occupancy
factors for which the Building air-conditioning system is designed, (B) because
of Alterations made by or on behalf of Tenant, (C) in any portions of the
Premises exposed to direct sunlight in which Tenant fails to keep the window
treatments closed, or (D) because of the failure by Tenant or its Agents to use
the HVAC system in the manner in which it was designed to be used. Tenant agrees
to observe and comply with all reasonable rules from time to time prescribed by
Landlord for the proper functioning and protection of the HVAC systems in the
Building.
18.2 After-Hours Services to the Premises. If Tenant requires or
requests that the services to be furnished by Landlord (except building standard
electricity and elevator service) be provided during periods in addition to the
Building Hours, then Tenant shall obtain Landlord's consent thereto and, if such
consent is granted, shall pay upon demand Landlord's additional expenses
resulting therefrom. Landlord may, from time to time during the Term, set a per
hour charge for after-hours service which shall include the cost of utility,
service, labor costs, administrative costs and a cost for depreciation of the
equipment used to provide such after-hours service.
18.3 Excess Utility Charges. If Tenant's consumption of electricity
exceeds normal office power requirements, or if Tenant's electrical consumption
consistently occurs beyond Building Hours, Landlord, in its reasonable
discretion, acting in good faith, may (i) install a separate electric meter or
submeter for the Premises at Tenant's cost, or (ii) bill Tenant for any usage of
electric power (a) consistently occurring outside of Building Hours, or (b) that
exceeds normal office building requirements at the same cost paid by Landlord
for power usage. If Landlord installs a meter for the Premises, Tenant shall
then pay the cost of electricity it
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consumes directly to the electric company, and Landlord shall make an
appropriate good faith adjustment to Tenant's Proportionate Share of Operating
Expenses to reflect such separate metering. If Landlord installs a submeter for
the Premises, Tenant shall be billed periodically by Landlord based upon such
consumption, and Landlord shall make an appropriate good faith adjustment to
Tenant's Proportionate Share of Operating Expenses to reflect such submetering.
Tenant shall pay each invoice that it receives from Landlord under this
subarticle within 10 days after receipt. As used in this Article 18.3, the
phrase "normal office power requirements" means power requirements sufficient to
operate a modern office in which each employee uses a personal computer.
18.4 Year 2000 Compliance. Landlord warrants to Tenant that the
Building's customary systems and services are designed to be operational during
and after the calendar year 2000, and that the Building's customary systems and
services will operate during those time periods without any interruption of
critical services relating to year 2000 incompatibility. Notwithstanding
anything to the contrary in this Lease, if (i) Landlord breaches the foregoing
warranty, and (ii) as a result of this breach, services to the Premises are
interrupted and Tenant is unable to use the Premises in whole or in part for
more than three (3) continuous business days, then, starting with the fourth
(4th) business day and continuing until Tenant is again able to use the
Premises, Monthly Base Rent and Additional Rent shall be proportionately abated
to the extent that the Premises are unusable. This rent abatement shall be
Tenant's sole remedy against Landlord for Landlord's breach of the warranty
provided in this Article 18.4.
ARTICLE 19
LIABILITY OF LANDLORD
19.1 No Liability. Except where due to Landlord's gross negligence or
willful misconduct. Landlord shall not be liable to Tenant or its Agents for,
and Tenant, for itself and its Agents, does hereby release Landlord and its
Agents from liability, for, any damage, compensation or claim arising from (i)
the necessity of repairing any portion of the Premises, (ii) any interruption in
the use of the Premises or the Common Area for any reason including any
interruption or suspension of utility service, (iii) fire or other casualty or
personal or property injury, damage or loss resulting from the use or operation
(by Landlord, Tenant, or any other person whomsoever) of the Premises, (iv) the
termination of this Lease, (v) robbery, assault or theft, or (vi) any leakage in
the Premises from water, rain, snow or other cause whatsoever. Except as
otherwise provided in Article 18 regarding abatement of Rent, no such occurrence
shall give rise to diminution or abatement of Rent or constructive eviction.
Notwithstanding the foregoing, any goods, automobiles, property or personal
effects stored or placed by Tenant or its Agents in or about the Premises, shall
be at the sole risk of Tenant; Tenant hereby expressly waives its right to
recover against Landlord and its Agents therefor. Tenant hereby waives any claim
it might have against Landlord or its Agents for any consequential damages or
business losses sustained by Tenant arising out of the loss or damage to any
person or property of Tenant, or any interruption in the use of the Premises,
for any reason. Tenant acknowledges its obligation to insure against such losses
and damages.
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19.2 Indemnity.
(i) Tenant shall indemnify, defend, protect and hold Landlord and
its Agents harmless from and against any and all damage, claim, liability, cost
or expense (including attorneys' or other professionals' fees) of every kind and
nature (including those arising from any injury or damage to any person,
property or business) incurred by or claimed against Landlord or its Agents,
directly or indirectly, as a result of, arising from or in connection with (a)
Tenant's or its Agents' use and occupancy of the Premises; (b) Tenant's breach
of this Lease; or (c) any act, omission or negligence of Tenant or its Agents.
(ii) Subject to the limitations on Landlord's liability otherwise
provided in this Lease, Landlord shall indemnify, defend, protect and hold
Tenant and its Agents harmless from and against any and all damage, claim,
liability, cost or expense (including attorneys' or other professionals' fees)
of every kind and nature (including those arising from any injury or damage to
any person, property or business) incurred by or claimed against Tenant or its
Agents, directly or indirectly, as a result of, arising from or in connection
with the gross negligence or willful misconduct of Landlord or its Agents.
19.3 Limitation on Recourse. Notwithstanding anything contained in this
Lease to the contrary, the obligations of Landlord under this Lease (including
any actual or alleged breach or default by Landlord) do not constitute personal
obligations of the individual partners, directors, officers, shareholders,
trustees, advisors or agents of Landlord or Landlord's partners, and Tenant
shall not seek recourse against the individual partners, directors, officers or
shareholders, trustees, advisors or agents of Landlord or Landlord's partners,
or any of their personal assets for satisfaction of any liability with respect
to this Lease. In addition, in consideration of the benefits accruing hereunder
to Tenant and notwithstanding anything contained in this Lease to the contrary,
Tenant hereby covenants and agrees for itself and all of its successors and
assigns that the liability of Landlord for its obligations under this Lease
(including any liability as a result of any actual or alleged failure, breach or
default hereunder by Landlord), shall be limited solely to, and Tenant's and its
successors' and assigns' sole and exclusive remedy shall be against Landlord's
interest in the Building, the Complex and Land and/or such respective
partnership interests or assets and proceeds therefrom, and no other assets of
Landlord. In the event that the original Landlord hereunder, or any successor
owner of the Building, shall sell or convey the Building, all liabilities and
obligations on the part of the original Landlord, or such successor owner, under
this Lease occurring thereafter shall terminate as of the day of such sale, and
thereupon all such liabilities and obligations shall be binding on the new
owner.
ARTICLE 20
RULES AND REGULATIONS
20.1 General. Tenant and its Agents shall at all times abide by and
observe the Rules and Regulations and any amendments thereto that may be
reasonably promulgated from time to time by Landlord for the operation and
maintenance of the Building, the Complex and the Common Area and the Rules and
Regulations shall be deemed to be covenants of the Lease to be performed and/or
observed by Tenant. Nothing contained in this Lease shall be construed
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to impose upon Landlord any duty or obligation to enforce the Rules and
Regulations, or the terms or provisions contained in any other lease, against
any other tenant of the Building or the Complex; provided, however, that
Landlord shall enforce the Rules and Regulations in a nondiscriminatory manner.
Landlord shall not be liable to Tenant for any violation by any party of the
Rules and Regulations or the terms of any other Building lease. If there is any
inconsistency between this Lease and the Rules and Regulations, this Lease shall
govern. Landlord reserves the right to amend and modify the Rules and
Regulations as it deems necessary. The current Rules and Regulations are
attached hereto as Exhibited and made a part hereof.
ARTICLE 21
DAMAGE AND CONDEMNATION
21.1 Damage to the Premises. If the Premises shall be damaged by fire
or other cause without the fault or negligence of Tenant or its Agents,
Landlord shall diligently and as soon as practicable after such damage occurs
(taking into account the time necessary to effect a satisfactory settlement with
any insurance company involved and any delays beyond the direct control of
Landlord) repair such damage to the Premises (excluding the Tenant's Property)
at the expense of Landlord; provided, however, that Landlord's obligation to
repair such damage shall not exceed the proceeds of insurance available to
Landlord (reduced by any proceeds retained pursuant to the rights of Mortgagee).
Notwithstanding the foregoing, (i) if the Premises or the Building is damaged by
fire or other cause to such an extent that, in Landlord's or Tenant's reasonable
judgment, the damage cannot be substantially repaired within two hundred (200)
days after the date of such damage, then within sixty (60) days from the date of
such damage, either Landlord or Tenant may terminate this Lease by written
notice to the other party, or (ii) if the Premises are damaged during the last
Lease Year, then within thirty (30) days from the date of such damage, Landlord
or Tenant may terminate this Lease by written notice to the other party. If
either Landlord or Tenant terminates this Lease, the Rent shall be apportioned
and paid to the date of such termination. If neither Landlord nor Tenant so
elects to terminate this Lease but the damage required to be repaired by
Landlord is not repaired within two hundred (200) days from the date of such
damage (such two hundred (200) day period to be extended by the period of any
delay outside the direct control of Landlord plus a reasonable period for a
satisfactory settlement with any insurance company involved), Tenant, within
thirty (30) days from the expiration of such two hundred (200) day period (as
the same may be extended), may terminate this Lease by written notice to
Landlord. During the period that Tenant is deprived of the use of the damaged
portion of the Premises, and provided such damage is not the consequence of the
fault or negligence of Tenant or its Agents, Base Rent and Tenant's
Proportionate Share shall be reduced by the ratio that the rentable square
footage of the Premises damaged bears to the total rentable square footage of
the Premises before such damage; provided, further, that if (i) a Substantial
Part of the Premises is damaged, (ii) the damage does not result from the fault
or negligence of Tenant or its Agents, and (iii) Tenant does not use any of the
Premises, then Rent shall fully abate during the period that Tenant is deprived
of the use of the Premises. Notwithstanding anything herein to the contrary,
Landlord shall not be required to rebuild, replace or repair of the Tenant's
Property. If neither party terminates this Lease as aforesaid, Tenant shall be
required to repair or replace the Tenant's Property.
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21.2 Condemnation. If the whole or a Substantial Part of the Premises
or the Building shall be taken or condemned by any governmental or
quasi-governmental authority for any public or quasi-public use or purpose
(including sale trader threat of such a taking), then the Term shall cease and
terminate as of the date when title vests in such governmental or
quasi-governmental authority, and Rent shall be prorated to the date when title
vests in such governmental or quasi-governmental authority. If less than a
Substantial Part of the Premises is taken or condemned by any governmental or
quasi-governmental authority for any public or quasi-public use or purpose
(including sale under threat of such a taking), Base Rent and Tenant's
Proportionate Share shall be reduced by the ratio that the portion so taken
bears to the rentable square footage of the Premises before such taking,
effective as of the date when title vests in such governmental or
quasi-governmental authority, and this Lease shall otherwise continue in full
force and effect; provided, however, that if such taking materially affects the
Premises or access thereto so as to render the Premises unusable, Tenant may
terminate this Lease upon notice to Landlord given within sixty (60) days after
the taking occurs. Tenant shall have no claim against Landlord (or otherwise) as
a result of such taking, and Tenant hereby agrees to make no claim against the
condemning authority, for any portion of the amount that may be awarded as
compensation or damages as a result of such taking; provided, however, that
Tenant may, to the extent allowed by law, claim an award for moving expenses and
for the taking of any of Tenant's Property (other than its leasehold interest in
the Premises) which does not, under the terms of this Lease, become the property
of Landlord at the termination hereof, as long as such claim is separate and
distinct from any claim of Landlord and does not diminish Landlord's award.
Tenant hereby assigns to Landlord any right and interest it may have in any
award for its leasehold interest in the Premises.
ARTICLE 22
DEFAULT
22.1 Events of Default. Each of the following shall constitute an Event
of Default: (i) Tenant fails to pay Rent within five (5) days after written
notice from Landlord; (ii) Tenant fails to observe or perform any other term,
condition or covenant herein binding upon or obligating Tenant within thirty
(30) days after notice from Landlord; provided, however, that if such failure
cannot be cured within said 30-day period, Tenant shall have a reasonable period
of time in which to satisfy or cure said breach conditioned upon Tenant promptly
commencing to cure such breach and diligently pursuing the cure to completion,
(iii) Tenant abandons or vacates the Premises (other than the Sublet Space);
(iv) Tenant or any Guarantor makes or consents to a general assignment for the
benefit of creditors or a common law composition of creditors, or a receiver of
the Premises or all or substantially all of Tenant's or Guarantor's assets is
appointed; or (v) a transfer in violation of Article 11 herein.
22.2 Landlord's Remedies. Upon the occurrence of an Event of Default,
Landlord, at its option, without further notice or demand to Tenant, may in
addition to all other rights and remedies provided in this Lease, at law or in
equity:
(i) Terminate this Lease and Tenant's right of possession of the
Premises, and recover all damages to which Landlord is entitled under law,
specifically including all of Landlord's reasonable expenses of reletting
(including market rental concessions to new
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tenants, repairs, Alterations, legal fees and brokerage commissions). If
Landlord elects to terminate this Lease, every obligation of the parties shall
cease as of the date of such termination, except that Tenant shall remain liable
for payment of Rent and performance of all other terms and conditions of this
Lease to the date of termination.
(ii) Terminate Tenant's right of possession of the Premises
without terminating this Lease, in which event Landlord shall use commercially
reasonable efforts to relet the Premises or any part thereof for such rent and
term and upon such other conditions as are acceptable to Landlord. For purposes
of such reletting, Landlord is authorized to redecorate, repair, alter and
improve the Premises to the extent necessary in Landlord's sole discretion.
Until Landlord relets the Premises, Tenant shall remain obligated to pay Rent to
Landlord as provided in this Lease. If and when the Premises are relet and its
sufficient sum is not realized from such reletting after payment of all
Landlord's reasonable expenses of reletting (including rental concessions to new
tenants, repairs, Alterations, legal fees and brokerage commissions) to satisfy
the payment of Rent due under this Lease for any month. Tenant shall pay
Landlord any such deficiency upon demand. Tenant agrees that Landlord may file
suit to recover any sums due Landlord under this Article from time to time and
that such suit or recovery of any amount due Landlord shall not be any defense
to any subsequent action brought for any amount not previously reduced to
judgment in favor of Landlord.
(iii) Terminate this Lease and Tenant's right of possession of the
Premises, and recover from Tenant the net present value of the Rent due from the
date of termination until the Expiration Date, discounted at the lesser of the
Interest Rate as of the date of termination or seven percent (7%) per annum.
(iv) Re-enter and repossess the Premises and remove all persons
and effects therefrom, by summary proceeding, ejectment or other legal action.
Landlord shall have no liability by reason of any such re-entry, repossession or
removal.
(v) Recover from Tenant, to the extent permitted under the laws of
the Commonwealth of Virginia, the value and/or cost of all unamortized
concessions to Tenant under this Lease.
22.3 Rights Upon Possession. If Landlord takes possession pursuant to
this Article, upon terminating this Lease, Landlord may, at its option, enter
into the Premises. remove Tenant's Alterations, signs, personal property,
equipment and other evidences of tenancy, and store them at Tenant's risk and
expense or dispose of them as Landlord may see fit, and take and hold possession
of the Premises; provided, however, that if Landlord elects to take possession
only without terminating this Lease, such entry, and possession shall not
terminate this Lease or release Tenant or any Guarantor, in whole or in part,
from the obligation to pay the Rent reserved hereunder for the full Term or from
any other obligation under this Lease or any guaranty thereof.
22.4 No Waiver. If Landlord shall institute proceedings against Tenant
and a compromise or settlement thereof shall be made, the same shall not
constitute a waiver of any other covenant, condition or agreement herein
contained, nor of any of Landlord's rights
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hereunder. No waiver by Landlord of any breach shall operate as a waiver of such
covenant, condition or agreement, or operate as a waiver of such covenant,
condition or agreement itself, or of any subsequent breach thereof. No payment
of Rent by Tenant or acceptance of Rent by Landlord shall operate as a waiver of
any breach or default by Tenant under this Lease. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly installment of Rent
herein stipulated shall be deemed to be other than a payment on account of the
earliest unpaid Rent, nor shall any endorsement or statement on any check or
communication accompanying a check for the payment of Rent be deemed an accord
and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such Rent or to pursue
any other remedy provided in this Lease. No re-entry by Landlord, and no
acceptance by Landlord of keys from Tenant, shall be considered an acceptance of
a surrender of the Lease.
22.5 Right of Landlord to Cure Tenant's Default. If an Event of Default
shall occur, then Landlord may (but shall not obligated to) make such payment or
do such act to cure the Event of Default, and charge the amount of the expense
thereof, together with interest thereon at the Interest Rate, to Tenant. Such
payment shall be due and payable upon demand: however, the making of such
payment or the taking of such action by Landlord shall not be deemed to cure the
Event of Default or to stop Landlord from the pursuit of any remedy to which
Landlord would otherwise be entitled. Any such payment made by Landlord on
Tenant's behalf shall bear interest until paid at the Interest Rate.
ARTICLE 23
MORTGAGES
23.1 Subordination. This Lease and Tenant's interest hereunder shall
have priority over, and be senior to, the lien of any Mortgage made by Landlord
after the date of this Lease. However, if at any time or from time to time
during the Term, a mortgagee or prospective mortgagee ("Mortgagee") requests
that this Lease be subject and subordinate to its mortgage or deed or trust or
similar lien ("Mortgage"), and if Landlord consents to such subordination, this
Lease and Tenant's interest hereunder shall be subject and subordinate to the
lien of such Mortgage and to all renewals, modifications, replacements,
consolidations and extensions thereof and to any and all advances made
thereunder and the interest thereon. Tenant agrees that, within ten (10)
business days after receipt of a written request therefor from Landlord, it
will, from time to time, execute and deliver any reasonable instrument or other
document required by any such Mortgagee to subordinate this Lease and its
interest in the Premises to the lien of such Mortgage; provided, however, that
Tenant shall not be required to execute any such instrument or other document
unless it contains a "non-disturbance" provision (i.e., a clause providing that,
in the event of a foreclosure or deed in lieu thereof, Mortgagee will not
disturb this Lease or Tenant's occupancy of the Premises as long as Tenant is
not in default hereunder). If, at any time or from time to time during the Term,
a Mortgagee of a Mortgage made prior to the date of this Lease shall request
that this Lease have priority over the lien of such Mortgage, and if Landlord
consents thereto, this Lease shall have priority over the lien of such Mortgage
and all renewals, modifications, replacements, consolidations and extensions
thereof and all advances made thereunder and the interest thereon, and Tenant
shall, within ten (10) business days after receipt of a request therefor from
Landlord, execute, acknowledge and deliver any and all reasonable
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documents and instruments confirming the priority of this Lease. In any event,
however, if this Lease shall have priority over the lien of a first Mortgage,
this Lease shall not become subject or subordinate to the lien of any
subordinate Mortgage, and Tenant shall not execute any subordination documents
or instruments for any subordinate Mortgagee, without the written consent of the
first Mortgagee.
This Lease and Tenant's interest hereunder shall be subject and
subordinate to each and every, ground or underlying lease hereafter made of the
Building, the Complex or the Land, and to all renewals, modifications,
consolidations, replacements and extensions thereof. Tenant agrees that, within
ten (10) business days after receipt of request therefor from Landlord, it will,
from time to time, execute, acknowledge and deliver any instrument or other
document required by any such lessor to subordinate this Lease and its interest
in the Premises to such ground or underlying lease.
23.2 Mortgagee Protection. Tenant agrees to give any Mortgagee by
certified mail. return receipt requested, a copy of any notice of default served
upon Landlord, provided that before such notice Tenant has been notified in
writing of the address of such Mortgagee. Tenant further agrees that if Landlord
shall have failed to cure such default within the time provided for in this
Lease, then the Mortgagee shall have an additional ten (10) business days within
which to cure such default; provided, however, that if such default cannot be
reasonably cured within that time. then such Mortgagee shall have such
additional time as may be necessary to cure such default so long as Mortgagee
has commenced and is diligently pursuing the remedies necessary, to cure such
default (including the commencement of foreclosure proceedings, if necessary),
in which event Tenant shall not exercise any remedies for default while such
remedies are being so diligently pursued. In the event of the sale of the Land.
the Complex or the Building, by foreclosure or deed in lieu thereof, the
Mortgagee or purchaser at such sale shall be responsible for the return of the
Security Deposit only to the extent that such Mortgagee or purchaser actually
received the Security Deposit.
23.3 Modification Due to Financing. If, in connection with obtaining
construction or permanent financing for the Premises, the Building, the Complex
or the Land, any lender (or Mortgagee) shall request reasonable modifications of
this Lease as a condition to such financing, Tenant shall promptly execute a
modification of this Lease, provided such modifications do not materially
increase the financial obligations of Tenant hereunder or materially adversely
affect the leasehold interest hereby created or Tenant's reasonable use and
enjoyment of the Premises. Tenant and any Guarantor shall each, prior to
execution and annually throughout the Term upon request, provide such financial
information and documentation about itself to Landlord or Mortgagee as may be
reasonably requested.
23.4 Attornment. In the event of (i) a transfer of Landlord's interest
in the Premises, (ii) the termination of any ground or underlying lease of the
Complex, the Building or the Land, or (iii) the purchase of the Complex, the
Building or Landlord's interest therein in a foreclosure sale or by deed in lieu
of foreclosure under any Mortgage or pursuant to a power of sale contained in
any Mortgage, then in any of such events Tenant shall, at the request of
Landlord or Landlord's successor in interest, attorn to and recognize the
transferee or purchaser of Landlord's interest or the lessor under the
terminated ground or underlying lease, as the case
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may be, as Landlord under this Lease for the balance then remaining of the Term,
and thereafter this Lease shall continue as a direct lease between such lessor,
transferee or purchaser, as "Landlord," and Tenant, as "Tenant," except that
such lessor, transferee or purchaser shall not be liable for any act or omission
of Landlord prior to such lease termination or prior to its succession to title,
nor be subject to any offset, defense or counterclaim accruing prior to such
lease termination or prior to such succession to title, nor be bound by any
payment of Base Rent or Additional Rent prior to such lease termination or prior
to such succession to title for more than one month in advance. Tenant shall,
upon request by Landlord or the transferee or purchaser of Landlord's interest
or the lessor under the termination ground or underlying lease, as the case may
be, execute and deliver an instrument or instruments confirming the foregoing
provisions of this Article. Tenant hereby waives the provisions of any present
or future law or regulation which gives or purports to give Tenant any right to
terminate or otherwise adversely affect this Lease, or the obligations of Tenant
hereunder, upon or as a result of the termination of any such ground or
underlying lease or the completion of any such foreclosure and sale.
23.5 Non-Disturbance Agreement. Notwithstanding anything to the
contrary in this Article, Landlord shall (i) obtain a subordination, attornment
and non-disturbance agreement (an "SNDA") for the benefit of Tenant from
Landlord's existing Mortgagee, and (ii) use reasonable efforts to obtain a SNDA
for the benefit of Tenant from any future Mortgagees of Landlord. Each SNDA
shall be on the Mortgagee's standard form. The form of SNDA to be used with
Landlord's current Mortgagee is attached hereto as Exhibit H.
ARTICLE 24
SURRENDER; HOLDING OVER
24.1 Surrender of the Premises. Tenant shall peaceably surrender the
Premises to Landlord on the Expiration Date or earlier termination of this
Lease, in broom-clean condition and in as good condition as when Tenant took
possession, including the repair of any damage to the Premises caused by the
removal of any of Tenant's personal' property. or trade fixtures from the
Premises, except for reasonable wear and tear and loss by fire or other
casualty' not caused by Tenant or its Agents. Any of Tenant's personal property
left on or in the Premises. the Building, the Complex or the Common Area after
the Expiration Date or earlier termination of this Lease shall be deemed to be
abandoned, and, at Landlord's option, title shall pass to Landlord under this
Lease.
24.2 Holding Over. In the event that Tenant shall not immediately
surrender the Premises to Landlord on the Expiration Date or earlier termination
of this Lease, Tenant shall be deemed to be a month to month tenant upon all of
the terms and provisions of this Lease, except the monthly Base Rent shall be
one hundred fifty percent (150%) of the monthly Base Rent in effect during the
last month of the Term. Notwithstanding the foregoing, if Tenant shall hold over
after the Expiration Date or earlier termination of this Lease, and Landlord
shall desire to regain possession of the Premises, then Landlord may upon
reasonable prior written notice forthwith re-enter and take possession of the
Premises. Tenant shall indemnify Landlord against all liabilities and damages
sustained by Landlord by reason of such retention of possession.
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ARTICLE 25
QUIET ENJOYMENT
25.1 General. Landlord covenants that if Tenant shall pay Rent and
perform all of the terms and conditions of this Lease to be performed by Tenant,
Tenant shall during the Term peaceably and quietly occupy and enjoy possession
of the Premises without molestation or hindrance by Landlord or any successor
party' claiming through or under Landlord, subject to the provisions of this
Lease and any Mortgage to which this Lease is subordinate and easements,
conditions and restrictions of record affecting the Land.
ARTICLE 26
COVENANTS REGARDING HAZARDOUS MATERIALS
26.1 Definition. As used in this Article, the term "Hazardous Material"
means any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "infectious wastes," "hazardous materials" or "toxic substances" now or
subsequently regulated under any federal, state or local laws, regulations or
ordinances including oil, petroleum-based products, paints, solvents, lead,
cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other
chemical products, asbestos, PCBs and similar compounds, and including any
different products and materials which are subsequently found to have adverse
effects on the environment or the health and safety, of persons.
26.2 General Prohibition. To the best of Landlord's actual knowledge,
there are no Hazardous Materials on or about the Building or the Premises.
Neither Landlord nor Tenant shall cause or permit any Hazardous Material to be
generated, produced, brought upon, used, stored, treated. discharged, released,
spilled or disposed of on, in, under or about the Premises, the Building, the
Complex or the Land by Landlord or Tenant or their respective Agents, sublessees
or assignees. Each party shall indemnify, defend and hold the other party
harmless from and against any and all actions (including remedial or enforcement
actions of any kind, administrative or judicial proceedings, and orders or
judgments arising out of or resulting therefrom), costs, claims, damages
(including punitive damages), expenses (including attorneys', consultants' and
experts' fees, court costs and amounts paid in settlement of any claims or
actions), fines, forfeitures or other civil, administrative or criminal
penalties. injunctive or other relief (whether or not based upon personal or
bodily injury, property damage, or contamination of, or adverse effects upon,
the environment, water tables or natural resources), liabilities or losses
arising from a breach of this prohibition by the other party, its Agents,
sublessees or assignees. Landlord recognizes and acknowledges that Tenant or its
Agents may use and store within the Building normal and customary, quantities of
office and cleaning supplies which Tenant covenants to dispose of in accordance
with all applicable Legal Requirements.
26.3 Notice. In the event that Hazardous Materials are discovered upon,
in, or under the Premises, the Building, the Complex or the Land and any
governmental agency or entity having jurisdiction over the Premises, the
Building, the Complex or the Land requires the removal of such Hazardous
Materials, Tenant shall be responsible for removing those Hazardous
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Materials arising out of or related to the use or occupancy of the Premises, by
Tenant or its Agents, affiliates, sublessees or assignees but not those of its
predecessors. Notwithstanding the foregoing, Tenant shall not take any remedial
action in or about the Premises, the Building, the Complex or the Land without
first notifying Landlord of Tenant's intention to do so and affording Landlord
the opportunity to protect Landlord's interest with respect thereto. Tenant
immediately shall notify Landlord in writing of: (i) any spill, release,
discharge or disposal of any Hazardous' Material in, on or under the Premises,
the Building, the Complex, the Land or any portion thereof, (ii) any
enforcement, cleanup, removal or other governmental or regulatory action
instituted, contemplated, or threatened (if Tenant has notice thereof) pursuant
to any Hazardous Materials Laws; (iii) any claim made or threatened by any
person against Tenant, the Premises, the Building, the Complex or the Land
relating to damage, contribution, cost recovery, compensation, loss or injury,
resulting from or claimed to result from any Hazardous Materials; and (iv) any
reports made to any governmental agency or entity arising out of or in
connection with any Hazardous Materials in, on, under or about or removed from
the Premises, the Building, the Complex or the Land, including any complaints,
notices, warnings, reports or asserted violations in connection therewith.
Tenant also shall supply to Landlord as promptly as possible, and in any event
within five (5) business days after Tenant first receives or sends the same,
copies of all claims, reports, complaints, notices, warnings or asserted
violations relating in any way to the Premises, the Building, the Complex, the
Land or Tenant's use or occupancy thereof.
26.4 Survival. The respective rights and obligations of Landlord and
Tenant under this Article 26 shall survive the expiration or earlier termination
of this Lease.
ARTICLE 27
MISCELLANEOUS
27.1 No Representations by Landlord. Tenant acknowledges that neither
Landlord or its Agents nor any broker has made any representation or promise
with respect to the Premises, the Building, the Complex, the Land or the Common
Area, except as herein expressly set forth, and no rights, privileges, easements
or licenses are acquired by Tenant except as herein expressly set forth.
27.2 No Partnership. Nothing contained in this Lease shall be deemed or
construed to create a partnership or joint venture of or between Landlord and
Tenant, or to create any other relationship between Landlord and Tenant other
than that of landlord and tenant.
27.3 Brokers. Landlord recognizes Brokers as the sole brokers procuring
this Lease and shall pay Brokers a commission therefor pursuant to a separate
agreement between Brokers and Landlord. Landlord and Tenant each represents and
warrants to the other that it has not employed any broker, agent or finder other
than Brokers relating to this Lease. Landlord shall indemnify and hold Tenant
harmless, and Tenant shall indemnify and hold Landlord harmless, from and
against any claim for brokerage or other commission arising from or out of any
breach of the indemnitor's representation and warranty.
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27.4 Estoppel Certificate. Tenant shall, without charge, at any time
and from time to time, within ten (10) business days after request therefor by
Landlord, Mortgagee, or any purchaser of the Land, the Complex or the Building
execute, acknowledge and deliver to such requesting party a written estoppel
certificate certifying, as of the date of such estoppel certificate, the
following: (i) that this Lease is unmodified and in full force and effect (or if
modified, that the Lease is in full force and effect as modified and setting
forth such modifications); (ii) that the Term has commenced (and setting forth
the commencement date and expiration date); (iii) that Tenant is presently
occupying the Premises; (iv) the amounts of rent currently due and payable by
Tenant; (v) that any alterations required by the Lease to have been made by
Landlord have been made to the satisfaction of Tenant; (vi) that there are no
existing set-offs, charges, liens, claims or defenses against the enforcement of
any right hereunder; (vii) that no rent (except the first installment thereof)
has been paid more than thirty (30) days in advance of its due date; (viii) that
Tenant has no knowledge of any then uncured default by Landlord of its
obligations under this Lease (or, if Tenant has such knowledge, specifying the
same in detail); (ix) that Tenant is not in default; (x) that the address to
which notices to Tenant should be sent is as set forth in the Lease (or, if not,
specifying the correct address); and (xi) any other certifications reasonably
requested by Landlord. Any such estoppel certificate delivered pursuant to this
Article may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of any portion of the Land, as well as their assignees.
27.5 Financial Statements. Within five (5) days after request by
Landlord, but not more often than once in any Lease Year, Tenant shall deliver
to Landlord financial statements of Tenant for its most recently ended fiscal
year and interim financial statements for its most recently ended quarter. To
the extent available, such financial statements shall be audited but if not
available shall be certified as true, correct and complete by Tenant's chief
financial officer.
27.6 Waiver of Jury Trial. Landlord and Tenant hereby waive trial by
jury in any action, proceeding or counterclaim brought by either party against
the other with respect to any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant hereunder or
Tenant's use or occupancy of the Premises. In the event Landlord commences any
proceedings for nonpayment of Rent, Tenant shall not interpose any counterclaims
other than compulsory counterclaims. This shall not, however, be construed as a
waiver of Tenant's right to assert such claims in any separate action brought by
Tenant.
27.7 Notices. All notices or other communications hereunder shall be in
writing and shall be deemed duly given if delivered in person or upon the
earlier of receipt, if mailed by certified or registered mail, or three (3)
business days after certified or registered mailing, return receipt requested,
postage prepaid, addressed and sent, if to Landlord to Landlord's Address
specified in Article 1.18 or if to Tenant to Tenant's Address specified in
Article 1.19. Landlord and Tenant may from time to time by written notice to the
other designate another address for receipt of future notices.
27.8 Invalidity of Particular Provisions. If any provisions of this
Lease or the application thereof to any person or circumstances shall to any
extent be invalid or unenforceable, the remainder of this Lease, or the
application of such provision to persons or
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circumstances other than those to which it is invalid or unenforceable, shall
not be affected thereby, and each provision of this Lease shall be valid and be
enforced to the full extent permitted by law.
27.9 Gender and Number. All terms and words used in this Lease.
regardless of the number or gender in which they are used, shall be deemed to
include any other number or gender as the context may require.
27.10 Benefit and Burden. Subject to the provisions of Article 11 and
except as otherwise expressly provided, the provisions of this Lease shall be
binding upon, and shall inure to the benefit of, the parties hereto and each of
their respective representatives, heirs, successors and assigns.
27.11 Entire Agreement. This Lease (which shall be deemed to include
the Exhibits attached hereto, as well as the Agreement) contains and embodies
the entire agreement of the parties hereto, and no representations, inducements
or agreements, oral or otherwise, between the parties not contained in this
Lease shall be of any force or effect. This Lease (other than the Rules and
Regulations, which may be changed from time to time as provided herein) may not
be modified, changed or terminated in whole or in part in any manner other than
by an agreement in writing duly signed by Landlord and Tenant.
27.12 Attorney's Fees. If, as a result of any default of Landlord or
Tenant in its performance of any of the provisions of this Lease, the other
party uses the services of an attorney in order to secure compliance with such
provisions or recover damages therefor, or to terminate this Lease or evict
Tenant, the non-prevailing party shall reimburse the prevailing party upon
demand for any and all reasonable attorneys' fees and reasonable expenses so
incurred by the prevailing party.
27.13 Governing Law. This Lease is governed by the laws of the
Commonwealth of Virginia.
27.14 Force Majeure. Except for Tenant's obligations to pay Rent
hereunder. neither Landlord nor Tenant shall be required to perform any of its
obligations under this Lease, nor shall such party be liable for loss or damage
for failure to do so, nor shall the other party thereby be released from any of
its obligations under this Lease, where such failure by the non-performing party
arises from or through acts of God, strikes, lockouts, labor difficulties,
explosions, sabotage, accidents, riots, civil commotion, acts of war, results of
any warfare or warlike conditions in this or any foreign country, fire or
casualty, Legal Requirements, energy shortage or other causes beyond the
reasonable control of the non-performing party, unless such loss or damage
results from the willful misconduct or gross negligence of the non-performing
party.
27.15 Headings. Captions and headings are for convenience of reference
only.
27.16 Exhibits. All Exhibits attached to this Lease are hereby
incorporated in this Lease as though set forth at length herein.
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27.17 Transportation Management. Tenant shall fully comply with all
present or future programs implemented by the Association or Landlord or
required by any County, State or Federal Legal requirements (including the
Covenants), to manage parking, transportation, air pollution or emissions, or
traffic in and around the Building or the metropolitan area in which the
Building is located.
27.18 Interpretation. "Include," "includes," and "including" mean
considered as part of a larger group, and not limited to the items recited.
"Shall" means "is obligated to." "May" means "is permitted to." The necessary
grammatical changes required to make the provisions hereof apply either to
corporations, partnerships, or individuals, men or women, as the case may be,
shall in all cases be assumed as though in each case fully expressed.
ARTICLE 28
OPTION TO RENEW
28.1 Exercise of Option. Tenant shall have the right (the "Renewal
Option") to extend the Term for one (1) period of five (5) Lease Years (a
"Renewal Period") provided (i) Tenant gives notice to Landlord of its election
to exercise its Renewal Option no more than 270 days and no less than 180 days
prior to the Expiration Date, and (ii) no Event of Default exists at the time
Tenant exercises its Renewal Option.
28.2 Current Market Rent. All terms and conditions of this Lease shall
remain in full force and effect during the Renewal Period, except that (i)
Annual Base Rent and increases thereof during the Renewal Period shall be
adjusted to equal one hundred percent (100%) of the "Current Market Rent" (as
defined below), and (ii) the Base Year for Operating Expenses and the Base Year
for Real Estate Taxes shall be adjusted to be calendar year 2005. The "Current
Market Rent" for purposes of this Lease shall mean the prevailing market rent as
of the date such market rent is to go into effect for renewal leases of other
comparable office space of the same quality, size, location, level of finish,
and lease term in the Building and in other comparable office buildings located
in the Chantilly, Virginia area, for a tenant of credit-worthiness comparable to
that of Tenant, taking into account all relevant factors, including the
building's age and condition, any significant renovation of the Building or the
leased space, all components of rent, including base rent, the number, type and
base year for various rent escalations, base year and pass-throughs for
operating expenses and real estate taxes, and any "Concessions" (as defined
below). The determination of Current Market Rent shall include establishing new
Lease terms consistent with market terms at such time relating to minimum rent,
base year, rent escalations, and pass throughs of real estate taxes and
operating expenses, to modify or replace as appropriate the then existing terms
contained in this Lease relating to such items. The term "Concessions" means any
free or reduced rent periods, construction allowances or other concessions.
28.3 Initial Negotiation Period. Within ten (10) days after receipt of
Tenant's notice of its election to exercise the Renewal Option, Landlord shall
provide Tenant with Landlord's good faith determination of the Current Market
Rent. If Tenant agrees with
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Landlord's determination, Tenant shall notify Landlord within fifteen (15) days
after Tenant's receipt of Landlord's determination of the Current Market Rent.
28.4 Determination of Rent by Brokers. If Tenant fails to agree with
Landlord's determination of the Current Market Rent within the fifteen (15) day
period referred to in Article 28.3, then, within five (5) days after the
expiration of the fifteen (15) day period, Landlord and Tenant shall each
appoint a real estate broker, and shall notify the other of its choice within
such time. If either party fails to select a broker within such time, the broker
selected by the other party shall establish the Current Market Rent. For a
period of thirty (30) days after their appointment, the two (2) brokers selected
by Landlord and Tenant shall attempt to agree upon the Current Market Rent. If
the two (2) brokers agree upon the Current Market Rent, the Current Market Rent
shall be as agreed upon by them. If the two (2) brokers are unable to agree upon
the Current Market Rent within this 30-day period, they shall select a third
real estate broker within ten (10) days after the expiration of the 30-day
period. If the two (2) brokers fail to select a third broker within such time,
either party may request such appointment by the U.S. District Court for the
Eastern District of Virginia. Within thirty (30) days after the third broker is
selected, the third broker shall make an independent determination of the
Current Market Rent, which shall be conclusively binding upon the parties. The
third broker shall notify the parties of his determination in writing. In making
his determination, the third broker may rely upon whatever data he deems
appropriate, including any data submitted to him by the other two (2) brokers.
Landlord and Tenant shall each pay the fee of the broker selected by it, and
shall equally share the payment of the fee of the third broker.
28.5 Qualifications of Brokers. Each broker selected under this Article
shall be licensed in Virginia as a real estate broker, specializing in the field
of commercial office leasing in the Northern Virginia area, having no less than
ten (10) years' experience in such field, and recognized as ethical and
reputable within the field.
28.6 Execution of Lease Amendment. The parties shall execute a Lease
amendment reflecting the extension and the new economic terms within ten (10)
days after determination of the Current Market Rent, but failure to execute such
amendment shall not affect the commencement of the Renewal Period or Tenant's
obligation to pay rent during the Renewal Period at the rate established
pursuant to this Article.
28.7 Time is of the Essence. Time is of the essence with respect to the
time periods in this Article.
ARTICLE 29
RIGHTS OF FIRST OFFER
29.1 Right of First Offer for First Floor.
(i) Subject to the terms of this Article, Tenant shall have a
right of first offer (the "First Offer Right") to negotiate for the lease of any
space on the first floor of the Building that becomes available for lease (each
of such spaces being referred to as the "First
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<PAGE> 39
Offer Space"). First Offer Space shall not include any space that is available
for lease as of the date hereof.
(ii) If all or any part of the First Offer Space becomes available
for lease at a time when the First Offer Right is in effect ("Available First
Offer Space"), Landlord shall offer the Available First Offer Space to Tenant
before offering it to any other party. Landlord shall offer the Available First
Offer Space to Tenant by submitting to Tenant a binding letter of intent with
respect thereto, identifying the date on which Landlord expects the Available
First Offer Space to be available for occupancy by Tenant (the "First Offer
Space Commencement Date"), and containing such terms and conditions as are
determined by Landlord, in Landlord's reasonable discretion, acting in good
faith, to be the market rate for available space in the Building and in other
comparable office buildings in the Chantilly, Virginia area. Tenant shall have
the right within ten (10) days after Tenant receives the letter of intent to
lease the Available First Offer Space by executing the letter of intent and
delivering it to Landlord. The term for the First Offer Space shall end on the
same date as the Term for the Premises; provided, however, that if the First
Offer Space Commencement Date will occur within the last three Lease Years of
the Term, Landlord may condition the lease of the Available First Offer Space to
Tenant upon the extension of the Expiration Date for the entire Premises to be
three (3) years from the First Offer Space Commencement Date, with Rent for such
additional period being determined by Landlord, in its reasonable discretion.
(iii) The parties shall execute an Amendment to Lease reflecting the
lease of the Available First Offer Space within ten (10) days after Tenant
executes the letter of intent, but failure to execute such Amendment shall not
affect the commencement of the term for the Available First Offer Space or
Tenant's obligation to pay rent for the Available First Offer Space in
accordance with the letter of intent.
(iv) Any Available First Offer Space that Tenant fails to lease in
accordance with this Article shall thereafter become "Rejected First Offer
Space." Landlord shall be free to lease all or any part of any Rejected First
Offer Space to any other party without first offering all or any part of the
Rejected First Offer Space to Tenant.
(v) Notwithstanding anything to the contrary in this Article, no
First Offer Space shall be considered available for lease if (i) the tenant then
occupying the space desires to renew its lease, whether pursuant to a renewal
option or otherwise, or (ii) the space is subject to any other right of first
offer, first refusal or similar right of another tenant existing as of the
Commencement Date. Accordingly, any such First Offer Space not considered
available for lease pursuant to the preceding sentence may be leased by Landlord
to the existing tenant or party holding such other right without first offering
it to Tenant.
29.2 Right of First Offer for Suite 105.
(i) Subject to the terms of this Article, Tenant shall have a
right of first offer (the "Suite 105 First Offer Right") to negotiate for the
lease of Suite 105 ("Suite 105"), which is on the first floor of the Building
and contains approximately 3,285 rentable square feet. Suite 105 is identified
on Exhibit F attached hereto. The lease for the tenant occupying Suite 105
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<PAGE> 40
as of the date hereof expires on February 28, 2002, and any re-leasing rights of
such tenant are subordinate to this Suite 105 First Offer Right.
(ii) If Tenant desires to exercise its Suite 105 First Offer Right,
it shall so notify Landlord by November 1, 2001. Landlord shall then offer Suite
105 to Tenant effective as of the date Suite 105 next becomes available (which
Landlord anticipates will be March 1, 2002). Landlord shall offer Suite 105 to
Tenant by submitting to Tenant a binding letter of intent with respect to Suite
105, containing such terms and conditions as are determined by Landlord, in
Landlord's reasonable discretion, acting in good faith, to be the market rate
for available space in the Building and in other comparable office buildings in
the Chantilly, Virginia area. Tenant shall have the right within ten (10) days
after Tenant receives the letter of intent to lease the Suite 105 by executing
the letter of intent and delivering it to Landlord. The term for the Suite 105
First Offer Space shall end on the same date as the Term for the Premises.
(iii) The parties shall execute an Amendment to Lease reflecting the
lease of Suite 105 within ten (10) days after Tenant executes the letter of
intent, but failure to execute such Amendment shall not affect the commencement
of the term for Suite 105 or Tenant's obligation to pay rent for Suite 105 in
accordance with the letter of intent.
(iv) If Tenant fails to exercise its Suite 105 First Offer Right,
Landlord shall thereafter be free to lease all or any part of Suite 105 to any
other party without first offering all or any part of it to Tenant.
(v) Article 29.1 shall apply to Suite 105 if it becomes available
before the Suite 105 First Offer Right must be exercised. However, if Tenant
fails to exercise the Suite 105 First Offer Right, Suite 105 shall thereafter no
longer be subject to either the First Offer Right or the Suite 105 First Offer
Right.
29.3 Tenant may not be in Default. This Article shall apply only as
long as this Lease is in full force and effect and there is no uncured monetary
Event of Default hereunder.
29.4 Time is of the Essence. Time shall be of the essence with respect
to all of the time periods set forth in this Article.
ARTICLE 30
TENANT'S MANDATORY LEASE OF ADDITIONAL SPACE
30.1 Lease of Must Take Space. Landlord shall lease to Tenant and
Tenant shall lease from Landlord the "Must Take Space" (as hereafter defined),
subject to the terms of this Article. The "Must Take Space" is located on the
first floor of the Building, contains approximately 2,945 rentable square feet,
and is identified on Exhibit G attached hereto.
30.2 Terms for Must Take Space. The Must Take Space shall be leased on
the same terms and conditions as the Premises as though it had been leased along
with the Premises as of the Commencement Date, except that (i) the lease term
for the Must Take Space shall commence one hundred fifty (150) days after the
Commencement Date (the "Must Take Commencement Date"), (ii) Base Rent for the
Must Take Space shall be calculated at the rate of
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<PAGE> 41
$19.00 per rentable square foot, with three percent (3%) annual increases
occurring on commencement of the second and each subsequent Lease Year during
the Term, (iii) effective as of January 1, 2001, Tenant's Proportionate Share of
Building Operating Expenses, Tenant's Proportionate Share of Complex Operating
Expenses, and Tenant's Proportionate Share of Real Estate Taxes shall be
increased to include the Must Take Space, which proportionate shares shall then
equal 17.04%, 7.15% and 7.15%, respectively, and (iv) Landlord, at its cost,
shall build out the Must Take Space to the same level of finish and pursuant to
the same procedure as is provided in the Work Agreement, except that the date of
substantial completion of the Must Take Space shall be on or before the Must
Take Commencement Date.
30.3 Execution of Lease Amendment. Tenant shall lease the Must Take
Space by executing an Amendment to Lease amendment and delivering it to Landlord
within ten (10) business days after Tenant receives the Amendment from Landlord,
but failure to execute such Amendment shall not effect the commencement of the
term for the Must Take Space or Tenant's obligation to pay rent for the Must
Take Space pursuant to this Article.
ARTICLE 31
OPTION TO EXPAND
31.1 Option to Lease Expansion Space. Subject to the terms of this
Article, Tenant shall have one (1) option to lease additional space in the
Complex that is vacant and available for lease during the period starting on the
date hereof and ending on the one hundred twentieth (120th) day after the
Commencement Date (the "Expansion Period"). (Space leased pursuant to this
Article is referred to hereafter as the "Expansion Space.")
31.2 Exercise of Expansion Option; Determination of Expansion Space. If
Tenant desires to exercise its expansion option, Tenant shall so notify Landlord
within the Expansion Period. Tenant's notice shall identify the approximate size
and location of the space that Tenant desires to lease. Upon receipt of Tenant's
notice, Landlord shall work with Tenant in good faith to agree upon the exact
size and location of the Expansion Space, taking into account the space that is
available at that time and Landlord's reasonable marketing requirements for the
remaining vacant space. If the parties are unable to agree upon the size and
location of the Expansion Space within ten (10) days after Landlord's receipt of
Tenant's notice, Tenant's expansion option shall expire.
31.3 Terms for Expansion Space. The Expansion Space shall be leased on
the same terms and conditions as the Premises as though it had been leased along
with the Premises as of the Commencement Date, except that (i) the lease term
for the Expansion Space shall commence on the date that the space is delivered
to Tenant (the "Expansion Space Commencement Date"), (ii) Base Rent for the
Expansion Space shall be calculated at the rate of $19.00 per rentable square
foot, with three percent (3%) annual increases occurring on commencement of the
second and each subsequent Lease Year during the Term, (iii) effective as of
January 1, 2001, Tenant's Proportionate Share of Operating Expenses and Tenant's
Proportionate Share of Real Estate Taxes shall be increased to include the
Expansion Space, (iv) Landlord, at its cost, shall build out the Expansion Space
to the same level of finish and pursuant to the same procedure as is provided in
the Work Agreement, except that the date of substantial completion of the
Expansion Space shall be on or
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<PAGE> 42
before the Expansion Space Commencement Date, and (v) Landlord may increase the
Security Deposit as it deems appropriate, in its reasonable judgment.
31.4 Extension of Lease Term. If Tenant leases the Expansion Space
hereunder, the Term of this Lease shall be extended so that the Expiration Date
becomes the last day of the month in which the fifth (5th) anniversary of the
Expansion Space Commencement Date occurs. During the period from the existing
Expiration Date to the extended Expiration Date, the Premises shall be leased
upon the same terms and conditions as in the original Term, except that, if this
extension results in a seventh Lease Year, Base Rent for the seventh Lease Year
shall be increased by three percent (3%) over Base Rent for the sixth Lease
Year.
31.5 Execution of Lease Amendment. The parties shall execute an
Amendment to Lease reflecting the lease of the Expansion Space and the extension
of the Term within ten (10) days after Tenant receives the Amendment from
Landlord, but failure to execute such Amendment shall not affect the
commencement of the term for the Expansion Space or Tenant's obligation to pay
rent for the Expansion Space in accordance with this Article.
31.6 Tenant may not be in Default. This Article shall apply only as
long as this Lease is in full force and effect and there is no uncured monetary
Event of Default hereunder.
31.7 Time is of the Essence. Time shall be of the essence with respect
to all of the time periods set forth in this Article.
ARTICLE 32
SATELLITE DISH
32.1 Right to have Satellite Dish. Tenant, at no additional rent, shall
have the right to install and maintain on the roof of the Building one (1)
satellite dish antenna or microwave antenna, together with the cables extending
from such antenna to the Premises, subject to the conditions set forth in this
Article. (Said satellite dish or microwave dish antenna and all related cables,
boosters and other equipment are referred to hereafter collectively as the
"Antenna").
32.2 Approval of Specifications. The location, size, weight, height and
all other features and specifications of the Antenna and the manner of initial
installation of it shall be mutually agreed upon by Landlord and Tenant. Tenant
shall install appropriate screening of the Antenna as reasonably required by
Landlord.
32.3 Compliance with Legal Requirements. The Antenna, and the
installation thereof, shall comply with all Legal Requirements. If, at any time
during the Term, the Antenna does not comply with all Legal Requirements, Tenant
shall immediately remove it or, with Landlord's approval, immediately modify the
Antenna to bring it into compliance with all Legal Requirements. Tenant's
failure to obtain any permit required in order to initially install the Antenna,
or a subsequent inability to maintain the Antenna for any reason, shall have no
effect on this Lease other than to nullify the right to install and use the
Antenna.
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32.4 Maintenance. Landlord shall have the right to regulate and control
access to the roof by Tenant, its employees, agents and contractors. At all
times, Tenant shall maintain the Antenna in clean, good and safe condition and
in a manner that avoids interference with or disruption to Landlord and other
tenants of the Building.
32.5 Indemnification. Tenant's placement of the Antenna on the roof as
aforesaid shall be at Tenant's sole risk and Landlord shall have no liability
for damage thereto or loss thereof under any circumstances. Tenant shall
indemnify and hold Landlord harmless for any liability, damages, costs or
expenses (including reasonable attorneys' fees) incurred as a result of
permitting the placement and operation of the Antenna on the roof and allowing
access thereto.
32.6 Removal. At the expiration or earlier termination of the term of
this Lease, Tenant shall remove the Antenna from the Building and surrender the
area of the roof occupied by the Antenna in good condition, ordinary wear and
tear and unavoidable damage by the elements excepted.
[INTENTIONALLY LEFT BLANK]
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32.7 Payment of Electric Charges. Tenant shall be responsible for
paying all electric charges incurred in connection the operation of the Antenna.
32.8 Non-Exclusive Right. Landlord may grant other parties the right to
use the roof for any lawful purposes (including the installation of other
satellite dishes and antennas) as long as this use does not unreasonably
interfere with Tenant's right to use the roof for its Antenna in accordance with
this Article.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal
as of the date above written.
LANDLORD:
ATTEST/WITNESS: ENTERPRISE CENTER LIMITED
PARTNERSHIP NUMBER TWO, a Virginia
limited partnership
By: ELV/ENTERPRISE II, INC., a Delaware
corporation, its general partner
/s/ THERESA F. MCLAUGHLIN By: /s/ SCOTT W. JENKINS
- --------------------------- --------------------------(Seal)
Name: Theresa F. McLaughlin Scott W. Jenkins, Vice President
----------------------
[Corporate Seal]
TENANT:
ATTEST/WITNESS: CROSSWALK.COM, INC. a Delaware corporation
/s/ GARY A. STRUZIK By: /s/ W. M. PARKER
- --------------------------- -------------------------------(Seal)
Name: Gary A. Struzik Name: W. M. Parker
---------------------- -----------------------------------
Title: CEO / PRESIDENT
----------------------------------
[Corporate Seal]
44
<PAGE> 45
EXHIBIT A
PLAN SHOWING PREMISES
[to be inserted]
A-1
<PAGE> 46
EXHIBIT B
WORK AGREEMENT
1. Definitions. The following terms, when used herein, shall have the
meanings set forth below.
1.1 Architect. Eiger Consulting.
1.2 Change Order. Any change requested by Tenant to the Space Plan or
to the approved Construction Documents.
1.3 Construction Documents. The construction working drawings,
mechanical, electrical and other technical specifications, and the finishing
details for the Tenant Improvements, including wall finishes and colors and
technical and mechanical equipment installations, if any. The Construction
Documents shall be subject to Tenant's approval, which shall not be unreasonably
withheld or delayed.
1.4 Contractor. The person or firm selected by Landlord to construct to
the Tenant Improvements.
1.5 Punchlist. A list of construction items to be completed after the
Commencement Date that are minor in character and do not materially interfere
with Tenant's use of the Premises.
1.6 Space Plan. The plan dated July 8, 1999 showing the outline of and
the specifications for the Tenant Improvements, including the location of
offices, conference rooms and other areas. The Space Plan is attached hereto as
Exhibit B-1.
1.7 Substantial Completion. Completion of the Tenant Improvements
substantially in accordance with the Construction Documents, except for the
Punchlist, but in no event before the issuance of a Certificate of Occupancy.
1.8 Tenant Delay. Any delay in completing the Tenant Improvements
caused by any of the following: (i) Tenant's failure to furnish within five (5)
days after the date hereof all information to Architect needed for the
Construction Documents, (ii) Tenant's failure to approve the Construction
Documents or to note any objections thereto within five (5) days after they are
submitted to Tenant, (iii) Tenant's failure to meet any other deadlines
specified in this Work Agreement, (iii) a Change Order, (iv) interference with
the construction process by any person employed or retained by Tenant, or (v)
any other Tenant-caused delay.
1.9 Tenant Improvements. The improvements to the Premises shown on the
Space Plan that are being made pursuant to this Work Agreement in order to
prepare the Premises for Tenant's occupancy. The term "Tenant Improvements"
shall not include cabling for telephone and computer systems or the installation
of any of Tenant's furniture or equipment.
B-1
<PAGE> 47
However, "Tenant Improvements" shall include electrical wiring to junction boxes
at locations reasonably designated by Tenant for the purpose of installing
modular furniture. The Tenant Improvements shall be constructed with Landlord's
building standard materials.
2. Construction; Change Orders.
A. Contractor shall construct the Tenant Improvements in a good and
workmanlike manner substantially in accordance with the Construction Documents.
Landlord shall supervise this construction. Landlord shall not be paid an
administrative or construction management fee for its supervision of the Tenant
Improvements. Landlord shall endeavor in good faith to cause the Tenant
Improvements to be Substantially Completed on or before November 1, 1999,
subject to Tenant Delay, but neither the validity of this Lease nor the
obligations of Tenant under this Lease shall be affected by a failure to
Substantially Complete the Premises by such date, and Tenant shall have no claim
against Landlord because of Landlord's failure to Substantially Complete the
Premises on such date or by any other date, except for Tenant's right to
terminate in Section 9 below.
B. Landlord's approval of any Change Orders shall be required, but
shall not be unreasonably withheld except that Landlord, in its reasonable
discretion, may withhold or delay its approval of any Change Orders to the
extent that they affect the Building's structure or systems or would be visible
from the exterior of the Building or from any common area in the Building.
C. Upon Substantial Completion of the Tenant Improvements, Landlord
will deliver possession of the Premises to Tenant. Before delivering the
Premises to Tenant, Landlord will obtain a certificate of occupancy, if one is
required by law for Tenant to occupy the Premises. Tenant will cooperate with
Landlord as necessary to obtain any such certificate of occupancy.
3. Affect of Tenant Delay on Commencement Date. If Landlord is delayed in
delivering possession of the Premises to Tenant in accordance with this Work
Agreement because of a Tenant Delay, then, notwithstanding Article 4 of the
Lease, the Commencement Date shall be the date (as reasonably determined by
Landlord) that Landlord would have delivered the Premises to Tenant but for the
Tenant Delay.
4. Payment for the Tenant Improvements. Landlord shall pay for the cost of
completing the Tenant Improvements pursuant to the Space Plan, including the
cost to prepare the Space Plan and Construction Documents. If Tenant requests
any Change Orders, Tenant shall pay for the differential cost of the Change
Order within thirty (30) days after receipt of an invoice from Landlord or the
Contractor.
5. Punchlist. Before the Premises are delivered to Tenant, Landlord, Tenant
and Contractor shall make a final inspection of the Premises to ensure that the
Tenant Improvements have been made substantially in accordance with the
Construction Documents, at which time the Punchlist shall be prepared.
Contractor shall complete the items on the Punchlist as soon as practicable
after the Commencement Date.
B-2
<PAGE> 48
6. Early Entry by Tenant. Landlord shall grant Tenant access to the
Premises at least ten (10) days before the Commencement Date solely for the
purpose of installing telephone and computer cable and wiring, fixtures,
furniture and related items within the Premises. Landlord may exercise its
reasonable discretion as to the timing of Tenant's early entry as such timing
relates to the completion of the Tenant Improvements. During any periods of such
early entry, Tenant shall abide by all terms and conditions of this Lease
(including all insurance requirements), but Tenant shall not be required to pay
Rent before the Commencement Date.
7. Tenant Allowance for Cabling. Landlord shall provide Tenant with a cash
allowance of $6,000.00 (the "Tenant Allowance") to be applied against the cost
of installing computer and telephone cabling and equipment in the Premises.
Landlord shall pay the Tenant Allowance to Tenant within thirty (30) days
following receipt by Landlord of (i) properly executed lien waiver forms from
all contractors performing the work for which reimbursement is sought, and (ii)
invoices or other evidence of the cost of such work. Any unused portion of the
Tenant Allowance shall be retained by Landlord.
8. Tenant's Right to Terminate Lease. Notwithstanding anything to the
contrary in the Lease or this Work Agreement, if Landlord fails to Substantially
Complete the Tenant Improvements by January 31, 2000, and such failure is
attributable solely to acts within Landlord's reasonable control, Tenant may
terminate this Lease upon ten (10) days' notice to Landlord given at any time
after January 31, 2000 but before the Tenant Improvements are Substantially
Completed.
B-3
<PAGE> 49
EXHIBIT C
DECLARATION BY LANDLORD AND TENANT
THIS DECLARATION is hereby attached to and made a part of the Lease dated
________, 1999 (the "Lease"), between ENTERPRISE CENTER LIMITED PARTNERSHIP
NUMBER TWO, a Virginia limited partnership ("Landlord") and CROSSWALK.COM, INC.
a Delaware corporation ("Tenant"). All terms used in this Declaration have the
same meaning as they have in the Lease.
1. Landlord and Tenant do hereby declare that possession of the
Premises was accepted by Tenant on
2. As of the date hereof the Lease is in full force and effect, and
Landlord has fulfilled all of its obligations under the Lease required to be
fulfilled by Landlord on or prior to said date;
3. The Commencement Date is hereby established to be _______________;
and
4. The Expiration Date is hereby established to be ________________,
unless the Lease is sooner terminated pursuant to any provisions thereof.
LANDLORD:
ATTEST/WITNESS: ENTERPRISE CENTER LIMITED
PARTNERSHIP NUMBER TWO, a Virginia
limited partnership
By: ELV/ENTERPRISE II, INC., a Delaware
corporation, its general partner
By:
- ------------------------- ------------------------------(Seal)
Name: Scott W. Jenkins, Vice President
--------------------
TENANT:
ATTEST/WITNESS: CROSSWALK.COM, INC.
By:
- ------------------------- --------------------------------(Seal)
Name: Name:
-------------------- --------------------------------------
Title:
--------------------------------------
C-1
<PAGE> 50
EXHIBIT D
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety
and well-being of all the tenants of the Building and the Complex and become
effective upon occupancy. Strict adherence to these rules and regulations is
necessary, to guarantee that each and every tenant will enjoy a safe and
unannoyed occupancy. Any repeated or continuing violation of these rules and
regulations by Tenant after notice from Landlord, shall be sufficient cause for
termination of this Lease at the option of Landlord.
Landlord may, upon request by any tenant, waive the compliance by such
tenant of any of the foregoing rules and regulations provided that (i) no waiver
shall be effective unless signed by Landlord or Landlord's authorized agent
(.ii) any such waiver shall not relieve such tenant from the obligation to
comply with such rule or regulation in the future unless expressly consented to
by Landlord, and (iii) no waiver granted to any tenant shall relieve any other
tenant from the obligation of enjoyment with the foregoing rules and regulations
unless such other tenant has received a similar waiver in writing from Landlord.
1. The sidewalks, entrances, passages, courts, vestibules, or
stairways, or other parts of the Complex and the Building not occupied by any
tenant shall not be obstructed or encumbered by any tenant or used for any
purpose other than ingress and egress to and from any tenant's Premises.
Landlord shall have the right to control and operate the public portions of the
Complex, the Building, and the facilities furnished for the common use of the
tenants, in such manner as Landlord deems best for the benefit of the tenants
generally. No tenant shall permit the visit to its Premises of persons in such
numbers or under such conditions as to interfere with the use and enjoyment by
other tenants of the entrances, corridors, elevators, and other public portions
or facilities of the Complex or the Building.
2. No signs, awnings or other projections shall be attached to the
outside walls of any building without the prior written consent of Landlord. No
drapes, blinds, shades or screens shall be attached to or hung in, or used in
connection with, any window or door of the Premises, without the prior consent
of Landlord. Such signs, awnings, projections, curtains, blinds, screens or
other fixtures must be of a quality, type, design and color, and attached in the
manner approved by Landlord.
3. No show cases or other articles shall be put in front of or affixed
to any part of the exterior of the Complex or the Building, nor placed in any
interior Common Area without the prior written consent of Landlord.
4. The water and wash closets and other plumbing fixtures shall not be
used for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the tenant
who, or whose servants, employees, agents, visitors, or licensees, shall have
caused the same.
5. There shall be no marking, painting, drilling into or in anyway
defacing any part of the Premises, the Building, or the Complex. No boring,
cutting or stringing or wires shall be
D-1
<PAGE> 51
permitted. No tenant shall construct, maintain, use or operate within its
Premises or elsewhere within or on the outside of the Building or the Complex,
any electrical device, wiring or apparatus in connection with a loud speaker
system or other sound system.
6. No animals, birds or pets of any kind shall be brought into or kept
in or about the Premises, and no cooking shall be done or permitted by any
tenant on its Premises except for a tenant's employee's own use. No tenant shall
cause or permit any unusual or objectionable odors to be produced or permeate
from its Premises.
7. No tenant shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or any
neighboring building or Premises or with any person having business with such
occupants. No tenant shall throw anything out of the doors or windows or down
the corridors or stairs.
8. No inflammable, combustible, or explosive fluid, chemical or
radioactive substance shall be brought or kept upon the Premises.
9. No additional locks or bolts of any kind shall be placed upon any of
the doors, or windows, by any tenant, nor shall any changes be made in existing
locks or the mechanism thereof without prior approval from Landlord, which
approval shall not be unreasonably withheld. Each tenant shall, upon termination
of its tenancy, restore to Landlord all keys of stores, offices, storage, and
toilet rooms either furnished to, or otherwise procured by, such tenant, and in
the event of the loss of any keys so furnished such tenant shall pay to Landlord
the cost of replacement thereof. All locks shall be keyed to a master key and a
copy of said master key delivered to Landlord prior to occupancy by Tenant.
10. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which Landlord or its Agent may determine from time to time. Landlord reserves
the right to inspect all freight to be brought into the Premises and to exclude
from the Premises all freight which violates any of these Rules and Regulations
or the Lease of which these Rules and Regulations are a part.
11. Any person employed by any tenant to do janitorial work within its
Premises must obtain Landlord's consent and such person shall comply with all
instructions issued by the superintendent of the Building or the Complex. No
tenant shall engage or pay any employees on its Premises, except those actually
working for such tenant on its Premises.
12. No tenant shall purchase spring water, ice, coffee, soft drinks,
towels, or other like service, from any company or persons whose repeated
violations of these Regulations have caused, in Landlord's opinion, a hazard or
nuisance to the Building, the Complex, and/or its occupants.
13. Landlord reserves the right to exclude from the Building at all
times any person who is known or does not properly identify himself to the
management. Landlord may at its option require all persons admitted to or
leaving the Building and the Complex between the ours of 6 p.m. and 8 a.m.,
Monday through Friday, and at all times on Saturday, Sunday, and Holidays, to
register. Each tenant shall be responsible for all persons for whom he
authorizes entry into or exit out of the Building and shall be liable to
Landlord for all acts of such persons.
D-2
<PAGE> 52
14. The Premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
15. No Tenant shall occupy or permit any portion of its Premises to be
used or occupied for the possession, storage, manufacture, or sale of liquor,
narcotics, tobacco in any form, or as a barber or manicure shop, or as an
employment bureau, unless said Tenant's lease expressly grants permission to do
so.
16. Landlord's employees shall not perform any work for Tenant or do
anything outside of their regular duties, unless under special instruction from
the management.
17. Canvassing, soliciting, and peddling on the Premises is prohibited
and each Tenant shall cooperate to prevent the same.
18. No plumbing or electrical fixtures shall be installed by any tenant
without the prior written consent of Landlord, which shall not be unreasonably
withheld.
19. There shall not be used, either by any Tenant or by jobbers or
others in the delivery or receipt of merchandise, any hand trucks, except those
equipped with rubber tires and side guards.
20. Where carpet is installed over access plates to under-floor ducts,
Tenant will be required, at Tenant's expense, to provide access to said access
plates when necessary.
21 .Mats, trash, or other objects shall not be placed in the public
corridors.
22. Tenant shall not overload the floors or exceed the maximum floor
weight limits of the Premises.
23. Landlord shall not be responsible for enforcing Tenant's parking
rights against any third parties.
24. Tenant agrees not to operate any machinery in the Premises which may
cause vibration or damage to the Premises; not to use a loudspeaker which can be
heard outside the Premises, or to extend curb service to customers.
25. Landlord hereby designates the followings days as holidays
(collectively, the "Holidays"), on the dates observed by the Federal government,
as applicable, on which days services will not be provided and normal Building
operating hours will not be followed: New Year's Day; Memorial Day; Independence
Day; Labor Day; Thanksgiving Day, the Friday after Thanksgiving; and Christmas
Day, and any other national holiday promulgated by a Presidential Executive
Order or Congressional Act.
D-3
<PAGE> 1
EXHIBIT 10.46
CROSSWALK.COM, INC. (FORMERLY DIDAX INC.)
1998 STOCK OPTION PLAN
As Amended February 26, 1999
1.PURPOSE. The purpose of this Plan is to advance the interests of
Crosswalk.com, Inc. (formerly DIDAX, INC.) (the "Company") by providing an
opportunity to its selected directors, key employees (as defined in Paragraph
2(b)) and consultants (as defined in Paragraph 2(a)) to purchase shares (the
"Shares") of the Common Stock, par value $.01 per share (the "Common Stock"), of
the Company. By encouraging stock ownership, the Company seeks to attract,
retain and motivate key employees, consultants and ministry partners. It is
intended that this purpose will be effected by the granting of (i) incentive
stock options ("Incentive Options") as described in Section 422A of the Internal
Revenue Code of 1986, as amended (the "Code"); and (ii) nonqualified stock
options ("Nonqualified Options," and, together with the incentive options, the
"Options") as provided herein. (Collectively, the "Stock Incentives").
2.DEFINITIONS.
(a) The term "consultants" means those persons, other than employees of the
Company, who provide services to the Company, including nonemployee
directors of the Company, and who are determined by the Compensation
Committee to be eligible for Stock Incentives under this Plan.
(b) The term "key employees" means those executive, administrative,
operational, engineering or managerial employees who are determined by the
Compensation Committee to be eligible for Stock Incentives under this Plan.
(c) The term "ministry partners" means those organizations or individuals.
other than employees and consultants, whose relationship with the Company
is critical to meeting the Company's business objectives and who are
determined by the Compensation Committee to be eligible for stock
incentives under this plan.
(d) The term "optionee" means an individual to whom an option is granted
under this Plan.
(e) The term "grantee" means an individual to whom a purchase right is
granted under this Plan.
3. EFFECTIVE DATE. This Plan becomes effective April 6, 1998, with amendment on
February 26, 1999 to increase the number of shares underlying the Plan from
400,000 to 800,000, as so adopted by the Board of Directors of the Company, and
approved by the stockholders on May 5, 1999.
4. STOCK SUBJECT TO THE PLAN. The Shares that may be purchased (through the
exercise of options) under this Plan shall not exceed in the aggregate 800,000
Shares. If any Stock Incentives granted under the Plan shall terminate, expire
or be cancelled as to any Shares, new Stock Incentives may thereafter be granted
covering such Shares. In addition, any Shares purchased under this Plan
subsequently repurchased by the Company pursuant to the terms hereof may again
be granted under the Plan. The Shares issued upon exercise of Stock Incentives
under this Plan may, in whole or in part, be either authorized but unissued
Shares or issued Shares reacquired by the Company. Notwithstanding any other
provisions of this Plan, the aggregate number of Shares subject to outstanding
options granted under the Plan, plus the aggregate number of shares issued upon
the exercise of all options granted under the Plan, shall never be permitted to
exceed the number of Shares specified in the first sentence of section 4, except
in accordance with subsection 8(a) below.
5. ADMINISTRATION. The Plan shall be administered by the Board of Directors of
the Company (the "Board"), or by a committee appointed by the Board which shall
not have less than two (2) members (in either case, the "Compensation
Committee"). No single participant may receive options to purchase more than the
total number of shares authorized for issuance under the 1998 Plan. The
<PAGE> 2
Compensation Committee is tasked with the responsibility of recommending option
grants for approval by the Board of Directors and the Compensation Committee or
the Board of Directors may delegate administrative duties to such employees of
the Company as it deems proper. However, it is only through a majority vote of
the Board of Directors, either acting on its own or via the recommendation of
the Compensation Committee, that nonqualified stock options or incentive stock
options to purchase shares of Common Stock may be granted, and thus it is
ultimately the Board of Directors, subject to the provisions of the 1998 Plan,
that shall have the sole authority, in its discretion:"
(a) to determine to which of the eligible individuals, and the time or
times at which, options to purchase Common Stock of the Company shall be
granted;
(b) to determine the number of shares of Common Stock to be subject to
options granted to each eligible individual;
(c) to determine the price to be paid for the shares of Common Stock upon
the exercise of each option;
(d) to terminate the Plan or accelerate Option vesting, and to determine
the vesting and duration of each option granted;
(e) to determine the terms and conditions of each stock option agreement
(which need not be identical) entered into between the Company and any
eligible individual to whom the Board of Directors has granted an option;
(f) to interpret the Plan; and
(g) to make all determinations deemed necessary or advisable for the
administration of the Plan.
The Compensation Committee, if any, shall be appointed by and shall serve at the
pleasure of the Board of Directors of the Company. No member of the Compensation
Committee shall be liable for any action or determination made with respect to
the Plan.
6. ELGIBLE EMPLOYEES, CONSULTANTS AND MINISTRY PARTNERS. Incentive Options may
be granted to such key employees of the Company, including members of the Board
of Directors who are also employees of the Company, as are selected by the
Compensation Committee and approved by Board of Directors. Nonqualified Options
may be granted to such key employees, consultants and ministry partners,
including members of the Board of Directors, as are selected by the Compensation
Committee and approved by the Board of Directors. The term "employee" includes
an officer or director who is an employee of the Company or a parent or
subsidiary of it, as well as a nonofficer, nondirector employee of the Company
or a parent or subsidiary or it.
7. DURATION OF THE PLAN. This Plan shall terminate ten (10) years from the
effective date of this Plan, unless terminated earlier pursuant to Paragraph 13
hereof, and no Stock Incentives may be granted after such termination.
8. RESTRICTIONS ON INCENTIVE OPTIONS. Incentive Options (but not Nonqualified
Options) granted under this Plan shall be subject to the following restrictions:
(a) Limitation on Number of Shares. The aggregate fair market value,
determined as of the date the Incentive Option is granted, of the Shares
with respect to which Incentive Options are exercisable for the first time
by an employee during any calendar year shall not exceed $100,000. If an
employee is eligible to participate in any other incentive stock option
plans of the Company which are also intended to comply with the provisions
of Section 422A of the Code, the applicable annual limitation shall apply
to the aggregate number of Shares for which Incentive Options may be
granted under all such plans. An Incentive Option may be granted which
exceeds the $100,000
<PAGE> 3
limitation, as long as under then applicable law the portion of such option
which is exercisable for shares in excess of the $100,000 limitation shall
be treated as a nonqualified option. No Incentive Options may be exercised
until and unless the Plan is approved by the shareholders within one year
of the date hereof, such approval to be expressed in any legal way under
Delaware law.
(b) 10% Stockholder. If any employee to whom an Incentive Option is granted
pursuant to the provisions of the Plan is on the date of grant the owner of
stock (as determined under Section 425(d) of the Code) possessing more than
10% of the total combined voting power of all classes of stock of the
Company (or of any parent or subsidiary of the Company), then the following
special provisions shall be applicable to the Incentive Option granted to
such individual:
(i) The option price per Share subject to such Incentive Option shall
not be less than 110% of the fair market value of one Share on the date
of grant; and
(ii) The Incentive Option shall not have a term in excess of five (5)
years from the date of grant.
In determining stock ownership, an Optionee shall be considered as
owning the voting capital stock owned, directly or indirectly, by or for
his brother and sisters, spouse, ancestors, and lineal descendants.
Voting capital stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being
owned proportionately by or for its shareholders, partners, or
beneficiaries, as applicable. Common Stock with respect to which any
such Optionee holds an option shall not be counted. Additionally,
outstanding capital stock shall include all capital stock actually
issued and outstanding immediately after the grant of the option to the
Optionee. Outstanding capital stock shall not include capital stock
authorized for issue under outstanding options held by the Optionee or
by any other person.
9. TERMS AND CONDITIONS OF OPTIONS. Incentive and Nonqualified Options granted
under this Plan shall be evidenced by stock option agreements in such form and
not inconsistent with the Plan as the Compensation Committee may recommend and
the Board of Directors shall approve from time to time, which agreements shall
evidence the following terms and conditions:
(a) Price.
(i) Incentive Options. Subject to the condition of subparagraph (b)(i)
of Paragraph 8, if applicable, with respect to each Incentive Option,
the purchase price per Share payable upon the exercise of each Incentive
Option granted hereunder shall be recommended by the Compensation
Committee and approved by the Board of Directors and shall be not less
than 100% of the fair market value of one Share on the day the option is
granted.
(ii) Nonqualified Options. With respect to each Nonqualified Option, the
purchase price per Share payable upon the exercise of each Nonqualified
Option granted hereunder shall be recommended by the Compensation
Committee and approved by the Board of Directors at the time the
Nonqualified Option is granted, but shall not be less than 40% of fair
market value at the time of grant.
(b) Number of Shares. Each option agreement shall specify the number of
Shares to which it pertains.
(c) Exercise. Subject to the conditions of subparagraphs (a) and (b) (ii)
of Paragraph 8, if applicable, each option shall be exercisable for the
full amount or for any part thereof and at such intervals or in such
installments as the Compensation Committee recommends and the Board of
Directors determines at the time it grants such option; provided, however,
that no option shall be exercisable with respect to any Shares later than
ten (10) years after the date of the grant of such option.
<PAGE> 4
(d) Notice of Exercise and Payment. An option shall be exercisable only by
delivery of a written notice to the Compensation Committee or the Board of
Directors, any member of the Compensation Committee or the Board of
Directors, the Company's Secretary, or any other officer of the Company
designated by the Compensation Committee and approved by the Board of
Directors to accept such notices on its behalf, specifying the number of
Shares for which it is exercised. If such Shares are not at the time
effectively registered under the Securities Act of 1933, as amended, the
Optionee shall include with such notice a letter, in form and substance
satisfactory to the Company confirming that such Shares are being purchased
for the Optionee's own account for investment and not with a view to the
resale or distribution thereof. Payment shall be made in full at the time
of delivery to the Optionee of a certificate or certificates covering the
number of Shares for which the option was exercised. Payment shall be made
(i) by cash or check, (ii) if permitted by the Compensation Committee and
approved by the Board of Directors, by delivery and assignment to the
Company of shares of the Company's stock having a fair market value (as
determined by the Compensation Committee) equal to the exercise price,
(iii) if permitted by the Compensation Committee and approved by the Board
of Directors, by a promissory note, or (iv) by a combination of (i), (ii),
and (iii). The value of the shares of the Company's stock for such purpose
shall be its fair market value as of the date the option is exercised, as
determined in accordance with procedures to be established by the
Compensation Committee and approved by the Board of Directors.
(e) Withholding Taxes; Delivery of Shares. The Company's obligation to
deliver Shares upon exercise of a Nonqualified Option, in whole or in part,
shall be subject to the Optionee's satisfaction of all applicable federal,
state, and local income and employment tax withholding obligations. The
Optionee may satisfy the obligation, in whole or in part, by electing to
have the Company withhold Shares having a value equal to the amount
required to be withheld. The value of Shares to be withheld shall be based
on the fair market value of the Shares on the date the amount of tax to be
withheld is to be determined. If Common Stock acquired by exercise of an
incentive stock option granted pursuant to this Plan is disposed of within
two (2) years from the date of grant of the option or within one (1) year
after the transfer of the Common Stock to the Optionee, the holder of the
Common Stock immediately prior to the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall
provide such other information regarding the disposition as the Company may
reasonably require.
(f) Nontransferability. No option shall be transferable by the Optionee
otherwise than by will or the laws of descent or distribution, and each
option shall be exercisable during his lifetime only by him (except as
otherwise provided for in subparagraph (g) below).
(g) Termination of Options. Each option shall terminate and may no longer
be exercised if the Optionee ceases for any reason to be an employee of, or
consultant to, or ministry partner with the Company, except that:
(i) if the Optionee's performance of services shall have terminated for
any reason other than cause, resignation or other voluntary action
before his eligibility to retire, disability (as defined below) or
death, he may at any time within a period of thirty (30) days after such
termination of the performance of services exercise his option to the
extent that the option was exercisable by him on the date of termination
of his performance of services;
(ii) if the Optionee's performance of services shall have been
terminated because of disability within the meaning of Section 22(e)(3)
of the Internal Revenue Code, the Optionee may, at any time within a
period of one (1) year after the termination of performance of services,
exercise his option to the extent that the option was exercisable by him
on the date of termination of his employment or performance of services;
and
<PAGE> 5
(iii) if the Optionee dies at a time when the option was exercisable by
him, then his estate, personal representative or beneficiary to whom it
has been transferred may, at any time within a period of one (1) year
following his death if the Optionee's performance of services shall have
been terminated by his death, or for the period following the
termination of his performance of services during which the option would
have remained exercisable under clauses (i) or (ii) above if the
Optionee's performance of services shall have been terminated prior to
his death, exercise the option to the extent the Optionee might have
exercised it at the time of his death; provided, however, that no option
may be exercised to any extent by anyone after the date of expiration of
the option.
(iv) The Board of Directors determines to extend the option exercise
date for the nonqualified portion of the plan on a case by case basis.
(h) Rights as Stockholder. The Optionee shall have no rights as a
stockholder with respect to any Shares covered by his option until the date
of issuance of a stock certificate to him for such Shares.
(i) Repurchase of Shares by the Company. Any Shares purchased by an
Optionee upon exercise of an option may in the discretion of the
Compensation Committee and approved by the Board of Directors be subject
to repurchase by the Company if and to the extent specifically set forth
in the agreement pursuant to which the Shares were purchased.
10. STOCK DIVIDENDS; STOCK SPLITS; STOCK COMBINATIONS; RECAPITALIZATIONS.
Appropriate adjustment shall be made in the maximum number of Shares of Common
Stock subject to the Plan and in the number, kind and price of Shares covered by
any Stock Incentive granted hereunder to give effect to any stock dividends or
other distributions, stock splits, stock combinations, recapitalizations and
other similar changes in the capital structure of the Company after the
effective date of the Plan.
11. MERGER; SALE OF ASSETS; DISSOLUTION. In the event of a change of the Common
Stock resulting from a merger or similar reorganization as to which the Company
is the surviving corporation, the number and kind of shares which thereafter may
be subject to Stock Incentives granted under this Plan and the number, kind and
price of Shares then subject to Stock Incentives shall be appropriately adjusted
in such manner as the Compensation Committee recommends and the Board of
Directors may deem equitable to prevent substantial dilution or enlargement of
the rights available or granted hereunder. Except as otherwise determined by the
Board of Directors of the Company, a merger or a similar reorganization that the
Company does not survive, or a sale of all or substantially all of the assets of
the Company, shall cause every nonvested Incentive Option and Nonqualified
Option outstanding hereunder to terminate, to the extent not then exercised,
unless any surviving entity agrees to assume the obligations hereunder.
12. NO RIGHTS. Except as hereinabove expressly provided in Sections 10, no
Optionee shall have any rights by reason of any subdivision or consolidation of
shares of the capital stock of any class or the payment of any stock dividend or
any other increase or decrease in the number of shares of any class or by reason
of any dissolution, liquidation, merger or consolidation or spin-off of assets
or stock of another corporation, and any issue by the Company of shares of stock
of any class or of securities convertible into shares of stock of any class
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or price of shares subject to any option granted hereunder. The
grant of an option pursuant to this Plan shall not affect in any way the right
or power of the Company to make adjustments, reclassifications, reorganizations
or changes of its capital or business structure or to merge or consolidate or to
dissolve, liquidate, sell, or transfer all or any part of its business or
assets.
13. COMPLIANCE WITH APPLICABLE LAWS. Notwithstanding any other provision of the
Plan, the Company shall have no liability to issue any shares under the Plan
unless such issuance would comply with all applicable laws and the applicable
requirements of any securities exchange or similar entity. Prior to the issuance
of any shares under the Plan, the Company may require a written statement
<PAGE> 6
that the recipient is acquiring the shares for investment and not for the
purpose or with the intention of distributing the shares.
14. DEATH OF A PARTICIPANT. In the event of the death of an Optionee, any
options which the Optionee was entitled to exercise on the date immediately
preceding his death shall be exercisable by the person or persons to whom those
rights pass by will or by the laws of descent and distribution. Any such
exercise shall be by written notice thereof filed with the Secretary of the
Company at the Company's corporate headquarters prior to the option's expiration
date, and any person exercising such an option shall be treated as an Optionee
for purposes of the provisions of this Plan.
15. EMPLOYMENT AND SHAREHOLDER STATUS. The Plan does not constitute a contract
of employment, and selection as an Optionee will not give any employee the right
to be retained in the employ of the Company. The grant of an option under the
Plan shall not confer upon the holder thereof any right as a shareholder of the
Company. As of the date on which an Optionee exercises an option, the Optionee
shall have all rights of a stockholder of record with respect to the number of
shares of Common Stock as to which the option is exercised, irrespective of
whether certificates to evidence the shares of stock have been issued on such
date. If the redistribution of shares is restricted pursuant to Paragraph 12,
certificates representing such shares may bear a legend referred to such
restrictions.
16. TERMINATION OR AMENDMENT OF PLAN. The Board of Directors may at any time
terminate this Plan or make such changes in or additions to the Plan as it deems
advisable without further action on the part of the stockholders of the Company,
including revising the number of shares reserved for issuance hereunder,
provided that no such termination or amendment shall adversely affect or impair
any then outstanding Stock Incentive without the consent of the person holding
such Stock Incentive.
17. TERMINATION. The Plan shall terminate automatically on April 6, 2008, and
may be terminated at any earlier date by the Board. No option shall be granted
hereunder after the termination of the Plan, but such termination shall not
affect the validity of any option then outstanding.
18. TIME OF GRANTING OPTIONS. The date of grant of an option hereunder shall,
for all purposes, be the date on which the Board of Directors makes the
determination granting such option.
19. RESERVATION OF SHARES. The Company, during the terms of this Plan, will at
all times reserve and keep available such number of shares of its Common Stock
as shall be sufficient to satisfy the requirements of the Plan.
20. EFFECTIVE DATE. This Plan was adopted by the Board of Directors, pursuant to
stockholder approval in accordance with the requirements of the Internal Revenue
Code and the Delaware General Corporation Law of the Company, on April 6, 1998,
with amendment on February 26, 1999, and shall be effective on said date,
provided the Plan is approved within twelve (12) months of said date. Options
may be granted, but may not be exercised, prior to the date of such shareholder
approval.
21. CORPORATION FINANCIAL INFORMATION. The Company shall provide, upon request,
all Optionees on an annual basis with a balance sheet and income statement for
the then ending fiscal year.
<PAGE> 1
EXHIBIT 10.47
EXODUS COMMUNICATIONS, INC.
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT (the "Agreement") between Exodus Communications,
Inc. ("Exodus") and ___________________________ ("Customer") is made effective
as of date indicated below the Customer signature on the initial Order Form
submitted by Customer and accepted by Exodus.
1. OVERVIEW.
1.1 General. This Agreement states the terms and conditions by which
Exodus will deliver and Customer will receive any or all of the services
provided by Exodus, including facilities, bandwidth, managed services and
professional services. If Customer purchases any equipment from Exodus (as
indicated in the Order Form(s) described below), the terms and conditions by
which Customer purchases and Exodus sells such equipment are stated in Addendum
A attached hereto. Only this Section 1.1 and Addendum A shall apply to the
purchase and sale of equipment. The specific services and/or products to be
provided hereunder are identified in the Order Form(s) submitted by Customer and
accepted by Exodus and described in detail in the Specification Sheets and
Statements of Work attached to each Order Form. Each Order Form (with the
attached Specification Sheet(s) and Statement(s) of Work) submitted, accepted
and executed by both parties is hereby incorporated by reference into this
Agreement. This Agreement is intended to cover any and all Services ordered by
Customer and provided by Exodus. In the event that any terms set forth herein
apply specifically to a service not ordered by Customer, such terms shall not
apply to Customer.
1.2 Definitions.
(a) "Customer Area" means that portion(s) of the Internet Data
Center(s) made available to Customer for the placement of Customer Equipment
and/or Exodus Supplied Equipment and use of the Service(s).
(b) "Customer Equipment" means the Customer's computer hardware, not
including stored data, and other tangible equipment placed by Customer in the
Customer Area. The Customer Equipment shall be identified on Exodus' standard
customer equipment list completed and delivered by Customer to Exodus, as
amended in writing from time to time by Customer.
(c) "Customer Registration Form" means the list that contains the
names and contact information (e.g. pager, email and telephone numbers) of
Customer and the individuals authorized by Customer to enter the Internet Data
Center(s) and Customer Area, as delivered by Customer to Exodus and amended in
writing from time to time by Customer.
(d) "Customer Technology" means Customer's proprietary technology,
including Customer's Internet operations design, content, software tools,
hardware designs, algorithms, software (in source and object forms), user
interface designs, architecture, class libraries, objects and documentation
(both printed and electronic), know-how, trade secrets and any related
intellectual property rights throughout the world (whether owned by Customer or
licensed to Customer from a third party) and also including any derivatives,
improvements, enhancements or extensions of Customer Technology conceived,
reduced to practice, or developed during the term of this Agreement by Customer.
(e) "Exodus Supplied Equipment" means the computer hardware, software
and other tangible equipment and intangible computer code contained therein to
be provided by Exodus for use by Customer as set forth on the Order Form(s).
(f) "Exodus Technology" means Exodus' proprietary technology,
including Exodus Services, software tools, hardware designs, algorithms,
software (in source and object forms), user interface designs, architecture,
class libraries, objects and documentation (both printed and electronic),
network designs, know-how, trade secrets and any related intellectual property
rights throughout the world (whether owned by Exodus or licensed to Exodus from
a third party) and also including any derivatives, improvements, enhancements or
extensions of Exodus Technology conceived, reduced to practice, or developed
during the term of this Agreement by either party that are not uniquely
applicable to Customer or that have general applicability in the art.
(g) "Initial Term" means the minimum term for which Exodus will
provide the Service(s) to Customer, as indicated on the Order Form(s). Except as
otherwise expressly provided in this Agreement, Exodus is obligated to provide
and Customer is obligated to pay for each Service through its Initial Term and
any Renewal Term.
(h) "Internet Data Center(s)" means any of the facilities used by
Exodus to provide the Service(s).
(i) "Professional Services" means any non-standard professional or
consulting service provided by Exodus to Customer as more fully described in a
Statement of Work.
(j) "Renewal Term" means any service term following the Initial Term,
as specified in Section 2.2.
(k) "Representatives" mean the individuals identified in writing on
the Customer Registration Form and authorized by Customer to enter the Internet
Data Center(s) and the Customer Area.
(l) "Rules and Regulations" means the Exodus general rules and
regulations governing Customer's use of Services, including, but not limited to,
online conduct, and the obligations of Customer and its Representatives in the
Internet Data Centers.
(m) "Service(s)" means the specific service(s) provided by Exodus as
described on the Order Form(s).
(n) "Service Commencement Date" means the date Exodus will begin
providing the Service(s) to Customer, as indicated in a Notice of Service
Commencement delivered by Exodus to Customer.
(o) "Service Level Warranty" is described and defined in Section 5.2
below.
(p) "Specification Sheet" means the detailed description for each
Service, other than Professional Services, ordered by Customer that is attached
to an Order Form(s).
(q) "Statement of Work" means the detailed description(s) of the
Professional Services attached to (an) Order Form(s).
(r) "Work" means any tangible deliverable provided by Exodus to
Customer as described in the Statement of Work for any Professional Service.
2. DELIVERY OF SERVICES; TERMS; FEES.
2.1 Delivery of Services.
(a) General. By submitting an Order Form, Customer agrees to take and
pay for, and, by accepting the Order Form, Exodus agrees to provide, the
Service(s) during the Initial Term and for any Renewal Term, as specified in
paragraph 2.2(b) below.
(b) Delivery of Supplemental Services. The purpose of this provision
is to enable Exodus to provide Customer with certain limited services and
equipment needed by Customer on a "one-off" or emergency basis ("Supplemental
Services") where such services are not included within the scope of the Services
as described in the Specification Sheets and/or Statement of Work. Supplemental
Service may include, as an example, a request from Customer to Exodus via
telephone that Exodus immediately replace a problem Customer server with an
Exodus server for a temporary period of time. Exodus shall notify Customer of
the fees for any Supplemental Services requested by Customer and obtain
Customer's approval prior to providing such services. In the event Exodus
reasonably determines that Supplemental Services are required on an emergency
basis, Exodus may provide such services without the consent of Customer,
thereafter provide notice of the services to Customer and bill Customer a
reasonable fee for such services. Customer agrees to pay Exodus the fees charged
by Exodus for Supplemental Services. Customer will be charged
Page 1
<PAGE> 2
for Supplemental Services in the invoice issued the month following delivery of
the services. Exodus will use commercially reasonable efforts to provide
Supplemental Services, provided that Exodus has no obligation to determine the
need for or provide Supplemental Services. All Supplemental Services provided
pursuant to this paragraph 2.1(b) are provided on an "as-is" basis and exclude
warranties of any kind, whether express or implied.
2.2 Term.
(a) Term Commencement. The term for each Service will commence on the
Service Commencement Date indicated in the Notice of Service Commencement
delivered by Exodus to Customer when Exodus begins providing each Service to
Customer.
(b) Renewal Term(s). Each Service will continue automatically for
additional terms equal to the Initial Term ("Renewal Term") unless Customer
notifies Exodus in writing at least thirty (30) days prior to the end of the
Initial Term or a Renewal Term, as applicable, that it has elected to terminate
such Service, in which case such Service shall terminate at the end of such
term. The termination of any Service will not affect Customer's obligations to
pay for other Service(s). Notwithstanding the foregoing, Exodus may change or
increase the prices it charges Customer for any Service at any time after the
Initial Term effective thirty (30) days after providing notice to Customer. This
paragraph 2.2(b) does not apply to Exodus Supplied Equipment which is only
provided for the Initial Term.
3. FEES AND PAYMENT TERMS.
3.1 Fees and Expenses. Customer will pay all fees due according to the
prices and terms listed in the Order Form(s). The prices listed in the Order
Form(s) will remain in effect during the Initial Term indicated in the Order
Form(s) and will continue thereafter, unless modified in accordance with Section
2.2. Customer also agrees to reimburse Exodus for actual out-of-pocket
reasonable expenses incurred in providing Professional Services to Customer.
3.2 Payment Terms. On the Service Commencement Date for each Service,
Customer will be billed an amount equal to all non-recurring charges indicated
in the Order Form and the monthly recurring charges for the first month of the
term. Monthly recurring charges for all other months will be billed in advance
of the provision of Services. All other charges for Services received and
expenses incurred for Professional Services during a month (e.g., bandwidth
usage fees, travel expenses) will be billed at the end of the month in which the
Services were provided. Payment for all fees is due upon receipt of each Exodus
invoice. All payments will be made in the United States in U.S. dollars.
3.3 Late Payments. Any payment not received within thirty (30) days of the
invoice date will accrue interest at a rate of one and one-half percent (1 1/2%)
per month, or the highest rate allowed by applicable law, whichever is lower. If
Customer is delinquent in its payments, Exodus may, upon written notice to
Customer, modify the payment terms to require full payment before the provision
of all Services and Exodus Supplied Equipment or require other assurances to
secure Customer's payment obligations hereunder.
3.4 Taxes. All fees charged by Exodus for Services are exclusive of all
taxes and similar fees now in force or enacted in the future imposed on the
transaction and/or the delivery of Services, all of which Customer will be
responsible for and will pay in full, except for taxes based on Exodus' net
income.
4. CONFIDENTIAL INFORMATION; INTELLECTUAL PROPERTY OWNERSHIP; LICENSE GRANTS.
4.1 Confidential Information.
(a) Nondisclosure of Confidential Information. Each party acknowledges
that it will have access to certain confidential information of the other party
concerning the other party's business, plans, customers, technology, and
products, and other information held in confidence by the other party
("Confidential Information"). Confidential Information will include all
information in tangible or intangible form that is marked or designated as
confidential or that, under the circumstances of its disclosure, should be
considered confidential. Confidential Information will also include, but not be
limited to, Exodus Technology, Customer Technology, and the terms and conditions
of this Agreement. Each party agrees that it will not use in any way, for its
own account or the account of any third party, except as expressly permitted by,
or required to achieve the purposes of, this Agreement, nor disclose to any
third party (except as required by law or to that party's attorneys, accountants
and other advisors as reasonably necessary), any of the other party's
Confidential Information and will take reasonable precautions to protect the
confidentiality of such information, at least as stringent as it takes to
protect its own Confidential Information.
(b) Exceptions. Information will not be deemed Confidential
Information hereunder if such information: (i) is known to the receiving party
prior to receipt from the disclosing party directly or indirectly from a source
other than one having an obligation of confidentiality to the disclosing party;
(ii) becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party. The receiving party may disclose Confidential Information
pursuant to the requirements of a governmental agency or by operation of law,
provided that it gives the disclosing party reasonable prior written notice
sufficient to permit the disclosing party to contest such disclosure.
4.2 Intellectual Property.
(a) Ownership. Except for the rights expressly granted herein and the
assignment expressly made in paragraph 4.4(a), this Agreement does not transfer
from Exodus to Customer any Exodus Technology, and all right, title and interest
in and to Exodus Technology will remain solely with Exodus. Except for the
rights expressly granted herein, this Agreement does not transfer from Customer
to Exodus any Customer Technology, and all right, title and interest in and to
Customer Technology will remain solely with Customer. Exodus and Customer each
agrees that it will not, directly or indirectly, reverse engineer, decompile,
disassemble or otherwise attempt to derive source code or other trade secrets
from the other party.
(b) General Skills and Knowledge. Notwithstanding anything to the
contrary in this Agreement, Exodus will not be prohibited or enjoined at any
time by Customer from utilizing any skills or knowledge of a general nature
acquired during the course of providing the Services, including, without
limitation, information publicly known or available or that could reasonably be
acquired in similar work performed for another customer of Exodus.
4.3 License Grants.
(a) By Exodus. Exodus hereby grants to Client a nonexclusive,
royalty-free license, during the term of this Agreement, to use the Exodus
Technology solely for purposes of using the Service(s). Customer shall have no
right to use the Exodus Technology for any purpose other than using the
Service(s).
(b) By Customer. Customer agrees that if, in the course of performing
the Service(s), it is necessary for Exodus to access Customer Equipment and use
Customer Technology, Exodus is hereby granted and shall have a nonexclusive,
royalty-free license, during the term of this Agreement, to use the Customer
Technology solely for the purposes of delivering the Service(s) to Customer.
Exodus shall have no right to use the Customer Technology for any purpose other
than providing the Service(s).
4.4 Professional Services; Assignments and License.
(a) Assignment of Work. Effective at the time Exodus receives full and
final payment for the Professional Service, Exodus assigns to Customer all
right, title and interest, including all intellectual property rights, in the
Work, provided, however, that such assignment does not include the Exodus
Technology.
(b) License Grant. Commencing at the time Exodus receives full and
final payment for the Work, Exodus grants to Customer a non-exclusive,
non-transferable, royalty free, perpetual license to use the Exodus Technology
incorporated into the Work solely in connection with the use of the Work as a
whole. To the extent that Customer or its employees or contractors participate
in the creation or development of Exodus Technology, Customer, on behalf of
itself and its employees and contractors, hereby assigns to Exodus all right,
title
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and interest, including all intellectual property rights in, the Exodus
Technology.
5. EXODUS REPRESENTATIONS AND WARRANTIES.
5.1 General.
(a) Authority and Performance of Exodus. Exodus represents and
warrants that (i) it has the legal right to enter into this Agreement and
perform its obligations hereunder, and (ii) the performance of its obligations
and delivery of the Services to Customer will not violate any applicable U.S.
laws or regulations, including OSHA requirements, or cause a breach of any
agreements with any third parties. In the event of a breach of the warranties
set forth in this paragraph 5.1(a), Customer's sole remedy is termination
pursuant to Section 10 of the Agreement.
(b) Year 2000 Performance Compliance. Exodus warrants that none of the
computer hardware and software systems and equipment incorporated into or
utilized in the delivery of the Services contains any date dependent routines or
logic which will fail to operate correctly after December 31, 1999, by reason of
such date dependence; provided, however, that no representation or warranty is
made as to the adequacy of any Customer or third party service provider hardware
or software used in connection with the Services. In the event of any breach of
the warranties under this paragraph 5.1(b), Customer's sole remedy is
termination pursuant to Section 10 of the Agreement.
5.2. Service Level Warranty. In the event that Customer experiences any of
the service performance issues defined in this Section 5.2 as a result of
Exodus' failure to provide bandwidth or facility services, Exodus will, upon
Customer's request in accordance with paragraph 5.2(d) below, credit Customer's
account as described below (the "Service Level Warranty"). The Service Level
Warranty shall not apply to any services other than bandwidth and facility
services, and, shall not apply to performance issues (i) caused by factors
outside of Exodus' reasonable control; (ii) that resulted from any actions or
inactions of Customer or any third parties; or (iii) that resulted from
Customer's equipment and/or third party equipment (not within the sole control
of Exodus).
(a) Service Warranty Definitions. For purposes of this Agreement, the
following definitions shall apply only to the Services (not including
Professional Services).
(i) "Downtime" shall mean sustained packet loss in excess of
fifty percent (50%) within Exodus' U.S. network for fifteen (15) consecutive
minutes due to the failure of Exodus to provide Service(s) for such period.
Downtime shall not include any packet loss or network unavailability during
Exodus' scheduled maintenance of the Internet Data Centers, network and
Service(s), as described in the Rules and Regulations.
(ii) "Excess Latency" shall mean transmission latency in excess
of one hundred twenty (120) milliseconds round trip time between any two points
within Exodus' U.S. network.
(iii) "Excess Packet Loss" shall mean packet loss in excess of
one percent (1%) between any two points within Exodus' U.S. network.
(iv) "Performance Problem" shall mean Excess Packet Loss and/or
Excess Latency.
(v) "Service Credit" shall mean an amount equal to the pro-rata
monthly recurring connectivity charges (i.e., all monthly recurring
bandwidth-related charges) for one (1) day of Service.
(b) Downtime Periods. In the event Customer experiences Downtime,
Customer shall be eligible to receive from Exodus a Service Credit for each
Downtime period. Examples: If Customer experiences one Downtime period, it shall
be eligible to receive one Service Credit. If Customer experiences two Downtime
periods, either from a single event or multiple events, it shall be eligible to
receive two Service Credits.
(c) Performance Problem; Packet Loss and Latency. In the event that
Exodus discovers or is notified by Customer that Customer is experiencing a
Performance Problem, Exodus will take all actions necessary to determine the
source of the Performance Problem.
(i) Time to Discover Source of Performance Problem; Notification
of Customer. Within two (2) hours of discovering or receiving notice of the
Performance Problem, Exodus will determine whether the source of the Performance
Problem is limited to the Customer Equipment and the Exodus equipment connecting
the Customer Equipment to the Exodus LAN. If Exodus determines that the Customer
Equipment and Exodus connection are not the source of the Performance Problem,
Exodus will determine the source of the Performance Problem within an additional
two (2) hour period. In any event, Exodus will notify Customer of the source of
the Performance Problem within sixty (60) minutes of identifying the source.
(ii) Remedy of Packet Loss and Latency. If the source of the
Performance Problem is within the sole control of Exodus, Exodus will remedy the
Performance Problem within two (2) hours of determining the source of the
Performance Problem. If the source of and remedy to the Performance Problem
reside outside of the Exodus LAN or WAN, Exodus will use commercially reasonable
efforts to notify the party(ies) responsible for the source of the Performance
Problem and cooperate with it (them) to resolve such problem as soon as
possible.
(iii) Failure to Determine Source and/or Remedy. In the event
that Exodus (A) is unable to determine the source of the Performance Problem
within the time periods described in subsection (i) above and/or; (B) Exodus is
the sole source of the Performance Problem and is unable to remedy such
Performance Problem within the time period described in subsection (ii) above,
Exodus will deliver a Service Credit to Customer for each two (2) hour period in
excess of the time periods for identification and resolution described above.
(d) Customer Must Request Service Credit. In order to receive any of
the Service Credits described in this Section 5.2, Customer must notify Exodus
within seven (7) days from the time Customer becomes eligible to receive a
Service Credit. Failure to comply with this requirement will forfeit Customer's
right to receive a Service Credit.
(e) Remedies Shall Not Be Cumulative; Maximum Service Credit. The
aggregate maximum number of Service Credits to be issued by Exodus to Customer
for any and all Downtime periods and Performance Problems that occur in a single
calendar month shall not exceed seven (7) Service Credits. A Service Credit
shall be issued in the Exodus invoice in the month following the Downtime or
Performance Problem, unless the Service Credit is due in Customer's final month
of Service. In such case, a refund for the dollar value of the Service Credit
will be mailed to Customer. Customer shall also be eligible to receive a
pro-rata refund for (i) Downtime periods and Performance Problems for which
Customer does not receive a Service Credit and (ii) any Services Exodus does not
deliver to Customer for which Customer has paid.
(f) Termination Option for Chronic Problems. Customer may terminate
this Agreement for cause and without penalty by notifying Exodus within five (5)
days following the end of a calendar month in the event either of the following
occurs: (i) Customer experiences more than fifteen (15) Downtime periods
resulting from three (3) or more nonconsecutive Downtime events during the
calendar month; or (ii) Customer experiences more than eight (8) consecutive
hours of Downtime due to any single event. Such termination will be effective
thirty (30) days after receipt of such notice by Exodus.
(g) THE SERVICE LEVEL WARRANTY SET FORTH IN THIS SECTION 5.2 SHALL
ONLY APPLY TO THE BANDWIDTH AND FACILITIES SERVICE(S) PROVIDED BY EXODUS AND,
DOES NOT APPLY TO (I) ANY PROFESSIONAL SERVICES; (II) ANY SUPPLEMENTAL SERVICES;
AND (III) ANY SERVICE(S) THAT EXPRESSLY EXCLUDE THIS SERVICE LEVEL WARRANTY (AS
STATED IN THE SPECIFICATION SHEETS FOR SUCH SERVICES). THIS SECTION 5.2 STATES
CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE BY EXODUS TO PROVIDE
SERVICE(S).
5.3 Service Performance Warranty. Exodus warrants that it will perform the
Services in a manner consistent with industry standards reasonably applicable to
the performance thereof.
5.4 Selection of Exodus Supplied Equipment; Manufacturer Warranty.
Customer acknowledges that it has selected the Exodus Supplied Equipment and
disclaims any statements made by Exodus. Except with respect to any express
warranties for Service(s) related to Exodus Supplied Equipment, Customer
acknowledges and agrees that its use and possession of the Exodus Supplied
Equipment by Customer shall be subject to and controlled by the terms of any
manufacturer's or, if appropriate, supplier's warranty, and Customer agrees to
look solely to the manufacturer or, if appropriate, supplier
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with respect to all mechanical, service and other claims, and the right to
enforce all warranties made by said manufacturer are hereby, to the extent
Exodus has the right, assigned to Customer solely for the Initial Term.
5.5 No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS
SECTION 5, THE SERVICES ARE PROVIDED ON AN "AS IS" BASIS, AND CUSTOMER'S USE OF
THE SERVICES IS AT ITS OWN RISK. EXODUS DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY
AND ALL OTHER EXPRESS AND/OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT
AND TITLE, AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE
PRACTICE. EXODUS DOES NOT WARRANT THAT THE SERVICES WILL BE UNINTERRUPTED,
ERROR-FREE, OR COMPLETELY SECURE.
5.6 Disclaimer of Actions Caused by and/or Under the Control of Third
Parties. EXODUS DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM EXODUS'
NETWORK AND OTHER PORTIONS OF THE INTERNET. SUCH FLOW DEPENDS IN LARGE PART ON
THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR CONTROLLED BY THIRD PARTIES. AT
TIMES, ACTIONS OR INACTIONS OF SUCH THIRD PARTIES CAN IMPAIR OR DISRUPT
CUSTOMER'S CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF). ALTHOUGH EXODUS
WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ALL ACTIONS IT DEEMS
APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, EXODUS CANNOT GUARANTEE THAT SUCH
EVENTS WILL NOT OCCUR. ACCORDINGLY, EXODUS DISCLAIMS ANY AND ALL LIABILITY
RESULTING FROM OR RELATED TO SUCH EVENTS.
6. CUSTOMER OBLIGATIONS.
6.1 Warranties of Customer.
(a) General. Customer represents and warrants that (i) it has the
legal right and authority, and will continue to own or maintain the legal right
and authority, during the term of this Agreement, to place and use any Customer
Equipment as contemplated under this Agreement; (ii) the performance of its
obligations and use of the Services (by Customer, its customers and users) will
not violate any applicable laws, regulations or the Rules and Regulations or
cause a breach of any agreements with any third parties or unreasonably
interfere with other Exodus customers' use of Exodus services, and (iii) all
equipment, materials and other tangible items placed by Customer at Internet
Data Centers will be used in compliance with all applicable manufacturer
specifications.
(b) Breach of Warranties. In the event of any breach of any of the
foregoing warranties, in addition to any other remedies available at law or in
equity, Exodus will have the right, in its sole reasonable discretion, to
suspend immediately any related Services if deemed reasonably necessary by
Exodus to prevent any harm to Exodus and its business. Exodus will provide
notice and opportunity to cure if practicable depending on the nature of the
breach. Once cured, Exodus will promptly restore the Service(s).
6.2 Compliance with Law and Rules and Regulations. Customer agrees that it
will use the Service(s) only for lawful purposes and in accordance with this
Agreement. Customer will comply at all times with all applicable laws and
regulations and the Rules and Regulations, as updated by Exodus from time to
time. The Rules and Regulations are incorporated herein and made a part hereof
by this reference. Exodus may change the Rules and Regulations upon fifteen (15)
days' notice to Customer, which notice may be provided by posting such new Rules
and Regulations at the Exodus Web site www.exodus.net. Customer agrees that it
has received, read and understands the current version of the Rules and
Regulations. The Rules and Regulations contain restrictions on Customer's and
Customer's users' online conduct (including prohibitions against unsolicited
commercial email) and contain financial penalties for violations of such
restrictions. Customer agrees to comply with such restrictions and, in the event
of a failure to comply, Customer agrees to pay the financial penalties in
accordance with the Rules and Regulations. Customer acknowledges that Exodus
exercises no control whatsoever over the content of the information passing
through Customer's site(s) and that it is the sole responsibility of Customer to
ensure that the information it and its users transmit and receive complies with
all applicable laws and regulations and the Rules and Regulations.
6.3 Access and Security. Except with the advanced written consent of
Exodus, Customer's access to the Internet Data Centers will be limited solely to
the Representatives. Representatives may only access the Customer Area and are
prohibited from accessing other areas of the Internet Data Center(s) unless
accompanied by an authorized Exodus representative.
6.4 Restrictions on Use of Services. Customer shall not, without the prior
written consent of Exodus (which may be withheld in its sole discretion), resell
the Services to any third parties or connect Customer Equipment directly to
anything other than the Exodus network, equipment and facilities.
6.5 Relocation of Customer Equipment. In the event that it becomes
necessary to relocate the Customer Equipment to another Customer Area or
Internet Data Center operated by Exodus, Customer will cooperate in good faith
with Exodus to facilitate such relocation, provided that such relocation is
based on reasonable business needs of Exodus (including the needs of other
Exodus customers), the expansion of the space requirements of Customer or
otherwise. Exodus shall be solely responsible for any costs and expenses
incurred by Exodus in connection with any such relocation and will use
commercially reasonable efforts, in cooperation with Customer, to minimize and
avoid any interruption to the Services
6.6 Exodus Supplied Equipment.
(a) Delivery and Term. On or prior to the Service Commencement Date,
Exodus shall deliver to Customer, at the designated Customer Area, the Exodus
Supplied Equipment. Customer shall have the right to use the Exodus Supplied
Equipment for the Initial Term set forth in the Order Form and any additional
period agreed to in writing by Exodus. Customer shall not remove any Exodus
Supplied Equipment from the Customer Area(s) without the prior written consent
of Exodus.
(b) Title. The Exodus Supplied Equipment shall always remain the
personal property of Exodus. Customer shall have no right or interest in or to
the Exodus Supplied Equipment except as provided in this Agreement and the
applicable Order Form and shall hold the Exodus Supplied Equipment subject and
subordinate to the rights of Exodus. Customer agrees to execute UCC financing
statements as and when requested by Exodus and hereby appoints Exodus as its
attorney-in-fact to execute such financing statements on behalf of Customer.
Customer will, at its own expense, keep the Exodus Supplied Equipment free and
clear from any liens or encumbrances of any kind (except any caused by Exodus)
and will indemnify and hold Exodus harmless from and against any loss or expense
caused by Customer's failure to do so. Customer shall give Exodus immediate
written notice of any attachment or judicial process affecting the Exodus
Supplied Equipment or Exodus' ownership. Customer will not remove, alter or
destroy any labels on the Exodus Supplied Equipment stating that it is the
property of Exodus and shall allow the inspection of the Exodus Supplied
Equipment at any time.
(c) Use, Maintenance and Repair. Customer will, at its own expense,
keep the Exodus Supplied Equipment in good repair, appearance and condition,
other than normal wear and tear, and, if not included in the Services, shall
obtain, pay for and keep in effect through the Initial Term a hardware and
software maintenance agreement with the manufacturer or other party acceptable
to Exodus. All parts furnished in connection with such repair and maintenance
shall be manufacturer authorized parts and shall immediately become components
of the Exodus Supplied Equipment and the property of Exodus. Customer shall use
the Exodus Supplied Equipment in compliance with the manufacturer's or
supplier's suggested guidelines.
(d) Upgrades and Additions. Customer may affix or install any
accessory, addition, upgrade, equipment or device on to the Exodus Supplied
Equipment (other than electronic data) ("Additions") provided that such
Additions (i) can be removed without causing material damage to the Exodus
Supplied Equipment; (ii) do not reduce the value of the Exodus Supplied
Equipment and (iii) are obtained from or approved in writing by Exodus and are
not subject to the interest of any third party other than Exodus. Any other
Additions may not be installed without Exodus' prior written consent. At the end
of the Initial Term, Customer shall remove any Additions which (i) were not
provided by Exodus and (ii) are readily removable without causing material
damage or impairment of the intended function, use, or value of the Exodus
Supplied Equipment, and restore the Exodus Supplied Equipment to its original
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configuration. Any Additions, which are not so removable, will become the
property of Exodus (lien free).
7. INSURANCE.
7.1 Exodus Minimum Levels. Exodus agrees to keep in full force and effect
during the term of this Agreement: (i) comprehensive general liability insurance
in an amount not less than $2 million per occurrence for bodily injury and
property damage and (ii) workers' compensation insurance in an amount not less
than that required by applicable law. Exodus agrees that it will ensure and be
solely responsible for ensuring that its contractors and subcontractors maintain
insurance coverage at levels no less than those required by applicable law and
customary in Exodus' and its agents' industries.
7.2 Customer Minimum Levels. In order to provide customers with physical
access to facilities operated by Exodus and equipment owned by third parties,
Exodus is required by its insurers to ensure that each Exodus customer maintains
adequate insurance coverage. Customer agrees to keep in full force and effect
during the term of this Agreement: (i) comprehensive general liability insurance
in an amount not less than $2 million per occurrence for bodily injury and
property damage and (ii) workers compensation insurance in an amount not less
than that required by applicable law. Customer agrees that it will ensure and be
solely responsible for ensuring that its agents (including contractors and
subcontractors) maintain insurance coverage at levels no less than those
required by applicable law and customary in Customer's and its agents'
industries.
7.3 Certificates of Insurance; Naming Exodus as an Additional Insured.
Prior to installation of any Customer Equipment in the Customer Area, Customer
will (i) deliver to Exodus certificates of insurance which evidence the minimum
levels of insurance set forth above; and (ii) cause its insurance provider(s) to
name Exodus as an additional insured and notify Exodus in writing of the
effective date thereof.
8. LIMITATIONS OF LIABILITY.
8.1 Personal Injury. EACH REPRESENTATIVE AND ANY OTHER PERSON VISITING AN
INTERNET DATA CENTER DOES SO AT ITS OWN RISK. EXODUS ASSUMES NO LIABILITY
WHATSOEVER FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN THE
NEGLIGENCE OR WILLFUL MISCONDUCT OF EXODUS.
8.2 Damage to Customer Equipment. EXODUS ASSUMES NO LIABILITY FOR ANY
DAMAGE TO, OR LOSS OF, ANY CUSTOMER EQUIPMENT RESULTING FROM ANY CAUSE OTHER
THAN THE NEGLIGENCE OR WILLFUL MISCONDUCT OF EXODUS. TO THE EXTENT EXODUS IS
LIABLE FOR ANY DAMAGE TO, OR LOSS OF, CUSTOMER EQUIPMENT FOR ANY REASON, SUCH
LIABILITY WILL BE LIMITED SOLELY TO THE THEN-CURRENT REPLACEMENT VALUE OF THE
CUSTOMER EQUIPMENT, EXCLUDING LOST DATA, SOFTWARE AND FIRMWARE.
8.3. CONSEQUENTIAL DAMAGES WAIVER. EXCEPT FOR A BREACH OF SECTION 4.1
("CONFIDENTIAL INFORMATION") OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE
LIABLE OR RESPONSIBLE TO THE OTHER FOR ANY TYPE OF INCIDENTAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST REVENUE,
LOST PROFITS, REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR SERVICES, LOSS OF
DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR EQUIPMENT, EVEN IF ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES, WHETHER ARISING UNDER THEORY OF CONTRACT, TORT
(INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
8.4. Basis of the Bargain; Failure of Essential Purpose. The parties
acknowledge that Exodus has set its prices and entered into this Agreement in
reliance upon the limitations of liability and the disclaimers of warranties and
damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
9. INDEMNIFICATION.
9.1. Indemnification. Each party will indemnify, defend and hold the other
harmless from and against any and all costs, liabilities, losses, and expenses
(including, but not limited to, reasonable attorneys' fees) (collectively,
"Losses") resulting from any claim, suit, action, or proceeding (each, an
"Action") brought by any third party against the other or its affiliates
alleging (i) the infringement or misappropriation of any intellectual property
right relating to the delivery or use of the Service(s) (but excluding any
infringement contributorily caused by the other party); (ii) personal injury
caused by the negligence or willful misconduct of the other party; and (iii) any
violation of or failure to comply with the Rules and Regulations. Customer will
indemnify, defend and hold Exodus, its affiliates and customers harmless from
and against any and all Losses resulting from or arising out of any Action
brought against Exodus, its affiliates or customers alleging any damage or
destruction to the Customer Area, the Internet Data Centers, Exodus equipment or
other customer equipment caused by Customer, its Representative(s) or designees.
9.2 Notice. Each party's indemnification obligations hereunder shall be
subject to (i) receiving prompt written notice of the existence of any Action;
(ii) being able to, at its option, control the defense of such Action; (iii)
permitting the indemnified party to participate in the defense of any Action;
and (iv) receiving full cooperation of the indemnified party in the defense
thereof.
10. TERMINATION.
10.1. Termination For Cause. Either party may terminate this Agreement if:
(i) the other party breaches any material term or condition of this Agreement
and fails to cure such breach within thirty (30) days after receipt of written
notice of the same, except in the case of failure to pay fees, which must be
cured within five (5) days after receipt of written notice from Exodus; (ii) the
other party becomes the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or (iii) the other party becomes the
subject of an involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing. Customer may also terminate this Agreement in
accordance with the terms set forth in paragraph 5.2(f) ("Termination Option For
Chronic Problems") of this Agreement.
10.2 No Liability for Termination. Neither party will be liable to the
other for any termination or expiration of any Service or this Agreement in
accordance with its terms.
10.3. Effect of Termination. Upon the effective date of termination of this
Agreement:
(a) Exodus will immediately cease providing the Service(s);
(b) any and all payment obligations of Customer under this Agreement
for Service(s) provided through the date of termination will immediately become
due;
(c) within thirty (30) days of such termination, each party will
return all Confidential Information of the other party in its possession and
will not make or retain any copies of such Confidential Information except as
required to comply with any applicable legal or accounting record keeping
requirement; and
(d) within five (5) days of such termination Customer shall (i) remove
from the Internet Data Centers all Customer Equipment (excluding any Exodus
Supplied Equipment) and any other Customer property; (ii) deliver or make
available all Exodus Supplied Equipment to an authorized representative of
Exodus, and (iii) return the Customer Area to Exodus in the same condition as it
was on the Service Commencement Date for the Customer Area, normal wear and tear
excepted. If Customer does not remove the Customer Equipment and its other
property within such five-day period, Exodus will have the option to (i) move
any and all such property to secure storage and charge Customer for the cost of
such removal and storage, and/or (ii) liquidate the property in any reasonable
manner.
10.4. Customer Equipment as Security. In the event that Customer fails to
pay Exodus all undisputed amounts owed Exodus under this Agreement when due,
Customer agrees that, upon delivery of written notice to Customer, Exodus may
(i) restrict Customer's physical access to the Customer Area and Equipment;
and/or (ii) take possession of any Customer Equipment and store it,
Page 5
<PAGE> 6
at Customer's expense, until taken in full or partial satisfaction of any lien
or judgment, all without being liable to prosecution or for damages.
10.5. Survival. The following provisions will survive any expiration or
termination of the Agreement: Sections 3, 4.1, 4.2, 4.4, 5.5, 6.6(d), 8, 9, 10
and 11 (excluding 11.2).
11. MISCELLANEOUS PROVISIONS.
11.1 Force Majeure. Except for the obligation to make payments, neither
party will be liable for any failure or delay in its performance under this
Agreement due to any cause beyond its reasonable control, including acts of war,
acts of God, earthquake, flood, embargo, riot, sabotage, labor shortage or
dispute, governmental act or failure of the Internet (not resulting from the
actions or inactions of Exodus), provided that the delayed party: (a) gives the
other party prompt notice of such cause, and (b) uses its reasonable commercial
efforts to promptly correct such failure or delay in performance. If Exodus is
unable to provide Service(s) for a period of thirty (30) consecutive days as a
result of a continuing force majeure event, Customer may cancel the Service(s).
11.2 No Lease; Agreement Subordinate to Master Lease. This Agreement is a
services agreement and is not intended to and will not constitute a lease of any
real property. Customer acknowledges and agrees that (i) it has been granted
only a license to occupy the Customer Area and use the Internet Data Centers and
any equipment provided by Exodus in accordance with this Agreement; (ii)
Customer has not been granted any real property interest in the Customer Space
or Internet Data Centers; (iii) Customer has no rights as a tenant or otherwise
under any real property or landlord/tenant laws, regulations, or ordinances; and
(iv) this Agreement, to the extent it involves the use of space leased by
Exodus, shall be subordinate to any lease between Exodus and its landlord(s).
11.3 Marketing. Customer agrees that during the term of this Agreement
Exodus may publicly refer to Customer, orally and in writing, as a Customer of
Exodus. Any other reference to Customer by Exodus requires the written consent
of Customer.
11.4 Government Regulations. Customer will not export, re-export, transfer,
or make available, whether directly or indirectly, any regulated item or
information to anyone outside the U.S. in connection with this Agreement without
first complying with all export control laws and regulations which may be
imposed by the U.S. Government and any country or organization of nations within
whose jurisdiction Customer operates or does business.
11.5. Non-Solicitation. During the Term of this Agreement and continuing
through the first anniversary of the termination of this Agreement, Customer
agrees that it will not, and will ensure that its affiliates do not, directly or
indirectly, solicit or attempt to solicit for employment any persons employed by
Exodus or contracted by Exodus to provide Services to Customer.
11.6. No Third Party Beneficiaries. Exodus and Customer agree that, except
as otherwise expressly provided in this Agreement, there shall be no third party
beneficiaries to this Agreement, including but not limited to the insurance
providers for either party or the customers of Customer.
11.7. Governing Law; Dispute Resolution. This Agreement is made under and
will be governed by and construed in accordance with the laws of the State of
California (except that body of law controlling conflicts of law) and
specifically excluding from application to this Agreement that law known as the
United Nations Convention on the International Sale of Goods. The parties will
endeavor to settle amicably by mutual discussions any disputes, differences, or
claims whatsoever related to this Agreement. Failing such amicable settlement,
any controversy, claim, or dispute arising under or relating to this Agreement,
including the existence, validity, interpretation, performance, termination or
breach thereof, shall finally be settled by arbitration in accordance with the
Arbitration Rules (and if Customer is a non-U.S. entity, the International
Arbitration Rules) of the American Arbitration Association ("AAA"). There will
be three (3) arbitrators (the "Arbitration Tribunal"), the first of which will
be appointed by the claimant in its notice of arbitration, the second of which
will be appointed by the respondent within thirty (30) days of the appointment
of the first arbitrator and the third of which will be jointly appointed by the
party-appointed arbitrators within thirty (30) days thereafter. The language of
the arbitration shall be English. The Arbitration Tribunal will not have the
authority to award punitive damages to either party. Each party shall bear its
own expenses, but the parties will share equally the expenses of the Arbitration
Tribunal and the AAA. This Agreement will be enforceable, and any arbitration
award will be final, and judgment thereon may be entered in any court of
competent jurisdiction. The arbitration will be held in San Francisco,
California, USA. Notwithstanding the foregoing, claims for preliminary
injunctive relief, other pre-judgment remedies, and claims for Customer's
failure to pay for Services in accordance with this Agreement may be brought in
a state or federal court in the United States with jurisdiction over the subject
matter and parties.
11.8. Severability; Waiver. In the event any provision of this Agreement is
held by a tribunal of competent jurisdiction to be contrary to the law, the
remaining provisions of this Agreement will remain in full force and effect. The
waiver of any breach or default of this Agreement will not constitute a waiver
of any subsequent breach or default, and will not act to amend or negate the
rights of the waiving party.
11.9. Assignment. Customer may assign this Agreement in whole as part of a
corporate reorganization, consolidation, merger, or sale of substantially all of
its assets. Customer may not otherwise assign its rights or delegate its duties
under this Agreement either in whole or in part without the prior written
consent of Exodus, and any attempted assignment or delegation without such
consent will be void. Exodus may assign this Agreement in whole or part. Exodus
also may delegate the performance of certain Services to third parties,
including Exodus' wholly owned subsidiaries, provided Exodus controls the
delivery of such Services to Customer and remains responsible to Customer for
the delivery of such Services. This Agreement will bind and inure to the benefit
of each party's successors and permitted assigns.
11.10 Notice. Any notice or communication required or permitted to be given
hereunder may be delivered by hand, deposited with an overnight courier, sent by
email, confirmed facsimile, or mailed by registered or certified mail, return
receipt requested, postage prepaid, in each case to the address of the receiving
party as listed on the Order Form or at such other address as may hereafter be
furnished in writing by either party to the other party. Such notice will be
deemed to have been given as of the date it is delivered, mailed, emailed, faxed
or sent, whichever is earlier.
11.11. Relationship of Parties. Exodus and Customer are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Exodus and
Customer. Neither Exodus nor Customer will have the power to bind the other or
incur obligations on the other's behalf without the other's prior written
consent, except as otherwise expressly provided herein.
11.12. Entire Agreement; Counterparts; Originals. This Agreement, including
all documents incorporated herein by reference, constitutes the complete and
exclusive agreement between the parties with respect to the subject matter
hereof, and supersedes and replaces any and all prior or contemporaneous
discussions, negotiations, understandings and agreements, written and oral,
regarding such subject matter. Any additional or different terms in any purchase
order or other response by Customer shall be deemed objected to by Exodus
without need of further notice of objection, and shall be of no effect or in any
way binding upon Exodus. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument. Once signed, any
reproduction of this Agreement made by reliable means (e.g., photocopy,
facsimile) is considered an original. This Agreement may be changed only by a
written document signed by authorized representatives of Exodus and Customer in
accordance with this Section 11.12. For purposes of this Agreement, the term
"written" means anything reduced to a tangible form by a party, including a
printed or hand written document, e-mail or other electronic format.
11.13 Interpretation of Conflicting Terms. In the event of a conflict
between or among the terms in this Agreement, the Order Form(s), the
Specification Sheet(s), the Statement(s) of Work, and any other document made a
part hereof, the documents shall control in the following order: the Order Form
with the latest date, the Statement of Work, Specification Sheets, the Agreement
and other documents.
Page 6
<PAGE> 7
Authorized representatives of Customer and Exodus have read the foregoing and
all documents incorporated therein and agree and accept such terms effective as
of the date first above written.
<TABLE>
<CAPTION>
CUSTOMER EXODUS COMMUNICATIONS, INC.
<S> <C>
Signature: Signature:
------------------------------- -------------------------------
Print Name: Print Name:
------------------------------- -------------------------------
Title: Title:
------------------------------ ------------------------------
Date: Date:
------------------------------ ------------------------------
</TABLE>
This Agreement incorporates the following documents:
- - Order Form(s)
Specification Sheet(s)
Statement(s) Of Work (if applicable)
- - Registration Form
- - Addendum A - Equipment Purchase Terms and Conditions (if applicable)
Page 7
<PAGE> 8
ADDENDUM A
EQUIPMENT PURCHASE TERMS AND CONDITIONS
1. SHIPPING AND HANDLING. All equipment purchased by Customer (the
"Equipment") is provided FOB Santa Clara, California. Shipment will be made as
specified by Customer and Customer is solely responsible for all expenses in
connection with the delivery of the Equipment. The Equipment will be deemed
accepted by Customer upon receipt.
2. PURCHASE PRICE AND TAXES. Customer shall pay to Exodus the purchase
price set forth in the applicable Order Form ("Purchase Price") for each item of
Equipment. Customer hereby grants and Exodus reserves a purchase money security
interest in the Equipment and the proceeds thereof as a security for its
obligations hereunder until payment of the full Purchase Price to Exodus. The
Purchase Price is due and payable prior to delivery of the Equipment. Customer
shall pay all taxes and other governmental charges assessed in connection with
the rental, use or possession of the Equipment including, without limitation,
any and all sales and/or use taxes and personal property taxes (other than taxes
on Exodus' net income).
3. TITLE. Customer shall acquire title to the Equipment upon full
payment of the purchase price(s) set forth herein. Notwithstanding the
foregoing, Exodus and any licensor of rights to Exodus shall retain title to and
rights in the intellectual property (whether or not subject to patent or
copyright) and content contained in the materials supplied under the terms of
this Agreement.
4. SELECTION OF EQUIPMENT; MANUFACTURER WARRANTY. Customer
acknowledges that is has selected the Equipment and disclaims any statements
made by Exodus. Customer acknowledges and agrees that use and possession of the
Equipment by Customer shall be subject to and controlled by the terms of any
manufacturer's or, if appropriate, supplier's warranty, and Customer agrees to
look solely to the manufacturer or, if appropriate, supplier with respect to all
mechanical, service and other claims, and the right to enforce all warranties
made by said manufacturer are hereby, to the extent Exodus has the right,
assigned to Customer. THE FOREGOING WARRANTY IS THE EXCLUSIVE WARRANTY AND IS IN
LIEU OF ANY ORAL REPRESENTATION AND ALL OTHER WARRANTIES AND DAMAGES, WHETHER
EXPRESSED, IMPLIED OR STATUTORY. EXODUS HAS NOT MADE NOR DOES MAKE ANY OTHER
WARRANTIES OF ANY KIND, EXPRESSED OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, OR OF
NONINFRINGEMENT OF THIRD PARTY RIGHTS AND AS TO EXODUS AND ITS ASSIGNEES,
CUSTOMER PURCHASES THE EQUIPMENT "AS IS".
5. LIMITATION OF LIABILITY. Exodus' entire liability for any damages
which may arise hereunder, for any cause whatsoever, and regardless of the form
of action, whether in contract or in tort, including Exodus' negligence, or
otherwise, shall be limited to the Purchase Price paid by Customer for the
Equipment. IN NO EVENT WILL EXODUS BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OR FOR ANY LOSS OF BUSINESS OR PROSPECTIVE
BUSINESS OPPORTUNITIES, PROFITS, SAVINGS, INFORMATION, USE OR OTHER COMMERICAL
OR ECONOMIC LOSS, EVEN IF EXODUS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
6. GOVERNING LAW; DISPUTE RESOLUTION. This Agreement is made under and
will be governed by and construed in accordance with the laws of the State of
California (except that body of law controlling conflicts of law) and
specifically excluding from application to this Agreement that law known as the
United Nations Convention on the International Sale of Goods. The parties will
endeavor to settle amicably by mutual discussions any disputes, differences, or
claims whatsoever related to this Agreement. Failing such amicable settlement,
any controversy, claim, or dispute arising under or relating to this Agreement,
including the existence, validity, interpretation, performance, termination or
breach thereof, the parties to this Agreement hereby consent to jurisdiction and
venue in the courts of the state of California and in the U.S. District Courts
in the City of San Francisco, California.
7. MISCELLANEOUS. THE ABOVE TERMS AND CONDITIONS ARE THE ONLY TERMS
AND CONDITIONS UPON WHICH EXODUS IS WILLING TO SELL THE EQUIPMENT AND SUPERSEDE
ALL PREVIOUS AGREEMENTS, PROMISES OR REPRESENTATIONS, ORAL OR WRITTEN.
Page 1
<PAGE> 1
EXHIBIT 11
CROSSWALK.COM, INC.
COMPUTATION OF EARNINGS PER SHARE
31-DEC-99
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
BASIC EARNINGS PER SHARE:
Net Shares Total Grant/Purch.
Added Shares Date
----- ------ ----
<S> <C> <C> <C>
Beginning balance 4,034,956 01/01/99
Stock sold during the year:
Issuance for Board compensation 2,492 2,492 05/04/99
Issuance for Board compensation 920 920 08/05/99
AVI Asset Purchase 5,000 5,000 05/12/99
GraceWeb Stock Purchase 10,000 10,000 06/30/99
Wike Associates Purchase 494,845 494,845 08/13/99
Employee Compensation 247 247 05/14/99
Employee Compensation 292 292 05/28/99
Employee Compensation 364 364 06/11/99
Employee Compensation 402 402 06/25/99
Employee Compensation 691 691 07/27/99
Employee Compensation 389 389 08/12/99
Employee Compensation 468 468 08/23/99
Employee Compensation 493 493 09/14/99
Employee Compensation 524 524 09/20/99
Employee Compensation 572 572 10/04/99
Employee Compensation 524 524 10/25/99
Employee Compensation 568 568 11/08/99
Employee Compensation 572 572 11/15/99
Employee Compensation 596 596 12/01/99
Employee Compensation 616 616 12/10/99
Employee Compensation 620 620 12/27/99
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 55,414 55,414 01/01/98
(386) (386) 3/25/1999
(453) (453) 3/26/1999
(366) (366) 3/31/1999
(193) (193) 04/08/99
(550) (550) 04/13/99
(5,000) (5,000) 04/22/99
(270) (270) 05/07/99
(178) (178) 07/01/99
(520) (520) 07/13/99
(89) (89) 11/17/99
Purchase & Underwriter Warrants Exercised: 112,850 112,850 01/14/99
24,200 24,200 01/15/99
19,000 19,000 01/19/99
215,595 215,595 01/20/99
96,600 96,600 01/21/99
11,850 11,850 01/26/99
300 300 01/28/99
8,800 8,800 01/29/99
7,197 7,197 02/02/99
186,751 186,751 02/03/99
35,878 35,878 02/05/99
37,185 37,185 02/08/99
104,000 104,000 02/09/99
164,377 164,377 02/10/99
274,230 274,230 02/11/99
55,954 55,954 02/12/99
123,259 123,259 02/16/99
908,663 908,663 02/18/99
120,307 120,307 02/22/99
21,455 21,455 02/25/99
22,000 22,000 04/08/99
20,000 20,000 04/09/99
27,000 27,000 04/12/99
2,000 2,000 04/13/99
3,500 3,500 04/14/99
15,000 15,000 04/23/99
1,000 1,000 04/26/99
3,000 3,000 04/28/99
220,000 220,000 04/30/99
2,000 2,000 05/01/99
2,000 2,000 05/26/99
Options Exercised: 4,500 4,500 1/12/1999
3,785 3,785 3/25/1999
3,973 3,973 3/26/1999
3,250 3,250 3/29/1999
9,440 9,440 3/31/1999
9,250 9,250 04/08/99
21,875 21,875 04/09/99
2,750 2,750 04/13/99
200 200 04/13/99
6,000 6,000 04/14/99
5,450 5,450 04/16/99
25,000 25,000 04/22/99
5,500 5,500 05/07/99
6,666 6,666 05/12/99
2,000 2,000 06/16/99
2,500 2,500 06/30/99
4,238 4,238 07/01/99
3,000 3,000 07/06/99
2,500 2,500 07/07/99
12,175 12,175 07/13/99
2,000 2,000 07/20/99
5,000 5,000 09/02/99
2,000 2,000 09/13/99
200 200 09/15/99
9,800 9,800 11/12/99
33,318 33,318 11/17/99
1,500 1,500 12/07/99
3,000 3,000 12/10/99
End of period
7,592,972
<CAPTION>
BASIC EARNINGS PER SHARE: Diluted Basic
Days Weighted Weighted
Outstanding Shares Shares
----------- ------ ------
<S> <C> <C> <C>
Beginning balance 364 1,468,723,984 1,468,723,984
Stock sold during the year:
Issuance for Board compensation 242 603,064 603,064
Issuance for Board compensation 149 137,080 137,080
AVI Asset Purchase 234 1,170,000 1,170,000
GraceWeb Stock Purchase 185 1,850,000 1,850,000
Wike Associates Purchase 141 69,773,145 69,773,145
Employee Compensation 232 57,304 57,304
Employee Compensation 218 63,656 63,656
Employee Compensation 204 74,256 74,256
Employee Compensation 190 76,380 76,380
Employee Compensation 158 109,178 109,178
Employee Compensation 142 55,238 55,238
Employee Compensation 131 61,308 61,308
Employee Compensation 109 53,737 53,737
Employee Compensation 103 53,972 53,972
Employee Compensation 89 50,908 50,908
Employee Compensation 68 35,632 35,632
Employee Compensation 54 30,672 30,672
Employee Compensation 47 26,884 26,884
Employee Compensation 31 18,476 18,476
Employee Compensation 22 13,552 13,552
Employee Compensation 5 3,100 3,100
Grant/Exercise of warrants:
Assumed issued and outstanding - beginning of period 272 15,072,608 -
282 (108,852) -
281 (127,293) -
276 (101,016) -
268 (51,724) -
263 (144,650) -
254 (1,270,000) -
239 (64,530) -
184 (32,752) -
172 (89,440) -
45 (4,005) -
Purchase & Underwriter Warrants Exercised: 352 39,723,200 39,723,200
351 8,494,200 8,494,200
347 6,593,000 6,593,000
346 74,595,870 74,595,870
345 33,327,000 33,327,000
340 4,029,000 4,029,000
338 101,400 101,400
337 2,965,600 2,965,600
333 2,396,601 2,396,601
332 62,001,332 62,001,332
330 11,839,740 11,839,740
327 12,159,495 12,159,495
326 33,904,000 33,904,000
325 53,422,525 53,422,525
324 88,850,520 88,850,520
323 18,073,142 18,073,142
319 39,319,621 39,319,621
317 288,046,171 288,046,171
313 37,656,091 37,656,091
310 6,651,050 6,651,050
268 5,896,000 5,896,000
267 5,340,000 5,340,000
264 7,128,000 7,128,000
263 526,000 526,000
262 917,000 917,000
253 3,795,000 3,795,000
250 250,000 250,000
248 744,000 744,000
246 54,120,000 54,120,000
245 490,000 490,000
220 440,000 440,000
Options Exercised: 354 1,593,000 1,593,000
282 1,067,370 1,067,370
281 1,116,413 1,116,413
278 903,500 903,500
276 2,605,440 2,605,440
268 2,479,000 2,479,000
267 5,840,625 5,840,625
263 723,250 723,250
263 52,600 52,600
262 1,572,000 1,572,000
260 1,417,000 1,417,000
254 6,350,000 6,350,000
239 1,314,500 1,314,500
234 1,559,844 1,559,844
199 398,000 398,000
185 462,500 462,500
184 779,792 779,792
179 537,000 537,000
178 445,000 445,000
172 2,094,100 2,094,100
165 330,000 330,000
121 605,000 605,000
110 220,000 220,000
108 21,600 21,600
50 490,000 490,000
45 1,499,310 1,499,310
25 37,500 37,500
22 66,000 66,000
------------------------ -------------------
End of period 2,496,495,774 2,483,417,428
364 364
------------------------ -------------------
6,858,505 6,822,575
(10,650,282) (10,650,282)
------------------------ -------------------
(1.55) (1.56)
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8) pertaining to the 1998 Incentive Stock Plan of
Crosswalk.com, Inc. of our report dated February 10, 2000, with
respect to the consolidated financial statements and schedule of
Crosswalk.com, Inc. included in the Annual Report (Form 10-K) for
the year ended December 31, 1999.
McLean, Virginia
March 27, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS'
We consent to the incorporation by reference in the Registration Statements on
Form S-3 and on Form S-8 of CROSSWALK.COM, INC. and Subsidiary of our report
dated February 16, 1999, which appears on Form 10-K for the year ended December
31, 1999.
Hoffman, Morrison & Fitzgerald, P.C.
McLean, Virginia
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,047,115
<SECURITIES> 422,536
<RECEIVABLES> 352,408
<ALLOWANCES> 0
<INVENTORY> 7,819
<CURRENT-ASSETS> 3,970,028
<PP&E> 597,259
<DEPRECIATION> 275,465
<TOTAL-ASSETS> 4,902,583
<CURRENT-LIABILITIES> 676,846
<BONDS> 0
0
0
<COMMON> 14,908,979
<OTHER-SE> 666,722
<TOTAL-LIABILITY-AND-EQUITY> 4,902,583
<SALES> 134,446
<TOTAL-REVENUES> 1,083,294
<CGS> 636,348
<TOTAL-COSTS> 4,126,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,947
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,457,064)
<EPS-BASIC> (0.98)
<EPS-DILUTED> (0.98)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,641,157
<SECURITIES> 4,538,906
<RECEIVABLES> 2,157,991
<ALLOWANCES> 0
<INVENTORY> 9,478
<CURRENT-ASSETS> 8,546,214
<PP&E> 2,564,217
<DEPRECIATION> 716,514
<TOTAL-ASSETS> 19,786,852
<CURRENT-LIABILITIES> 3,453,106
<BONDS> 0
0
0
<COMMON> 38,232,852
<OTHER-SE> 127,660
<TOTAL-LIABILITY-AND-EQUITY> 19,786,852
<SALES> 343,447
<TOTAL-REVENUES> 6,901,181
<CGS> 3,728,276
<TOTAL-COSTS> 14,467,752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (146)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,650,282)
<EPS-BASIC> (1.56)
<EPS-DILUTED> (1.56)
</TABLE>
