<PAGE>
As filed with the Securities and Exchange Commission on May 18, 1999
Registration No. 333-74569
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
NETIVATION.COM, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 88-0308169 7375
(State or jurisdiction of incorporation (I.R.S. Employer (Primary Standard Industrial
or organization following reincorporation) Identification No.) Classification Code Number)
</TABLE>
7950 Meadowlark Way
Coeur d'Alene, Idaho 83815
(208) 762-2526
(Address and telephone number of principal executive offices)
(Address of principal place of business or intended principal place of
business)
---------------
Anthony J. Paquin
Chief Executive Officer
NETIVATION.COM, INC.
7950 Meadowlark Way
Coeur d'Alene, Idaho 83815
(208) 762-2526
(Name, address and telephone number of agent for service)
---------------
Copies to:
<TABLE>
<S> <C> <C>
Mark A. Ellison, Esq. Michael L. Platt, Esq. Robert W. Walter, Esq.
Stephen R. Drake, Esq. Mark G. Seneker, Esq. Berliner Zisser Walter &
Moffatt, Thomas, Barrett, Cooley Godward LLP Gallegos, P.C.
Rock & Fields, Chartered 2595 Canyon Boulevard 1700 Lincoln Street, Suite 4700
101 South Capitol Blvd., Suite 250 Denver, Colorado 80203
10th Floor Boulder, Colorado 80302 (303) 830-1700
Boise, Idaho 83702 (303) 546-4000
(208) 345-2000
</TABLE>
---------------
Approximate date of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
---------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Amount Proposed Proposed Amount of
Title of Each Class of to be Maximum Offering Maximum Aggregate Registration
Securities to be Registered Registered(1) Price Per Share(2) Offering Price(1)(2) Fee(3)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value.................. 2,875,000 $11.00 $31,625,000 $8,792
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the representatives of the underwriters have the
option to purchase from Netivation.com to cover over-allotments, if any,
equal to fifteen percent (15%) of the initial shares.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act
of 1933.
---------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 18, 1999
2,500,000 SHARES
[LOGO OF NETIVATION.COM, INC. APPEARS HERE]
COMMON STOCK
This is our initial public offering. We are offering all of the 2,500,000
shares. We estimate that the share price will be $9.00 to $11.00. No public
market currently exists for our shares.
We have applied to have our shares approved for listing on the Nasdaq
National Market under the symbol "NTVN."
INVESTING IN OUR SHARES INVOLVES RISKS. SEE "RISK FACTORS" COMMENCING ON PAGE
5.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price $ $
Underwriting discounts $ $
Proceeds to Netivation.com $ $
</TABLE>
Solely to cover any over-allotments, we have granted the representatives of
the underwriters a 60-day option to purchase up to 375,000 additional shares of
common stock on these same terms.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. IT IS A CRIME TO MAKE ANY
REPRESENTATION TO THE CONTRARY.
EBI SECURITIES CORPORATION MILLENNIUM
FINANCIAL GROUP, INC.
PROSPECTUS DATED , 1999
The information contained herein is not complete and may be changed. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. We may not sell these securities until the
registration statement is effective. This prospectus is not an offer to sell
these securities and we are not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
<PAGE>
[LOGO OF NETIVATION.COM, INC. APPEARS HERE]
[Graphic appears here depicting three web home pages from Netivation.com,
Votenet.com and Medinex.com. The web pages appear in a cascading order.]
. We are a developer of Internet communities for public
policy and healthcare.
. Our public policy community, Votenet, includes content,
products and services for candidates for political office,
voters, political organizations, political action
committees and lobbyists.
. Our healthcare community, Medinex, provides content,
products and services to primary care physicians,
healthcare conscious consumers, patients and their
families.
. Votenet.com has received recognition from PC Magazine
Online, Yahoo and USAToday.
The information on our Websites is not a part of this prospectus.
We intend to furnish stockholders with annual reports
containing financial statements audited by an independent
public accounting firm and quarterly reports containing
unaudited financial information for the first three
quarters of each year.
"Netivation.com," "Governet," "Votenet," "Votenet.com,"
"Votenet (and design)," "CapitolWatch," "Medinex" and
"Medinex.com" are trademarks of Netivation.com, Inc. We have
also applied for federal registration of each of these
trademarks.
<PAGE>
NETIVATION.COM PROSPECTUS
INTRODUCTION
Please read this prospectus carefully. It describes our business, our
products and services and our finances. We have prepared this prospectus so
that you will have the information necessary to make an investment decision.
You should only rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
PROSPECTUS DELIVERY OBLIGATIONS
Until , 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in the common stock, whether or not participating in
this distribution, may be required to deliver a prospectus. This is in addition
to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 5
Where You Can Find Additional Information................................ 13
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 25
Management............................................................... 37
Certain Transactions..................................................... 43
Principal Stockholders................................................... 44
Description of Capital Stock............................................. 45
Shares Eligible for Future Sale.......................................... 48
Underwriting............................................................. 50
Legal Matters............................................................ 52
Experts.................................................................. 52
Index to Financial Statements............................................ F-1
Financial Statements of Netivation.com, Inc. .. F-3
Financial Statements of The Online Medical Bookstore, LLC................ F-17
Financial Statements of InterLink Services, Inc.......................... F-24
Unaudited Pro Forma Combined Financial Information....................... F-31
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
Our business
We develop and operate topic specific Internet communities designed to
permit persons sharing a common interest to access our suite of services and
the resources of the Internet. We foster interaction and communication among
the members of each community by providing them a comprehensive suite of
Internet based products and services. We plan to develop a sense of loyalty
within each community by offering specialized software applications to key
participants that encourage their ongoing involvement within the community. We
believe the involvement of key participants is essential for the rapid growth
of each community.
To date, we have focused on the development of two communities, Votenet and
Medinex. We believe that each Internet community will provide multiple sources
of revenue, including:
. e-commerce opportunities;
. Website development and hosting;
. the sale of advertising space;
. corporate sponsorships and alliances;
. licensing and support of physicians' office management software; and
. commissions from online political fundraising.
Recent acquisitions
On March 4, 1999, we entered into an agreement to acquire The Online Medical
Bookstore, LLC, or Online Medical Bookstore, a company selling medical books
and medical supplies via the Internet. Additionally, on March 9, 1999, we
entered into an agreement to acquire InterLink Services, Inc., or InterLink, a
company providing Website design and hosting services. We plan to complete
these acquisitions concurrent with this offering. We believe that both
companies provide synergies with our products and services and help execute our
strategy.
Our approach to the market
The rapid growth of the Internet and the proliferation of Websites have made
it increasingly difficult for Internet users, content providers and businesses
with a common interest to efficiently reach and interact with one another using
such means as general interest search engines. Internet communities that bring
together persons with a common interest increase the opportunity for
advertising efficiency and the likelihood of successful e-commerce
transactions. We believe that the large size and diversity of the political and
healthcare markets are particularly well suited to benefit from greater use of
the Internet.
Our Internet communities
Votenet
Votenet, our public policy and political community site, includes content,
products and services designed for candidates for political office, voters,
political organizations, political action committees and lobbyists. With an
estimated 250,000 political campaigns each year in the U.S., the Center for
Responsive Politics estimated that more than $2 billion was spent in 1996 on
U.S. congressional and presidential races alone. Votenet includes a public
policy focused Internet search engine and CapitolWatch, a daily email
newsletter that reports on important news stories. CapitolWatch is delivered to
over 45,000 e-mail addresses.
To encourage their continued participation, we provide politicians with
computer software designed to manage voter data and contacts, fundraising and
reporting.
1
<PAGE>
In June 1998, PC Magazine Online, in a quarterly review, named Votenet as
one of the top 100 Websites on the Internet.
Medinex
Our healthcare focused community, Medinex, provides content, products and
services for primary care physicians, healthcare conscious consumers, patients
and their families, pharmaceutical and insurance companies and others involved
in the healthcare market. Medinex includes a healthcare focused Internet search
engine and a health site certification process designed to increase the
accuracy of third-party generated information received through the site.
Our Website service combines our search engine content and medical news into
a turnkey Web presence for physicians. The Medinex.com search engine provides
access to over 9,500 healthcare related Websites. We have over 1,000
relationships with healthcare related Websites that link their users to the
Medinex.com site.
During 1999, we will introduce an Internet based physicians' office
management software that incorporates accounting and other business management
applications. We will market this software to primary care practices with one
to five physicians to develop strong bonds between physicians and the Medinex
community. We anticipate this software product will generate revenues from
monthly usage and support fees.
Our Strategy
Our objective is to leverage our community platforms to generate multiple
sources of revenues. The strategy to achieve this objective and take full
advantage of our market opportunities includes:
. acquiring or investing in complementary businesses, technologies,
services and products that add value to our communities;
. offering a comprehensive selection of content, products, services and
software solutions to build member loyalty;
. increasing traffic to our Websites;
. building the Votenet and Medinex brands through aggressive promotional
campaigns;
. leveraging the high profile nature of our subject matter through
corporate sponsorships and alliances; and
. capitalizing on the attractive, targeted demographics of our community
members.
About Netivation.com
We were incorporated in Nevada in November 1993. In January 1999, we changed
our name to Netivation.com, Inc. and in May 1999 we reincorporated in Delaware.
We plan to complete the acquisitions of Online Medical Bookstore and InterLink
prior to the closing of this offering. Our executive offices are located at
7950 Meadowlark Way, Coeur d'Alene, Idaho 83815. We also maintain an office at
1220 Connecticut Avenue, NW, Washington, D.C. 20036. Our Website address is
www.netivation.com and our telephone number is (208) 762-2526.
Forward Looking Statements
This prospectus contains certain forward-looking statements that involve
risks and uncertainties. These statements relate to our future plans,
objectives, expectations and intentions. These statements may be identified by
the use of words such as "believes," "expects," "estimates," "anticipates,"
"intends," "plans" and similar expressions. Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of various factors, including all the risks discussed in "Risk Factors" and
elsewhere in this prospectus.
2
<PAGE>
The Offering
Common stock offered by
Netivation.com.......................... 2,500,000 shares
Common stock to be outstanding after
this offering........................... 8,660,070 shares
Use of proceeds...................... To fund the development of our
products and services; to expand our
sales and marketing efforts; to fund
operating losses; to make
complementary acquisitions or
investments; and for working capital
and other general corporate purposes.
Proposed Nasdaq National Market
symbol.................................. NTVN
The number of shares of common stock to be outstanding after this offering
does not include:
. 278,875 shares issuable upon the exercise of stock options outstanding
under our 1999 equity incentive plan at a weighted average exercise price
of $2.03 per share;
. 428,625 additional shares that have been reserved for issuance and may be
granted under such plan, of which 155,000 options are to be granted to
certain key employees of Online Medical Bookstore and InterLink upon the
closing of those acquisitions;
. 200,000 shares issuable upon the exercise of stock options issued outside
of any plan at a weighted average exercise price of $.056 per share;
. 258,000 shares of common stock reserved for issuance under outstanding
warrants at a weighted average exercise price of $2.50 per share; and
. 500,000 shares available for issuance under our 1999 employee stock
purchase plan.
About This Prospectus
We have entered into agreements to purchase Online Medical Bookstore and
InterLink, both of which we expect to complete simultaneously with the
effectiveness of this offering. The acquisitions of these businesses are
reflected in the pro forma financial information contained in this prospectus
as if they had occurred during 1998.
Unless otherwise indicated, all information in this prospectus:
. assumes that our date of inception was September 26, 1997, which is the
date we acquired the technology used in our current business operations;
. reflects the conversion of all outstanding shares of preferred stock into
2,325,000 shares of common stock upon the closing of this offering;
. includes 319,300 shares of common stock, based upon an assumed initial
public offering price of $10.00 per share, issuable on the closing of the
acquisitions of Online Medical Bookstore and InterLink; and
. assumes that the representatives of the underwriters do not exercise
their over-allotment option or their warrants and that no other person
exercises any other outstanding option or warrant.
This summary highlights some information from this prospectus and may not
contain all the information that is important to you.
Unless the context requires otherwise, the "company," "Netivation.com,"
"we," "us" and "our" in this prospectus refer to Netivation.com, Inc.
3
<PAGE>
Summary Financial Data
(dollars in thousands, except per share data)
The following table summarizes the financial data for our business. The
unaudited pro forma statement of operations data reflects the acquisitions of
Online Medical Bookstore and InterLink as if they had each occurred on January
1, 1998. Please see our unaudited pro forma combined financial information
beginning on page F-30.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1998 March 31, 1999
-------------------- ---------------------
September 26, 1997 Three
(inception) to Months Ended
December 31, 1997 Actual Pro Forma March 31, 1998 Actual Pro Forma
------------------ --------- --------- -------------- ---------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues............... $ -- $ -- $ 619 $ -- $ 82 $ 270
Cost of revenues....... -- -- (422) -- -- (134)
--------- --------- --------- ---------- ---------- ---------
Gross profit........... -- -- 197 -- 82 136
Operating expenses:
General and
administrative...... 43 837 1,158 99 246 322
Sales and marketing.. 18 551 556 79 423 424
Stock compensation... -- 586 586 -- 1,032 1,032
Product development.. -- 171 171 12 323 323
Amortization of
intangible assets... -- -- 1,158 -- -- 290
--------- --------- --------- ---------- ---------- ---------
Total operating
expenses.......... 61 2,145 3,629 190 2,024 2,391
--------- --------- --------- ---------- ---------- ---------
Loss from operations... (61) (2,145) (3,432) (190) (1,942) (2,255)
Interest expense....... -- (183) (183) (6) (14) (16)
--------- --------- --------- ---------- ---------- ---------
Net loss............... (61) (2,328) (3,615) (196) (1,956) (2,271)
Preferred stock
dividends............. -- (14) (14) -- (110) (110)
--------- --------- --------- ---------- ---------- ---------
Net loss available to
common stock.......... $ (61) $ (2,342) $ ( 3,629) $ (196) $ (2,066) $ (2,381)
========= ========= ========= ========== ========== =========
Basic and diluted net
loss per share......... $ (.02) $ (.69) $ (.96) $ (.06) $ (.59) $ (.62)
========= ========= ========= ========== ========== =========
Weighted average shares
outstanding............ 3,168,270 3,417,377 3,772,155 3,298,659 3,517,159 3,836,459
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
------------------------------
Pro Forma As
Actual Pro Forma Adjusted
------- --------- ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and short-term investments................ $ 2,274 $ 2,172 $23,672
Working capital................................ 2,396 2,271 23,771
Total assets................................... 3,115 6,484 27,984
Total stockholders' equity..................... 1,125 4,443 25,943
</TABLE>
The pro forma column reflects:
. the automatic conversion of all outstanding preferred stock at March 31,
1999 into 2,325,000 shares of common stock; and
. the acquisitions of Online Medical Bookstore and InterLink as if they had
each occurred on March 31, 1999.
The pro forma as adjusted column reflects:
. our receipt of the estimated net proceeds from the sale of 2,500,000
shares of common stock at an assumed initial public offering price of
$10.00 per share, after deducting underwriting discounts and other
estimated offering expenses.
4
<PAGE>
RISK FACTORS
You should carefully consider the following risks before you decide to buy
our common stock. The risks and uncertainties described below are not the only
ones facing us. Additional risks and uncertainties not presently known to us
or that we currently deem immaterial may also impair our business.
If any of the events described in the following risks actually occur, our
business, financial condition and operating results could be materially
adversely affected. In such case, the trading price of our common stock could
decline, and you may lose all or part of your investment.
We had no revenues in 1998, we have a history of losses and we expect future
losses.
We may never achieve profitability unless we substantially increase our
revenues. We had no revenues from the inception of our current operations in
September 1997 through December 31, 1998. As a result of the acquisitions, we
had pro forma revenues of $619,000 in 1998 and $270,000 for the three months
ended March 31, 1999. We had net losses of $2,389,000 from September 1997 to
December 31, 1998 and a net loss of $2.0 million for the three months ended
March 31, 1999. We had an accumulated deficit of $2.4 million at December 31,
1998 and $4.5 million at March 31, 1999. We expect to incur increasing net
losses and negative cash flow for the foreseeable future.
We are a development stage company, have a limited operating history and are
subject to many risks applicable to a young company.
We are a development stage company in the rapidly evolving Internet market.
We launched our first Internet community, Votenet, in April 1998, and our
second community, Medinex, in November 1998. Accordingly, we have only a
limited operating history you can use to evaluate us and our prospects.
There are risks, uncertainties, expenses and difficulties frequently
encountered by a company in our early stage of development. To address these
risks, we must:
. develop and constantly improve functional and attractive product and
service offerings;
. attract and maintain a large base of members for our Internet
communities;
. provide useful content to our members, either through our search engine
and e-mail delivery services or through strategic relationships with
content providers;
. establish and maintain relationships with advertisers, sponsors, e-
commerce partners, distribution partners, and service and content
providers;
. expand our sales and marketing efforts;
. retain and motivate qualified personnel; and
. respond successfully to competitive developments.
We may not successfully address all of the risks we face or accomplish our
business strategies. We may not become profitable even if we do successfully
address these risks and accomplish our business strategies.
Because we recently launched the sales and marketing campaign for our Internet
communities, our business model is evolving and unproven.
We recently launched the sales and marketing of our Internet communities.
Our business model is to generate multiple revenue sources from our targeted
Internet communities. Since this model is new and largely unproven, it may not
be successful and we may need to change it. Our business model will continue
to develop as we explore opportunities in new and unproven areas. We cannot
assure you that our business model will be successful or, if we need to modify
our business model, that we will be successful in making such modifications.
Our operating results will fluctuate, and if they decline, the value of your
investment will be adversely affected.
We did not have actual revenues in 1998 and had only limited revenues on a
pro forma basis. Accordingly, we are unable to forecast our revenues with any
degree of certainty as a result of our limited operating history and unproven
business model. We base our current and projected expense levels largely on
our estimates of future revenues. Our expenses will increase significantly as
we:
. develop and upgrade our software applications and technology;
5
<PAGE>
. purchase equipment for our operations and network infrastructure;
. hire more salespersons and otherwise expand our sales and marketing
operations;
. increase our marketing and promotional activities;
. add to our product and service offerings; and
. acquire or invest in businesses, technologies, services or products.
The success of our business depends on our increasing revenues to offset
expenses. We cannot assure you that we will generate sufficient revenues to
offset our expenses. If our revenues are less than expected, or if our
operating expenses are more than expected or cannot be reduced, our business,
financial condition and operating results will be materially and adversely
affected.
If we do not generate substantial revenues from our planned sources the value
of your investment will decline.
Our future success depends on our ability to increase our advertising and
other revenues. We may not succeed in increasing our advertising revenues or
developing and increasing revenues from additional sources. Our failure to
increase our revenues from these sources would materially and adversely affect
our business, financial condition and operating results. We plan to leverage
our Internet communities to generate revenues from multiple sources, such as e-
commerce opportunities, Website development and hosting, the sale of
advertising space, corporate sponsorships and alliances, licensing and support
of physicians' office management software and commissions from online political
fundraising. As of the date of this prospectus, and without taking into account
the acquisitions, we have generated minimal revenues.
We have a limited number of members, advertisers, sponsors and e-commerce
partners.
Our future success depends on our ability to attract members to our communities
to make the communities attractive to advertisers, sponsors and e-commerce
partners and on the acceptance and increased use of our products and services.
Our failure to obtain a sufficiently large number of advertising, sponsorship
and e-commerce relationships and widespread use of our products and services
will have a material and adverse effect on our business, financial condition
and operating results.
As of the date of this prospectus, we have a limited number of members,
advertisers, sponsors and e-commerce partners in our communities. We also have
a limited number of users of our Governet software. Additionally, our online
fundraising system has not yet been used and our physicians' management
software system has not yet been completed and released.
We face risks associated with the two acquisitions we have undertaken and will
face risks with future acquisitions.
Recently, we entered into agreements to acquire Online Medical Bookstore and
InterLink. These acquisitions may not succeed due to some or all of the risks
identified below. Furthermore, the closing under each of the acquisition
agreements is subject to the effectiveness of this offering as well as other
customary closing conditions. We cannot assure investors that all of the
conditions to these acquisitions will be satisfied prior to the effectiveness
of this offering, and we may not be able to consummate the acquisitions at the
time of this offering or at all. Once we complete these acquisitions, we will
amortize intangible assets associated with the acquisitions of approximately
$3.5 million over a three year period. This amortization will adversely impact
our ability to achieve profitability.
We may acquire or make investments in additional complementary businesses,
technologies, services or products if appropriate opportunities arise. This
acquisition and investment strategy has the following risks:
. we may not be able to identify suitable acquisition or investment
candidates at reasonable prices;
. we may not be able to successfully integrate services, products or
personnel of any acquisition or investment into our operations;
. acquisitions and investments may cause a disruption in our ongoing
business, distract our management and other personnel and make it
difficult to maintain our standards, controls and procedures;
. we may acquire unknown liabilities in these acquisitions or investments;
. costs associated with these acquisitions, including the amortization of
intangible assets, will adversely affect profitability; and
6
<PAGE>
. we may acquire companies or make investments in markets in which we have
little experience.
Competition in our industry is intense and we may not compete successfully
against our current or future competitors.
Competition for developing Internet communities, providing Internet products
and services and attracting Internet advertising and e-commerce is intense. We
may not compete successfully against our current or future competitors. Our
inability to successfully respond to competitive pressures could have a
material adverse effect on our business, financial condition and operating
results.
We expect that competition will continue to intensify. Barriers to entry are
minimal, and competitors can launch new Websites or new products and services
at a relatively low cost. We believe that our markets will have an increasing
number of participants offering competing products and services. One or a few
suppliers may dominate one or more market sectors, thereby adversely affecting
our share of any markets.
Many of our competitors have greater brand recognition and greater
financial, marketing and other resources than we have. Additionally, our
competitors may develop products and services that are superior to ours or that
achieve greater market acceptance. These factors may place us at a disadvantage
in responding to our competitors' pricing strategies, technological advances,
advertising, sponsorship and e-commerce efforts and other initiatives.
Our business will suffer if the Internet is not adopted as a sustainable
commercial, advertising and communications medium.
Our future success will depend substantially upon the widespread adoption of
the Internet as an attractive platform for commerce, advertising, communication
and business applications. Most businesses, advertisers and consumers have only
limited experience with the Internet as a commercial, advertising and
communications medium and platform for business applications. In addition, the
adoption of Internet solutions for campaign fundraising and physician's office
management requires the acceptance of new ways of exchanging information and
conducting business.
Our business, financial condition and operating results will be materially
adversely affected if the Internet does not become a sustainable advertising,
commercial and communications medium.
Our ability to generate revenues from our online fundraising platform,
physician's management software, and other e-commerce initiatives will be
adversely affected if the e-commerce market fails to develop.
We anticipate that e-commerce will account for a significant portion of our
future revenues. Our business will suffer if e-commerce does not grow or grows
slower than expected. A number of factors could prevent acceptance of e-
commerce, including:
. e-commerce is at an early stage and buyers may be unwilling to shift
their purchasing from traditional vendors to online vendors;
. the necessary network and telecommunications infrastructure for
substantial growth in usage of the Internet may not develop;
. increased government regulation or taxation may limit the growth of e-
commerce; and
. adverse publicity and consumer concern about the security of e-commerce
transactions may discourage its acceptance and growth.
These factors could impair our ability to generate revenues from our online
fundraising platform, physician's management software, online sale of medical
books and supplies and other e-commerce initiatives.
Market acceptance of Votenet and Medinex is uncertain.
Votenet and Medinex are designed to address many needs of the political and
healthcare markets by attracting individuals, groups and businesses interested
in these markets to a designated Internet location. We cannot guarantee that
participants in the public policy and healthcare communities will accept
Votenet and Medinex as sources of information, communication and business
products and services. The Internet in general, and Votenet and Medinex
specifically, may not prove to be viable channels for these products and
services. The failure of Votenet and Medinex to achieve market
7
<PAGE>
acceptance would have a material adverse effect on our business, financial
condition and operating results.
If we fail to establish, maintain and strengthen our brands, the attractiveness
of our communities to members, sponsors and e-commerce partners will decrease.
To be successful, we must establish, maintain and strengthen the Votenet and
Medinex brands as well as the brands associated with the individual products
and services offered in such communities. We believe that brand recognition
will become more important in the future with the growing number of Websites.
If we are unable to establish, strengthen and maintain our brands, the
attractiveness to our members, advertisers, sponsors and e-commerce partners
will decrease and our business, financial condition and operating results could
be materially and adversely affected.
Our communities may not attract users with demographic characteristics valuable
to advertisers, sponsors or e-commerce partners.
Our future success depends upon our ability to deliver compelling Internet
content and attractive products and services that will attract users with
demographic characteristics valuable to our existing and potential advertising
and sponsorship customers and e-commerce partners. If we are unable to offer
Internet content or products and services that attract a loyal membership base
possessing demographic characteristics attractive to advertisers, sponsors and
e-commerce partners, it could have a material adverse effect on our business,
financial condition and operating results.
We face the risk of system failures, delays and capacity restraints which could
result in loss of customers and adversely affect our financial condition.
Our business depends on the efficient and uninterrupted operation of our
computer and communications systems. Our computer and communications systems
are located at our main headquarters in Coeur d'Alene, Idaho and at Exodus
Communications, Inc.'s facilities in Seattle, Washington. Although we have not
experienced a system failure or significant interruption, any systems
interruptions that cause our communities to be unavailable or result in slower
response times could result in a loss of potential or existing advertisers,
sponsors, e-commerce partners and community members. Any of these losses could
materially and adversely affect our business, financial condition and operating
results. Interruptions could result from natural disasters as well as power
loss, telecommunications failure and similar events. We do not presently have a
formal disaster recovery plan and our insurance may not be sufficient to cover
losses from these events.
Our Websites must accommodate a high volume of traffic and deliver
frequently updated information. We must be able to expand and upgrade our
systems and network hardware and software capabilities to accommodate increased
use of our Internet communities. If we do not appropriately upgrade our systems
and network hardware and software, our business, financial condition and
operating results will be materially adversely affected.
Our products and services may be affected by unknown software defects which
could result in service interruption and damage to our reputation.
Many of our product and service offerings depend on complex software, both
internally developed and licensed or purchased from third parties. Software
often contains defects, particularly when first introduced or when new versions
are released. We may not discover software defects that affect our new or
current services or enhancements until after they are deployed. These defects
could cause service interruptions, which could damage our reputation and brand
value, increase our service costs, cause us to lose revenues, delay market
acceptance or divert our product development resources, any of which could
cause our business to suffer.
Increased security and confidentiality risks may deter future use of our
communities.
A significant barrier to online communications and commerce is the inability
to ensure secure access or transmission of information over the Internet. Our
networks may be vulnerable to unauthorized access, computer viruses and other
disruptions, despite the implementation of security
8
<PAGE>
measures. A wrongdoer who is able to circumvent security measures could
misappropriate proprietary information or cause interruptions in our Internet
operations. Security breaches that result in access to confidential information
could damage our reputation and expose us to a risk of loss or liability. We
may be required to expend significant capital or other resources to protect
against the threat of security breaches or to alleviate problems caused by such
breaches. Additionally, as we increase our focus on e-commerce, our customers
will become more concerned about security. Netivation.com's security measures
may be circumvented in the future. If we do not adequately address these
concerns, this could adversely affect our business, financial condition and
operating results.
We may not compete successfully if we fail to keep pace with rapidly changing
technology and market conditions.
Our market is characterized by rapidly changing technology, evolving
industry standards, customer demands, and frequent new product introductions
and enhancements. Significant technological changes could render our existing
community technology obsolete. To be successful, we must improve the
performance, content and reliability of our communities. We must also develop
new features, products and services to meet our community members' needs. If we
do not successfully respond to new developments or do not respond in a cost-
effective manner, our business, financial condition and operating results will
be materially adversely affected.
Our financial performance will be adversely affected if the sales cycle for our
products and services is longer than anticipated.
The time between the date of initial contact with a potential advertiser,
sponsor or e-commerce partner and the execution of a contract with such
advertiser, sponsor or partner may be lengthy and may be subject to delays over
which we have little or no control, such as budgetary constraints and internal
acceptance reviews. During such sales cycles, we may expend substantial funds
and management resources and yet not obtain advertising, sponsorship or e-
commerce revenues. Therefore, our results of operations for a particular period
may be adversely affected if sales to such advertisers, sponsors or e-commerce
partners in a particular period are delayed or do not occur.
Our business will suffer if the license fees we pay to content providers
increase.
If licensing fees for our site content increase, it could materially
adversely affect our business, financial condition and operating results. These
fees may increase as competition for such content increases. Our content
providers may not enter into new agreements with us on similar terms as our
current agreements or at all.
Our limited ability to protect our intellectual property may adversely affect
our competitive position.
Trademarks, trade secrets and other proprietary rights are important to our
success and competitive position. Our efforts to protect our proprietary rights
may be inadequate and may not prevent others from claiming violations by us of
their proprietary rights. Existing trade secret, copyright and trademark laws
offer only limited protection. Further, effective trademark, copyright and
trade secret protection may not be available in every country in which our
services or products are made available through the Internet, and policing
unauthorized use of our proprietary information is difficult.
The unauthorized misappropriation of our proprietary rights could have a
material adverse effect on our business, financial condition and operating
results. If we resort to legal proceedings to enforce our proprietary rights,
the proceedings could be burdensome and expensive and the outcome could be
uncertain.
Claims of intellectual property infringement expose us to costs and potential
losses.
We may be subject to claims alleging infringement by us of third party
proprietary rights. If we were to discover that any of our products or services
infringed third party rights, we may not be able to obtain permission to use
such rights on commercially reasonable terms. This inability may require us to
expend significant resources to make our products and services non-infringing
or to discontinue the use of such products and services. Any claim of
infringement could cause us to incur substantial costs defending against the
claim, even if the claim is invalid, and could distract our management from our
business. Further, a party making such a claim could secure a judgment that
requires us to pay substantial damages or that
9
<PAGE>
prevents us from using or selling our products and services. Any of these
events could have a material adverse effect on our business, financial
condition and operating results.
Government regulation may increase our cost of doing business or cause us to
change the way we conduct our business.
Government regulation may impose additional burdens on our business. It may
also impede the growth in Internet use and thereby decrease the demand for our
products and services or otherwise have a material adverse effect on
Netivation.com's business, financial condition and operating results. New laws
and regulations may be adopted because of the Internet's popularity and growth
in such areas as:
. online content;
. user privacy;
. taxation;
. access charges;
. copyrights;
. characteristics and quality of products and services; and
. consumer protection.
Additionally, U.S. and foreign laws applicable to e-commerce or Internet
communications are becoming more prevalent. These laws have been recently
enacted and there is uncertainty regarding their marketplace impact. Any new
legislation or regulation regarding the Internet, or the application of
existing laws and regulations, to the Internet, could materially adversely
affect us. If we were alleged to violate federal, state or foreign, civil or
criminal law, even if we could successfully defend such claims, it could
materially adversely affect us.
Our online fundraising system may be subject to complex regulations; we have
not conducted any formal investigation of these regulations.
Since we expect to provide fundraising services to political campaigns and
candidates, our activities, as well as the use of our products and services,
may be governed by federal and state campaign finance laws and regulations. We
have not conducted any formal investigation or analysis of the governmental
regulations applicable to our online fundraising system. Any such regulations
may increase our cost of doing business, cause us to modify our system,
decrease the demand for our system or otherwise have a material adverse effect
on our business, financial condition and operating results. Political campaigns
and campaign fundraising efforts are subject to numerous regulatory
restrictions and reporting obligations at the federal, state and local levels.
Additionally, there have recently been numerous proposals under consideration
by federal, state, local and other organizations regarding changes to the
existing regulatory environment.
Given that these laws and regulations are complex, vary widely from state to
state and are frequently changed, we can not assure you that the use of our
products and services is not, or in the future will be, legal or practical in
all jurisdictions. We could be subject to liability under Federal Election
Commission regulations if we were found to have participated in a prohibited
campaign fund raising effort. Any of such liability or regulation may place our
activities under increased regulation, increase our cost of doing business,
decrease the use of the Internet for campaign or fundraising efforts and
thereby decrease the demand for our products and services or otherwise have a
material adverse effect on our business, financial condition and operating
results.
Our business and reputation may suffer if we are held liable for information
received over the Internet and published on our sites.
We may be subject to legal claims relating to the content in our
communities. For example, persons may bring claims against us if information
that is inappropriate for viewing by young children can be accessed from our
communities. Claims could also involve matters such as defamation, negligence,
invasion of privacy, and copyright infringement. Such claims have been brought,
sometimes successfully, against Internet companies in the past. In addition,
some of the content provided on our communities is drawn from data compiled by
other parties, including governmental and commercial sources, and we may
manually re-enter the data. This data may have errors. If our content is
improperly used or if we supply incorrect information, it could result in
unexpected liability. The law in these or related areas is unclear, and we are
unable to predict the possible existence or extent of our liability in these
areas or related areas.
10
<PAGE>
Although we carry general liability insurance, our insurance may not cover
claims of this type or may not provide sufficient coverage. Any imposition of
liability that is not covered by insurance or is in excess of insurance
coverage could adversely affect our business, financial condition and operating
results.
If our systems or those of third parties are not Year 2000 compliant, our
business may be severely disrupted and our operating results may be adversely
affected.
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software,
telephone systems and other equipment used internally. We cannot assure you
that any required upgrades and replacements can be completed on schedule or
within estimated costs or will successfully address our Year 2000 compliance
issues.
In the event that the production and operational facilities that support our
Websites are not Year 2000 compliant, small portions of our Websites may become
unavailable. In the event that our Website hosting facilities are not Year 2000
compliant, our Websites would be unavailable and we would not be able to
deliver services to our users. If our present efforts to address the Year 2000
compliance issues are not successful, or if distributors, suppliers and other
third parties with which we conduct business do not successfully address such
issues, our business, financial condition and operating results could be
materially and adversely affected.
Our predecessor operations may expose us to environmental liabilities that
adversely affect our operating results.
We were originally organized to pursue mining claims on public land managed
by the Bureau of Land Management. Specifically, from approximately 1993 until
1996, the predecessor company held certain unpatented mining claims (10 placer
and 3 lode claims) on BLM land in the Eldorado Mining District near Nelson,
Nevada. Although our current management has been advised by members of the
predecessor's management team that these mining claims were never patented and
that the company never performed any commercial mineral extraction or
processing activities on the claims during its period of ownership, we may be
exposed to risks of liability under existing or future environmental and
reclamation laws, regulations and policies. These potential liabilities relate
to historic mining-related structures and disturbances located on the site,
including tailings generated from the nearby Techatticup Mine and Mill
containing cyanide and heavy metals concentrations, and the related potential
for soil and water contamination on, under or around the subject claims.
We have undertaken an assessment of the potential risks of these
environmental conditions. Management believes that the risk of environmental
liabilities is negligible. However, our past ownership interest in such claims
exposes us to the following risks:
. Potential liability for required cleanup and remediation of soil and
water contamination on, under or around the subject claims pursuant to
the legal requirements and authority of federal, state and local
environmental or health agencies, including but not limited to U.S.
Environmental Protection Agencies' authority under the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
(S) 9601 et seq. and comparable state laws.
. Potential liability to third parties, including but not limited to
adjacent property owners, for claimed personal injuries or property
damages related to potential or actual soil or water contamination on,
under or around the subject claims.
. Potential liability for reclamation and restoration of mining-related
disturbances or structures on, under or around the subject claims
pursuant to federal, state or local mining, reclamation, or land use
laws, regulations or policies.
We may not be able to successfully operate our business if we lose key
personnel and do not attract and retain additional highly skilled personnel.
We believe that our success will depend on the continued services of our
senior management team, especially Anthony J. Paquin, Gary S. Paquin, Lawrence
L. Burch and other key personnel. The loss
11
<PAGE>
of the services of any of our senior management team or other key employees
could adversely affect our business, financial condition and operating results.
We also depend on the ability of our senior management and key personnel to
work effectively as a team. In particular, we hired Lawrence L. Burch as Chief
Financial Officer and Treasurer in February 1999. Accordingly, our senior
management team has had a limited time to work together. We cannot assure you
that they will be able to work effectively together. Most of our key personnel
have employment agreements. We carry key person life insurance on certain, but
not all, of our senior management.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate highly skilled technical, managerial, sales and
marketing personnel.
We have expanded our operations and we will continue to hire additional
personnel as our business grows. Competition for such personnel is intense, and
we cannot guarantee that we will successfully attract, assimilate or retain a
sufficient number of qualified personnel. Failure to retain and attract
necessary personnel could adversely affect our business, financial condition
and operating results.
Future sales of our common stock in the public market could cause our stock
price to fall and decrease the value of your investment.
The market price of our common stock could fall if our stockholders sell
substantial amounts of common stock, including shares issued upon the exercise
of outstanding options and warrants, in the public market following this
offering. Such sales might also make it more difficult for us to sell equity
securities in the future at a time and price that we deem appropriate.
Restrictions under the securities laws and certain lock-up agreements limit
the number of shares of common stock available for sale in the public market.
However, EBI Securities Corporation may, in its sole discretion, release all or
any portion of the securities subject to the lock-up agreements.
Upon the closing of this offering, some stock and warrant holders are
entitled to certain registration rights. The exercise of such rights could
adversely affect the market price of our common stock.
Certain provisions in our corporate documents may discourage our acquisition by
others and thus depress our stock price.
Our corporate documents and Delaware law could make it more difficult for a
third party to acquire us, even if a change in control would be beneficial to
our stockholders.
These and other provisions might discourage, delay or prevent a change in
control of Netivation.com or a change in our management. These provisions could
also limit the price that investors might be willing to pay in the future for
shares of common stock.
We have broad discretion to use the offering proceeds.
We have not designated any specific use for much of the net proceeds from
the sale of our common stock. We expect to use the net proceeds to fund the
development of our products and services, to expand our sales and marketing
efforts, to fund operating losses and for working capital and other general
corporate purposes. We may also use a portion of the net proceeds to acquire or
invest in complementary businesses, technologies, services or products.
Accordingly, management will have significant discretion in applying the net
proceeds of this offering. You will not have the opportunity to evaluate the
economic, financial or other information on which we base our decisions on how
to use the proceeds.
The price of our common stock is likely to be highly volatile and you may not
be able to resell shares at or above the offering price.
The stock market in general, and the market for Internet-related and
technology companies in particular, has been highly volatile. Accordingly, the
market price of our common stock is likely to be highly volatile. Investors may
not be able to resell their shares of our common stock following periods of
volatility because of the adverse reaction by the market to such volatility.
The trading prices of many technology and Internet related companies' stocks
have reached historical highs within the last 52 weeks and have reflected
relative valuations substantially above historical levels. During the same
period, such companies' stocks have been highly volatile and have recorded lows
well below
12
<PAGE>
historical highs. We cannot assure you that our stock will trade at the same
levels of other Internet stocks or that that these trading prices and price
earnings or price revenue ratios will be sustained.
Factors that could cause such volatility may include, among other things:
. actual or anticipated variations in quarterly operating results;
. announcements of technological innovations;
. new sales formats or new products or services;
. changes in financial estimates by securities analysts;
. conditions or trends in the Internet industry;
. changes in the market valuations of other Internet companies;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships or joint ventures;
. additions or departures of key personnel; and
. sales of common stock.
Many of these factors are beyond our control. These factors may materially
adversely affect the market price of our common stock, regardless of our
operating performance.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.,
a registration statement on Form SB-2 under the Securities Act of 1933, with
respect to the common stock offered hereby. This prospectus does not contain
all of the information in the registration statement and the exhibits and
schedules. For further information about us and our common stock, please refer
to the registration statement and the exhibits and schedules filed. Statements
contained in this prospectus as to the contents of any contract or document
filed as an exhibit to the registration statement are qualified by reference to
such exhibit as filed.
A copy of the registration statement, and the exhibits and schedules
thereto, may be inspected without charge at the public reference facilities
maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices located at the Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048, and copies of all or
any part of the registration statement may be obtained from such offices upon
the payment of the fees prescribed by the SEC. The SEC maintains a Website that
contains registration statements, reports, proxy and other information
regarding registrants that file electronically with the SEC. The address of
this Website is http://www.sec.gov.
13
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from this offering of
approximately $21.5 million or $24.8 million if the underwriters exercise their
over-allotment option in full. Each of these amounts is based upon an assumed
initial public offering price of $10.00 per share.
We expect to use the net proceeds of this offering for the following
purposes:
. to fund the development of our products and services;
. to expand our sales and marketing efforts;
. to fund operating losses;
. to make complementary acquisitions or investments; and
. for working capital and other general corporate purposes.
We have not identified specific uses for all of the proceeds from this
offering, and management will have broad discretion over their use and
investment. As noted above, we may acquire or invest in complementary
businesses, technologies, services or products and a portion of the net
proceeds may be used for such acquisitions or investments. However, other than
with respect to our pending acquisitions of Online Medical Bookstore and
InterLink, we currently have no understandings, commitments or agreements for
any material acquisition or investment. No proceeds from the offering will be
used to finance the acquisitions of Online Medical Bookstore or Interlink.
Pending use of the net proceeds of this offering, we intend to invest the
net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. The
shares of preferred stock outstanding prior to the completion of this offering
are entitled to an annual dividend of eight percent (8%) of the original
purchase price per share of such preferred stock. For a period of three years
from the date of original issuance of the preferred stock, we have the option
to satisfy any accrued preferred stock dividend, or portion thereof, in either
preferred stock or cash. The right to receive dividends will terminate upon
closing of this offering when all outstanding shares of preferred stock
automatically convert into common stock. For purposes of computing any accrued
preferred stock dividend, this prospectus assumes that the preferred stock
dividend will be paid in cash on June 1, 1999. The total amount of cash to be
paid for preferred stock dividends is estimated to be $200,000 as of June 1,
1999. As of the date of this prospectus, there are 2,325,000 shares of
preferred stock outstanding.
We currently expect to retain future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future, other than for the preferred stock
dividends.
14
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999. Our
capitalization is presented:
. on an actual basis;
. on a pro forma basis to give effect to:
. the automatic conversion of all outstanding shares of preferred stock
into 2,325,000 shares of common stock; and
. the issuance of 319,300 shares of common stock on closing of the
acquisitions of Online Medical Bookstore and InterLink;
. on a pro forma as adjusted basis to reflect:
. our receipt of the estimated net proceeds from the sale of 2,500,000
shares of common stock at an assumed initial public offering price of
$10.00 per share, after deducting underwriting discounts and
estimated offering expenses.
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
----------- ----------- -------------
(in thousands, except share data)
<S> <C> <C> <C>
8% Convertible preferred stock, $.01
par value per share; 3,500,000
shares authorized, 2,325,000 shares
issued and outstanding, actual; no
shares issued, pro forma and pro
forma as adjusted.................. $ 4,899 $ -- $ --
Common stock and additional paid in
capital, $.01 par value per share,
25,000,000 shares authorized,
3,515,770 shares issued and
outstanding, actual; 6,160,070
shares issued and outstanding, pro
forma: 8,660,070 shares issued and
outstanding pro forma as adjusted.. 695 8,912 30,412
Deficit accumulated in the devel-
opment stage..................... (4,469) (4,469) (4,469)
----------- ----------- -----------
Total capitalization.............. $ 1,125 $ 4,443 $ 25,943
=========== =========== ===========
</TABLE>
We expect there to be 8,660,070 shares of common stock outstanding after
this offering. In addition to the shares outstanding after the offering, we may
issue additional shares of common stock under the following plans and
arrangements:
. 278,875 shares issuable upon the exercise of stock options outstanding
under the 1999 equity incentive plan at a weighted average exercise price
of $2.03 per share;
. 428,625 additional shares which have been reserved for issuance and may
be granted under such plan, of which 155,000 options are to be granted to
certain key employees of Online Medical Bookstore and InterLink upon the
closing of those acquisitions;
. 200,000 shares issuable upon the exercise of stock options issued outside
of any plan at a weighted average exercise price of $.056 per share;
. 258,000 shares of common stock reserved for issuance under outstanding
preferred stock warrants at a weighted average exercise price of $2.50
per share; and
. 500,000 shares available for issuance under the 1999 employee stock
purchase plan.
15
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately
$1.1 million, or approximately $.18 per share. Pro forma net tangible book
value per share represents the amount of our total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding,
assuming:
. the conversion of 2,325,000 shares of preferred stock into common stock;
and
. the issuance of 319,300 shares of common stock on closing of the
acquisitions of Online Medical Bookstore and InterLink.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of shares of common stock in
this offering and the net tangible book value per share of common stock
immediately after completion of this offering. After giving effect to the sale
of the 2,500,000 shares of common stock offered at an assumed initial public
offering price of $10.00 per share, and after deducting the underwriting
discounts and estimated offering expenses payable by us, our pro forma net
tangible book value at March 31, 1999 would have been approximately $22.6
million, or $2.61 per share. This represents an immediate increase in pro forma
net tangible book value of $2.43 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $7.39 per share to
purchasers of common stock in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................... $10.00
Pro forma net tangible book value per share before this offer-
ing............................................................ $ .18
Increase per share attributable to new investors................ 2.43
-----
Pro forma net tangible book value per share after this offering... 2.61
------
Dilution in pro forma net tangible book value per share to new in-
vestors.......................................................... $ 7.39
======
</TABLE>
The following table sets forth, on a pro forma basis, the differences
between the number of shares of common stock purchased from Netivation.com, the
total consideration paid and the average price per share paid by existing
holders of common stock and by the new investors at an assumed public offering
price of $10.00 per share, before deducting underwriting discounts and other
estimated offering expenses payable by Netivation.com.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- ------------------- Average price
Number Percent Amount Percent per share
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders....... 6,160,070 71.13% $ 6,043,500 19.47% $ .98
New investors............... 2,500,000 28.87 25,000,000 80.53 10.00
--------- ----- ----------- -----
Total..................... 8,660,070 100.0% $31,043,500 100.0%
========= ===== =========== =====
</TABLE>
We expect there to be 8,660,070 shares of common stock outstanding after
this offering. In addition to the shares outstanding after the offering, we may
issue additional shares of common stock under the following plans and
arrangements:
. 278,875 shares issuable upon the exercise of grants outstanding under the
1999 equity incentive plan at a weighted average exercise price of $2.03
per share;
. 428,625 additional shares which have been reserved for issuance and may
be granted under such plan, of which 155,000 options are to be granted to
certain key employees of Online Medical Bookstore and InterLink upon the
closing of those acquisitions;
. 200,000 shares issuable upon the exercise of grants issued outside of any
plan at a weighted average exercise price of $.056 per share;
. 258,000 shares of common stock reserved for issuance under outstanding
warrants at a weighted average exercise price of $2.50 per share; and
. 500,000 shares available for issuance under the 1999 employee stock
purchase plan.
16
<PAGE>
SELECTED FINANCIAL DATA
(dollars in thousands, except per share data)
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes beginning on page F-2. The
historical statements of operations data set forth below for the periods ended
December 31, 1997 and 1998 and the three months ended March 31, 1998 and 1999
and the historical balance sheet data at March 31, 1999 are derived from and
qualified by reference to our financial statements included elsewhere in this
prospectus. The historical results are not necessarily indicative of results to
be expected for any future period.
We prepared the unaudited pro forma statements of operations data to reflect
the acquisitions of Online Medical Bookstore and InterLink as if they had each
occurred on January 1, 1998. These results have been prepared using the
purchase method of accounting. We have presented this information to give you a
better picture of what our business might have looked like if we had owned
Online Medical Bookstore and InterLink since January 1, 1998. These companies
may have performed differently if they had actually been combined with our
operations. You should not rely on the unaudited pro forma information as being
indicative of the historical results that we would have had or the future
results that we will experience after the acquisitions. Please see our
unaudited pro forma combined financial information beginning on page F-30.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
September 26, 1997 December 31, 1998 Three March 31, 1999
(inception) to ---------------------- Months Ended ----------------------
December 31, 1997 Actual Pro Forma March 31, 1998 Actual Pro Forma
------------------ ---------- ---------- -------------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Revenues............... $ -- $ -- $ 619 $ -- $ 82 $ 270
Cost of revenues....... -- -- (422) -- -- (134)
---------- ---------- ---------- ---------- ---------- ----------
Gross profit........... -- -- 197 -- 82 136
Operating expenses:
General and
administrative...... 43 837 1,158 99 246 322
Sales and marketing.. 18 551 556 79 423 424
Stock compensation... -- 586 586 -- 1,032 1,032
Product development.. -- 171 171 12 323 323
Amortization of
intangible assets... -- -- 1,158 -- -- 290
---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses.......... 61 2,145 3,629 190 2,024 2,391
---------- ---------- ---------- ---------- ---------- ----------
Loss from operations... (61) (2,145) (3,432) (190) (1,942) (2,255)
Interest expense....... -- (183) (183) (6) (14) (16)
---------- ---------- ---------- ---------- ---------- ----------
Net loss............... (61) (2,328) (3,615) (196) (1,956) (2,271)
Preferred stock
dividends............. -- (14) (14) -- (110) (110)
---------- ---------- ---------- ---------- ---------- ----------
Net loss available to
common stock.......... $ (61) $ (2,342) $ (3,629) $ (196) $ (2,066) $ (2,381)
========== ========== ========== ========== ========== ==========
Basic and diluted net
loss per share......... $ (.02) $ (.69) $ (.96) $ (.06) $ (.59) $ (.62)
========== ========== ========== ========== ========== ==========
Weighted average shares
outstanding............ 3,168,270 3,417,377 3,772,155 3,298,659 3,517,159 3,836,459
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999
----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------ --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and short-term investments.................. $2,274 $2,172 $23,672
Working capital.................................. 2,396 2,271 23,771
Total assets..................................... 3,115 6,484 27,984
Total stockholders' equity....................... 1,125 4,443 25,943
</TABLE>
17
<PAGE>
The pro forma column reflects:
. the automatic conversion of all outstanding preferred stock as of March
31, 1999 into 2,325,000 shares of common stock; and
. the acquisitions of Online Medical Bookstore and InterLink as if they had
each occurred on March 31, 1999.
The pro forma as adjusted column reflects:
. our receipt of the estimated net proceeds from the sale of 2,500,000
shares of common stock at an assumed initial public offering price of
$10.00 per share, after deducting underwriting discounts and other
estimated offering expenses.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Plan Of Operations
The following discussion contains forward-looking statements that involve
risks and uncertainties. Netivation.com's actual results could differ
materially from those discussed in the forward-looking statements as a result
of certain factors, including those set forth under "risk factors" and
elsewhere in this prospectus. The following discussion and analysis should be
read in conjunction with "selected financial data," and the financial
statements and notes thereto, appearing elsewhere in this prospectus.
General
Since commencement of our current operations in September 1997, we have been
in the development stage and have not generated revenues from operations
through December 31, 1998. In the first quarter of 1999, we began to generate
revenues from advertising and sponsorships. In accordance with generally
accepted accounting principles, the date of inception for our financial
statements is September 26, 1997 ("inception"). As a result, all information
reflected herein for 1997 represents the results between inception and December
31, 1997. We continue to be in the development stage and expect to incur
additional substantial operating expenses and net losses for the balance of
fiscal 1999 and for one or more years thereafter.
Recent Acquisitions
On March 4, 1999, we entered into an agreement to acquire Online Medical
Bookstore, a company selling medical books and medical supplies via the
Internet. The agreement provides for Online Medical Bookstore to be merged into
a newly formed, wholly owned subsidiary of Netivation.com. The consideration to
be paid to the sole member of Online Medical Bookstore consists of:
. $75,000 paid on execution of the agreement;
. $175,000 cash payment upon the effectiveness of this offering; and
. common stock valued at $1.9 million with the price per share equal to the
price per share in this offering.
The acquisition is expected to close simultaneously with the effectiveness
of this offering.
On March 9, 1999, we entered into an agreement to acquire InterLink, a
company providing Website design and hosting services. The agreement provides
for InterLink to be merged into a newly formed, wholly owned subsidiary of
Netivation.com. The consideration to be paid to the stockholders of InterLink
consists of common stock valued at $1.3 million, with the price per share equal
to the price per share in this offering. Additionally, the Company paid a
$50,000 capital contribution to InterLink upon execution of the agreement.
The acquisition is expected to close simultaneously with the effectiveness
of this offering.
The closing under each of the acquisitions is subject to the effectiveness
of this offering as well as other customary closing conditions. We cannot
assure you that all of the conditions to these acquisitions will be satisfied
prior to the effectiveness of this offering, and, if not satisfied, the
applicable party may be required to waive any such condition. We will use the
purchase method of accounting for the acquisitions.
When the acquisitions of Online Medical Bookstore and InterLink are
completed, we expect our general and administrative expenses to grow
significantly, due to the amortization of intangible assets associated with the
acquisitions. We expect this amortization expense to approximate $1.2 million
on an annual basis for a three-year period. In addition, we have entered into
employment agreements with key employees which will result in increased salary
expenses above historical levels reflected in the financial statements of
Online Medical Bookstore and InterLink.
19
<PAGE>
Any reference in the following discussion to information on a pro forma
basis assumes the acquisitions of Online Medical Bookstore and InterLink were
completed as of January 1, 1998. We have presented this information to give you
a better picture of what our business might have looked like if we had owned
these companies since January 1, 1998. These companies may have performed
differently if they had actually been combined with our operations. You should
not rely on the unaudited pro forma information as being indicative of the
historical results that we would have had or the future results that we will
experience after the acquisitions are completed.
Predecessor operations
We were formerly named Nelloro Corporation. Nelloro was formed in 1993 to
own interests in mineral properties. From September 1993 until 1996, Nelloro
owned mining claims near Nelson, Nevada. No mineral extraction or processing of
the mining claims occurred, and, in 1996, the claims were abandoned. We began
our current operations in September 1997 after a change of control resulting
from the acquisition of technology developed by our existing management team in
consideration for 85% of the outstanding shares of Nelloro.
Revenues
In January 1999, we commenced selling advertising and sponsorships. We did
not recognize any revenues from inception to December 31, 1998 and have
generated minimal revenues since January 1, 1999. On a pro forma basis, during
the year ended December 31, 1998, we generated revenues of $619,000, $290,000
primarily from the sales of medical books over the Internet and $329,000 from
Website development activities and Internet hosting services. In the first
three months of 1999, we generated $270,000 in pro forma revenues. Our business
model is new and untested. Because of our lack of experience in generating
revenues, we can not predict our ability to generate revenues in the future.
Further, we expect to experience significant fluctuations in our operating
results in the future as a result of our early stage of development.
We expect to derive substantially all of our revenues for the foreseeable
future from:
. e-commerce opportunities;
. Website development and hosting;
. the sale of advertising space;
. corporate sponsorships and alliances;
. licensing and support of physicians' office management software; and
. commissions from online political fundraising.
Seasonality
We expect that some of our revenues will be seasonal. We may experience
seasonality in our advertising revenues and in our membership traffic. We also
expect that business usage of the Internet, and of our products and services,
will typically decline during the summer and year-end vacation and holiday
periods.
Cost of Revenues
On a pro forma basis, our cost of revenues during the year ended December
31, 1998 was $422,000. In the first three months of 1999, our pro forma cost of
revenues was $134,000. These costs consisted primarily of the direct cost of
books sold over the Internet, network access for Website hosting and personnel
costs on Website development projects.
20
<PAGE>
The cost of our revenues will likely consist primarily of expenses related
to the maintenance and technical support of our network, costs associated with
Website development projects and direct costs of e-commerce retailing. These
expenses are comprised principally of personnel costs, telecommunications
costs, equipment depreciation and costs related to revenue sharing agreements.
Commencing with the introduction of the Medinex physician's office
management system, we will be required to add a customer service and support
group. This group will be responsible for call center technical support and the
provision of professional training. We anticipate hiring approximately eight
people in 1999 to handle such functions and will rely on outside vendors for
additional capacity as necessary.
Gross Margin
In the future, our gross margin will be affected by the mix of products and
services sold. Because of our lack of experience in predicting revenues and
product mix, we are not able to predict the gross margin we may generate in
future years. Periodically, we may sell our products and services at a loss and
experience negative gross margins as we attempt to develop market share and
attract members to our communities. Further, we expect to experience
significant fluctuations in our operating results in the future as a result of
our early stage of development.
Operating Expenses
Our operating expenses have increased in absolute dollar amounts from
inception through the date of this prospectus. Our total operating expenses
were $61,000 and $2.1 million for 1997 and 1998, respectively. In the first
quarter of 1999 our operating expenses were $2.0 million. On a pro forma basis,
our operating expenses were $3.6 million during 1998 and $2.4 million in the
first quarter of 1999.
Our 1998 historical operating expenses include non-cash compensation expense
of approximately $586,000 in connection with certain stock option grants and
our pro forma operating expenses include approximately $1.2 million of goodwill
amortization related to the acquisitions. The increase in operating expenses
primarily reflects our transition from the conceptual stage to the product
development stage to the stage of marketing and offering our services. For
example, the number of employees increased from five in December 1997 to 15 in
June 1998 to 29 in December 1998 to 29 at March 31, 1999. Although we plan to
hire additional personnel in 1999, including approximately ten individuals in
connection with the acquisitions, we expect the rate of increase in the number
of employees to decrease from 1998 to 1999. We believe that expansion of our
operations is essential to achieve a strong market position. As a consequence,
we intend to continue to increase our expenditures in all operating areas for
the foreseeable future.
General and administrative
General and administrative expenses consist principally of administrative
and executive personnel costs, travel and related expenses in connection with
financing activities and fees for professional services. General and
administrative expenses were $43,000 and $837,000 in 1997 and 1998,
respectively. In the first quarter of 1999, our general and administrative
expenses were $246,000. On a pro forma basis, our general and administrative
expenses were $1.1 million during 1998 and $322,000 during the first quarter of
1999.
We expect general and administrative expenses to increase for the balance of
fiscal 1999 and for the following few years thereafter. This dollar increase in
general and administrative expenses will be due to increased personnel,
increased professional service fees and relocation to new facilities to support
our planned growth. In particular, we currently anticipate relocating our
headquarters locally in mid 1999.
We also anticipate that our general and administrative expenses will
continue to increase substantially due to expenses associated with this
offering, the operation of Netivation.com as a public reporting entity and
negotiation, closing and assimilation of our planned acquisitions.
In the event that we identify and pursue other acquisition opportunities or
significant corporate alliances, we will incur additional professional fees and
other expenses associated with such transactions.
21
<PAGE>
Sales and marketing
Our sales and marketing expenses consist principally of sales and marketing
personnel costs, consulting fees, commissions, allocation of overhead, creative
services, and promotional and advertising expenses. Sales and marketing
expenses were $18,000 and $551,000, in 1997 and 1998, respectively. In the
first quarter of 1999, our sales and marketing expenses were $423,000. On a pro
forma basis, our sales and marketing expenses were $556,000 during 1998 and
$424,000 during the first quarter of 1999.
We commenced selling advertising and product sponsorships in January 1999.
As a result, sales and marketing expenses will increase substantially during
fiscal 1999 and in the future as we complete the introduction of our existing
products and services and introduce new product and service offerings. In 1999,
the increase will be due primarily to the launch of a significant media
advertising campaign, increased sales personnel costs resulting from the
development of a direct sales force and increases in other advertising and
promotional expenses. In particular, we expect to incur substantial additional
sales and marketing expenses associated with the anticipated opening of branch
offices in Washington, D.C. and San Francisco.
Stock Compensation
Stock compensation relates to non-cash charges incurred in connection with
certain stock option grants with exercise prices below the fair market value of
the common stock. During the first quarter of 1999, we recognized significant
non-cash charges related to stock options granted to employees, consultants and
directors. Assuming an initial public offering price of $10.00 per share,
approximately $1 million was charged to first quarter earnings, as a result of
our issuing a stock option with a mandatory buyback provision during 1998. Once
we become a public company, we will not need to record additional charges for
this stock option as the buyback provision will have expired. To attract key
employees, we may grant options at prices below fair market value, resulting in
additional earnings charges.
Product development
Our product development expenses consist principally of engineering and
editorial personnel costs, allocation of overhead, equipment depreciation,
consulting and supplies. Product development expenses were $171,000 in 1998 and
$323,000 during the first quarter of 1999. Costs related to research, design
and product development have been charged to product development expense as
incurred. Product development expenses will increase substantially for 1999 and
one or more of the following fiscal years. In 1999 alone, we expect that
product development expenditures could exceed $1,000,000. This dollar increase
is due primarily to the increased engineering and editorial staff required to
develop and enhance our services.
In particular, in October 1998 we contracted for the services of
Technicalities, Inc., an outside software development firm, to develop the
Medinex physician's office management software. Technicalities is paid on an
hourly basis for work performed at the fees set forth on applicable work
orders. The initial commercial version of the product is scheduled to be
completed in the second half of 1999. As a result, we expect our product
development expenses to be greater during the period prior to introduction of
the new software application.
We believe that a significant level of product development expenses is
required to remain competitive. Accordingly, we anticipate devoting substantial
resources to product development beyond fiscal year 1999.
Amortization of intangible assets
Pro forma amortization of intangible assets related to our acquisitions
totals $1.2 million on an annual basis. Once we complete these acquisitions, we
will amortize intangible assets associated with the acquisitions of
approximately $3.5 million over a three year period. This amortization will
adversely impact our ability to achieve profitability.
Interest expense
Our interest expense grew from $0 in 1997 to $183,000 in 1998, due to our
dependence on debt financing to fund operations during the majority of 1998. In
the first quarter of 1999, interest expense, net of interest income of $38,000,
was $14,000. Upon the completion of our preferred stock offering in January
1999, we repaid our remaining debt obligations. We anticipate that interest
expense will decrease in 1999.
22
<PAGE>
However, if this offering is delayed, we may be forced to use alternative
sources of financing, including borrowing, which may result in increased
interest expense.
Our interest income will increase in 1999. This increase will reflect
earnings on higher average investment balances, due primarily to cash received
from our private placement of preferred stock in January 1999 and cash to be
received from this offering.
Income Taxes
We have not paid income taxes as we have lost money since inception.
As of December 31, 1998, we had net operating loss, or "NOL," carryforwards
of approximately $1.8 million that expire between 2012 and 2018. In accordance
the Internal Revenue Code of 1986, as amended, a change in ownership of greater
than 50% within a three year period results in an annual limitation of our
ability to utilize our NOL carryforwards to offset future taxable income. Such
a change in ownership occurred in December 1998. Accordingly, at December 31,
1998, use of NOL carryforwards is restricted to annual amounts of approximately
$900,000, which accumulate to the extent not used and are subject to the
expiration of these carryforwards. Any future significant changes in ownership
interests could further limit the NOL carryforwards.
Liquidity and Capital Resources
Prior to this offering, we financed our operations and met our capital
expenditure requirements primarily from net proceeds of the private sale of
equity and debt securities totaling approximately $5.9 million. As of March 31,
1999, we had $2.3 million in unrestricted cash, cash equivalents and short-term
investments. We maintain our cash and cash equivalents in short-term and
medium-term interest-bearing investment-grade securities until required for
other purposes.
Our principal commitments at March 31, 1999 consisted of additional current
liabilities of $568,000. Capital expenditures have been, and future
expenditures are anticipated to be, primarily for facilities and equipment to
support expansion of our operations and management information systems. We
expect that our capital expenditures will increase as our employee base grows.
As of March 31, 1999, we did not have any material commitments for capital
expenditures, although we anticipate that our planned purchases of capital
equipment will require additional expenditures of approximately $150,000 for
1999. A portion of these expenditures may be financed from proceeds of this
offering and a portion we will be able to obtain through future equipment
leases and bank borrowings. There can be no assurance that we will be able to
obtain equipment leases or borrowings on favorable terms to us, or at all.
In the first quarter of 1999, we paid a total of $125,000 to the sole member
of Online Medical Bookstore and the stockholders of InterLink. This amount is
non-refundable even if the acquisitions are not completed. Furthermore, upon
the closing of the Online Medical Bookstore acquisition, we will be required to
pay an additional $175,000.
We expect to use the net proceeds of this offering to fund the development
of products and services, to expand our sales and marketing efforts, to fund
our operating losses and for working capital and other general corporate
purposes. We also expect that we may use a portion of the net proceeds to
acquire or invest in complementary businesses, technologies, services or
products. However, other than with respect to the pending acquisitions of
Online Medical Bookstore and InterLink, we do not have any understandings,
commitments or agreements with respect to any acquisitions.
23
<PAGE>
We believe that the net proceeds from this offering, together with available
funds will be sufficient to meet our anticipated cash needs for working
capital, capital expenditures and business expansion through 2000.
Year 2000 Compliance
We may realize exposure and risk if the systems on which we are dependent to
conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties, computers, software,
telephone systems and other equipment used internally. All of the production
and operation systems for our Websites are undergoing a complete re-
engineering. All new programs are being tested and validated for Year 2000
compliance. We expect to resolve Year 2000 compliance issues primarily through
normal upgrades of our software or by replacing existing software with Year
2000 compliant applications. The cost of these upgrades or replacements is
included in our capital expenditure budget and is not expected to be material
to our financial position or operating results. However, we cannot assure you
that such upgrades and replacements can be completed on schedule or within
estimated costs or will successfully address our Year 2000 compliance issues.
In addition to our internally developed software, we use software and
hardware developed by third parties both for our network and internal
information systems. We are currently conducting an analysis to determine the
extent to which vendors and suppliers have Year 2000 issues. If they are not
yet Year 2000 compliant, we are asking them to provide a description of their
plans to become so. As of March 1999, we have received certification from all
of our vendors and suppliers that they are either Year 2000 compliant or are
taking the necessary steps to become Year 2000 compliant.
In addition, we are in the process of seeking verification from our key
distributors, vendors and suppliers that they are Year 2000 compliant or, if
they are not presently compliant, to provide a description of their plans to
become so. As of March 1999, we have received certification from all of our
distributors, vendors and suppliers that they are either Year 2000 compliant or
are taking the necessary steps to become Year 2000 compliant.
In the event that our production and operational facilities that support our
Websites are not Year 2000 compliant, small portions of our Websites may become
unavailable. Our review of our systems has shown that there is no single
application that would make our Websites totally unavailable and we believe
that we can quickly address any difficulties that may arise.
In the event that our Website hosting facilities are not Year 2000
compliant, our Websites would be unavailable and we would not be able to
deliver services to our users. If our present efforts to address the Year 2000
compliance issues are not successful, or if distributors, suppliers and other
third parties with which we conduct business do not successfully address such
issues, our business, operating results and financial position could be
materially and adversely affected.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." Statement of Position 98-1 is
effective for financial statements for years beginning after December 15, 1998.
Statement of Position 98-1 provides guidance over accounting for computer
software developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. We do not expect the
adoption of this standard to have a material effect on our financial condition
or operating results.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities."
Statement of Position 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start up activities and
organization costs to be expensed as incurred. As we have expensed these costs
historically, the adoption of this standard is not expected to have a
significant impact on our financial condition or operating results.
24
<PAGE>
BUSINESS
Industry background
The Internet has emerged as a significant global communications and commerce
medium, enabling millions of people to share information, create community
among users with similar interests and conduct business electronically.
According to an August 1998 report, International Data Corporation, or IDC,
estimates that the number of Internet users will increase from approximately
100 million in 1998 to approximately 320 million by the end of 2002.
Additionally, according to IDC, worldwide commerce revenue on the Internet is
expected to increase from approximately $32 billion in 1998 to more than $400
billion in 2002. The rapid growth of the content and services on the Internet
attracts more users, fueling a cycle of growth where users demand more content
and services. This cycle facilitates the growth of topic specific Internet
communities.
The Internet has features and functions that are unavailable in traditional
media. Online businesses can interact effectively with customers and
advertisers and can target advertisements to defined audiences, specific
regional populations, special interest groups or select individuals. As a
result, companies from a wide variety of industries are using the Internet for
commerce and advertising. For example, Jupiter Communications in its 1998
Online Advertising Report estimates that the amount of advertising dollars
spent on the Internet is expected to increase from approximately $1.9 billion
in 1998 to $7.7 billion by 2002.
The need for targeted internet communities
The rapid growth of the Internet and the proliferation of Websites have made
it increasingly difficult for Internet users, content providers and businesses
with a common interest to efficiently reach and interact with one another using
general interest search engines and Internet portals. Users struggle to easily
find the most relevant information, products or services related to a
particular topic. Content providers are challenged to differentiate their
offerings in an increasingly crowded medium and to improve the visibility of
their sites. Businesses are challenged to more effectively deliver their
messages to highly targeted audiences within a more personalized context.
Internet communities that bring together persons with a common interest
increase the opportunity for advertising efficiency and the likelihood of a
successful e-commerce transaction.
Politics and the Internet
Millions of people in the U.S. are politically active. In 1996, according to
the Federal Election Commission and Congressional Research Service Reports,
more than 96 million people voted in elections for state and federal offices.
In addition, there are millions of individual members in hundreds of various
special interest and advocacy organizations such as the Sierra Club, American
Association of Retired Persons, National Rifle Association, National
Organization of Women. According to a March 1998 news article by The Associated
Press citing the Center For Responsive Politics, businesses, interest groups
and labor unions spend approximately $1.2 billion annually to lobby the federal
government.
We estimate that there are thousands of political campaigns in the U.S. each
year, including primary elections, ballot measures, bond elections and
elections for political offices ranging from local school boards to the
presidency. The Center for Responsive Politics estimated that more than $2
billion was spent in 1996 on U.S. congressional and presidential races alone.
We also believe that significant funds are spent on state and local campaigns.
For example, according to a March 1998 news report from the California
Secretary of State, five candidates running for California statewide offices in
the 1998 primary elections spent more than $10 million. In Florida, according
to the Florida Department of State Division of Elections, candidates for
governor in the 1998 election spent more than $13 million. Almost all campaigns
generate and use extensive voter and contributor data files and are subject to
complex campaign finance reporting obligations. However, Netivation.com
believes that only a small percentage of these campaigns use dedicated campaign
management software to generate voter and contributor data files and manage
recordkeeping and reporting requirements.
We believe that politically active persons are using the Internet more and
more. A survey conducted in April and May of 1996 by the Georgia Institute of
Technology's Graphics, Visualization and Usability Center
25
<PAGE>
of 11,700 online participants revealed that 91.9% are registered voters and
approximately 60% participated in the most recent local, legislative and
national elections. More than 40% of the survey respondents reported that they
are more involved in political issues since coming online.
Despite politically active persons increasingly using the Internet,
political campaigns and special interest organizations communicate their
messages and solicit campaign contributions primarily through direct mail
campaigns, fundraising events and personal solicitation. Each of these can be
an expensive and inefficient means by which to reach a targeted audience.
Political contributions are generally made by cash or check and few campaign
contributions are raised online. For example, a 1998 article entitled
"Untangling the Web: Internet use in the 1998 Election" indicated that less
than one percent of the campaign contributions made in the 1998 California
senate race were raised online. Moreover, political candidates and causes are
searching for more effective and efficient means of communicating their message
to prospective voters and voters are seeking more timely and accurate
information about elected officials, candidates and legislation.
Healthcare and the Internet
A 1998 study by the Internet Strategies group of Cyber Dialogue, Inc.
estimates that the market for healthcare products and services is approximately
$1 trillion. According to the U.S. Department of Commerce's Bureau of Economic
Development, healthcare services account for more than one quarter, or
approximately $460 billion, of the U.S. gross domestic product. The healthcare
industry has a variety of participants, including patients, physicians, medical
practice groups, hospitals and other medical care providers, government
agencies, insurance companies and managed care organizations. According to a
February 1999 report by IMS Health Incorporated, a pharmaceutical consulting
firm, pharmaceutical companies in the U.S. spent over $1.2 billion on direct-
to-consumer advertising in 1998.
We believe that the healthcare industry, particularly individual physicians
and small practice groups, presents a substantial opportunity for the Internet
for the marketing of Internet based products and services. According to the
American Medical Association, there are over 300,000 physicians in the U.S. At
the same time, patients are increasingly utilizing the Internet to become
better informed about healthcare. During 1998, according to a 1998 study by the
Internet Strategies Group of Cyber Dialogue, over 17 million adults in the U.S.
searched online for health and medical information. A June 1998 Ohio State
University study reported that, although medical information proliferated the
Internet, much of that information may be inaccurate or out of date. While
patients are searching the Internet for health related information,
Netivation.com believes that very few physicians have an Internet presence or
an ability to monitor for accuracy much of the information their patients
receive from the Internet. As the use of the Internet for healthcare research
and information exchange increases, physicians will be required to invest in
increasing this Internet presence to improve the quality of information
patients access to market their services.
Additionally, healthcare providers rely heavily upon information to perform
their roles. Physicians need easy access to patient records and office
administrators require patient scheduling, accounting, insurance and billing
information. Often this information needs to be shared and used by multiple
users in multiple locations. For example, physicians often maintain multiple
offices or they require access to patient records while "on call" at home.
Netivation.com believes that patient care could be greatly enhanced by the
deployment of technology to assist in the management of this information,
particularly on a shared basis. The large number of participants, complexity of
healthcare transactions and high cost of technology acquisition and
implementation have historically impeded the adoption of technology solutions
that would assist in the delivery of healthcare information, connectivity and
automated workflows. These problems are particularly evident in smaller
organizations.
According to an American Academy of Family Physicians member profile survey
completed in January 1995, more than 46% of physician offices are either
single-doctor offices or two-person partnerships. Because of the cost and
complexity of the technology environment, Netivation.com believes that many
physicians' offices have been reluctant to fully embrace technology as a key
component of their healthcare services or office management. Although many
physicians utilize desktop software packages to perform certain
26
<PAGE>
applications, this software is not well integrated and can be costly to install
in multi-office environments. Moreover, software applications are constantly
being upgraded and require the physician's office to periodically upgrade their
applications.
Implementation of multi-location capabilities generally requires the
installation of local and wide area networks. In addition to bearing the cost
of the networks' deployment, the physician will also be required to hire
network administration services to maintain it. Accordingly, for a small
medical practice to implement sophisticated solutions, they will need
technology that can eliminate or greatly reduce these barriers to adoption.
Netivation.com solution
We are addressing many needs of the political and healthcare markets by the
development of Internet communities targeted at individuals, groups and
businesses interested in these markets. Our two current communities, Votenet
and Medinex, are designed to bring together this mix of participants. At our
community sites, users can quickly access and exchange relevant information. We
have developed a complementary suite of Internet based tools and services
specifically for members of each community, including targeted search engine
technology, Internet-based retail sales capabilities, e-mail, Website design
and hosting services and discussion forums. The acquisition of Online Medical
Bookstore will provide us with the ability to conduct the retail sale of books
and the acquisition of InterLink will enable us to extend our Web design and
hosting service offerings. It is part of our strategy to acquire other products
and services through further acquisitions and investments.
Additionally, we have designed business application software and service
offerings for key participants of each community, such as politicians and
physicians. The provision of such application software is designed to nurture
the further development of the community. For the Votenet community, we have
developed campaign management software that can be used to manage voter data
and interaction, fundraising and reporting. We also recently completed
development of an online fundraising service that allows political campaigns to
use Netivation.com to facilitate their online fundraising activities. For the
Medinex community, we are in the process of developing a Website-based
physicians' office management application, incorporating accounting and other
business management applications, and a personalized Internet "portal"
providing a physician a turnkey Website solution incorporating our search
tools, content and other community features. By offering these integrated
services, physicians can gain the benefits of an automated business environment
and an Internet "presence."
Netivation.com strategy
Our objective is to build significant revenues by developing leading
Internet communities for large targeted markets. The strategy to achieve this
objective is to:
Focus on community growth and loyalty to Votenet and Medinex
We intend to expand our membership base and promote our members' continued
involvement in the communities by:
. providing access to useful content for our members through our targeted
search engine and e-mail delivery programs;
. aggressively developing and marketing our business software applications
to key participants of the community;
. launching new services to enhance the community; and
. increasing the functionality and ease-of-use of existing products and
services.
Build multiple revenue sources
Our Website communities offer scalable business platforms from which we plan
to generate revenue from multiple sources. We are positioning our business to
capitalize on revenue sources such as:
. advertising revenues from traditional banner advertisements, e-mail based
advertisements and product sponsorships;
27
<PAGE>
. e-commerce opportunities including product sales and online campaign
fundraising;
. software subscription and training fees for the Medinex office management
software; and
. premium membership services, such as custom Website hosting and design.
Build the Votenet and Medinex brands
Well-recognized brands will be attractive to existing and potential
advertising customers and e-commerce partners. Following the offering, we
intend to:
. launch an aggressive promotional campaign to increase awareness of
Votenet and Medinex communities through both online and offline
advertising;
. undertake direct mail and telemarketing campaigns to the key participants
in each of the communities; and
. pursue additional cross-linking arrangements with Internet content
providers.
Pursue business alliances and acquisitions
We plan to pursue business alliances designed to mutually increase traffic
and memberships. We also intend to acquire or invest in companies that can
provide synergies with our products or services. For example, we:
. are acquiring Online Medical Bookstore, a company focused on the discount
sale of medical books and medical supplies via the Internet;
. are acquiring InterLink, a company that provides advanced Website design
and hosting services; and
. have established cross-linking relationships with over 20 NBC television
affiliates in small and mid-size markets in the U.S. pursuant to
informal, oral arrangements that may be terminated at any time.
Development of additional communities
We believe that business strategies and resources developed for our first
two communities can be used in additional communities. Significant portions of
our technology can be applied to these new communities as well. We will
consider developing more communities when we identify new market opportunities
and if we conclude we have sufficient resources and expertise to achieve a
market leadership position in the prospective community.
The Votenet and Medinex communities
Votenet
Votenet is a political community designed for voters, politicians, advocacy
and special interest organizations, lobbyists, students, members of the media
and others interested in public policy and the political process. In January
1999, the Votenet community Websites and services delivered 1.2 million page
views. Additionally, in June 1998, PC Magazine Online, in a quarterly review,
named Votenet as one of the top 100 Websites on the Internet.
Existing products and services
Members access the Votenet community at www.votenet.com. From there, the
community members can take advantage of Votenet's suite of Internet based tools
and services:
Governet campaign management software. Netivation.com believes that Governet
is the first interactive campaign management system using the power of the
Internet. Political candidates and campaigns at the federal, state and local
levels can use the Governet software product to perform a range of tasks,
including managing voter and contributor contact and information, and
maintaining recordkeeping and reporting requirements. Netivation.com
distributes the Governet product without charge to encourage ongoing
28
<PAGE>
involvement in the Votenet community. Traditional campaign management systems,
such as Campaign Manager III and Trailblazer, range in cost from $400 to
$4,000. As of January 31, 1999, Netivation.com had given away more than 12,000
copies of Governet to candidates, political parties and state parties.
CapitolWatch. Community members can subscribe for CapitolWatch, Votenet's
free e-mail political news delivery service. Subscribers can customize the
reports they receive each day to include:
. the top ten political news stories as provided by the Associated Press
and selected by Netivation.com;
. daily voting of the U.S. House and Senate tailored to a subscriber's
Senators and Representative;
. congressional transcripts; and
. ""Inside the Beltway" provided by a political commentator pursuant to an
informal oral relationship that may be terminated at any time.
Sponsored CapitolWatch services. In February 1999, we launched co-branded or
personalized CapitolWatch e-mail delivery services for special interest and
advocacy organizations. With these programs, special interest or advocacy
organizations are able to attach advertising and personalized messages to the
CapitolWatch content delivered to their members. The program also allows
sponsors to develop a database of member e-mail addresses, permitting these
sponsors to communicate quickly and cost-effectively with their membership
base. Subscribers receive the sponsored or co-branded CapitolWatch free of
charge. Netivation.com plans to receive monthly or annual sponsorship fees from
the CapitolWatch sponsors. As of February 1999, we had two paying CapitolWatch
sponsors. However, certain initial organizations received free sponsorships for
a limited time pursuant to informal, oral arrangements.
Votenet's political search engine. Members can use Votenet's political
search engine, a powerful context based search engine customized for political
Websites, including Websites hosted within the Votenet community. This search
engine allows members to research political issues and causes, locate other
high quality online political resources, provide access to background data on
members of U.S. Congress and all 50 state legislatures and conduct online
legislation research. To enhance the quality of searches, we employ staff
members who search the Internet daily and register political sites in the
Votenet political search engine. As of January 31, 1999, Votenet's search
engine contained approximately 7,000 indexed Websites.
E-mail, Website design and Website hosting. Votenet offers all community
members a free Website-based e-mail account. As of February 22, 1999,
approximately 4,000 community members had a Votenet e-mail account. Votenet
also provides free Website publishing tools and Website hosting services,
providing community members with a platform for contributing their talents and
ideas and interacting with others with similar interests.
Discussion forums. Votenet includes a variety of member discussion groups on
political topics. In February 1999, we held 15 scheduled discussion groups.
Custom Website design and hosting services. Votenet also offers community
members the ability to create more comprehensive and robust Websites than those
created with the free, basic tools provided to all members. For a fee, members
are able to access through Netivation.com a Website design and technical staff
to create completely customized and unique Websites. On March 9, 1999, we
entered into an agreement to acquire InterLink, an advanced Website design and
hosting services company, to enhance these services.
Planned products and services
We strive to create new and improved products and services to enhance
Votenet community members' experiences and expand our revenue generating
opportunities. Our primary product under development is our online fundraising
system.
Online fundraising. Fundraising is a critical aspect of any political
campaign. Most campaigns currently raise funds through direct marketing
efforts, fundraising events or personal solicitations. Further, campaign
29
<PAGE>
funds generally are raised by cash or check, rather than by credit cards. We
believe online fundraising will become an attractive method because of its cost
effectiveness, efficiency and ability to target specific demographic groups. We
plan to establish merchant accounts on behalf of political candidates or causes
wishing to use our online fundraising system. Fundraisers will have a feature
on a Website page or advertisement allowing potential contributors to click a
button and contribute funds through the Internet. Netivation.com expects to
receive a commission for facilitating online contributions. We plan to
introduce our online fundraising system commercially in the second half of
1999.
Medinex
Medinex is a healthcare community designed for primary care physicians,
healthcare conscious consumers, patients and their families, pharmaceutical and
insurance companies and others involved in the healthcare market. In January
1999, the Medinex community Websites delivered 63,000 page views.
Existing products and services
Members access the Medinex community at www.medinex.com. From there, the
community members can take advantage of Medinex's suite of Internet based tools
and services:
Medinex medical search engine. Similar to the Votenet political search
engine, members can use Medinex's medical search engine to search healthcare
related Websites, including Websites hosted within the Medinex community. To
enhance the quality of searches, we employ staff members who search the
Internet daily and register healthcare related sites in the Medinex medical
search engine. As of January 31, 1999, the Medinex search engine contained
approximately 9,500 indexed Websites.
Medinex health site certification. According to a recent Ohio State
University study, much of the medical information on the Internet may be
inaccurate or out of date. To counteract this problem, and to provide Medinex
community members with increased comfort that the information they receive
through Medinex is accurate, Netivation.com has developed a health site
certification process. Participating healthcare Websites that agree to adhere
to Medinex's healthcare code of ethics receive a "Medinex Seal of Approval"
icon on their Website free of charge. The icon provides a link back to
Medinex's code of ethics statement and further links to the Medinex community.
As of January 31, 1999, there were approximately 1,000 Websites containing the
Medinex icon.
Discussion forums. Medinex includes a variety of member discussion groups on
healthcare topics. In February 1999, we held 30 scheduled discussion groups.
Premium Website hosting services. Netivation.com provides physicians with
premium Website publishing tools and hosting services. We offer physicians the
ability to personalize their private Medinex community Website for a monthly
charge. This program will allow a physician to develop on a "turn-key" basis a
sophisticated and dynamic Website presence for use by his or her patients. We
believe that our acquisition of InterLink will enhance our ability to provide
these premium services.
Planned products and services
Products and services under development include:
Physician's office management system. We have contracted with a third party
software development company to develop a java-based Internet physicians'
office management information system via the Internet. We intend to offer this
system on a monthly subscription fee basis. The software program will provide
physicians with solutions to basic and multiple medical office application
needs, such as:
. patient account ledgers;
. medical records management;
30
<PAGE>
. accounts receivable;
. scheduling;
. insurance billing; and
. other services and applications designed to increase office efficiency
and productivity.
The software will reside on a Netivation.com application server and will be
accessed via the Internet through the Medinex community Website. Accordingly,
medical offices will only require a standard personal computer, a Website
browser and an Internet service account. The office management software is also
intended to confidentially and securely store patient medical records on the
Internet, allowing physicians, specialists, patients and other permitted users
to access medical records online. All information stored on the database
servers will regularly be copied to backup media and stored at an off-site
storage facility. We also plan to enter into alliances with high speed Internet
access providers to improve the speed of the system.
Medical e-commerce. Netivation.com intends to form business alliances with
or pursue acquisitions of online medical retailers to permit Medinex members to
purchase medical supplies and other medical products via the Medinex community.
Netivation.com believes these strategic relationships can create revenue
sharing opportunities and increased traffic to both partners. On March 4, 1999,
Netivation.com entered into an agreement to acquire Online Medical Bookstore, a
company selling discount medical books and medical supplies via the Internet.
E-mail, Website design and Website hosting. Medinex plans to provide all
community members with free Website based e-mail accounts and free Website
publishing tools and hosting services similar to those offered to Votenet
community members.
MedNews. We plan to offer MedNews, a free e-mail medical news delivery
service. MedNews will provide subscribers with current medical news and updates
from leading medical news sources, medical organizations and journals, such as
Medical Tribune News Service, New York Times Syndicate, U.S. Newswire, United
Press International, Associated Press Online and Biomedical Market Newsletter.
We also intend to offer MedNews co-branding or personalization opportunities to
select sponsors similar to those presented with Votenet's CapitolWatch service.
Revenue opportunities
Advertising
We expect that a significant portion of our revenues will be generated
through advertising arrangements with groups and businesses interested in
targeting the Votenet and Medinex communities. Netivation.com believes that
political candidates, parties and action committees, as well as advocacy and
special interest organizations, will benefit by advertising to the Votenet
community. Similarly, Netivation.com believes that pharmaceutical and medical
supply companies will benefit by advertising to the Medinex community.
We plan to work closely with our advertising customers and their agencies on
design and placement of Website-based advertising, providing customers with
advertising measurement analysis and a high level of customer service and
satisfaction. Initially, Netivation.com expects that advertising will consist
primarily of banner, ticker or billboard style advertisements that rotate
throughout the designated community. From each advertisement, viewers will be
able to hyperlink directly to the advertiser's own Website, thus providing the
advertiser with the opportunity to interact directly with an interested
consumer.
Our standard cost per thousand impressions generally range from $15 to $35,
depending on the location of the advertisement, the extent to which it is
targeted for a particular audience, the duration of the advertising contract
and the number of impressions purchased. Additionally, we may explore other
payment approaches in the future.
31
<PAGE>
Corporate sponsorships and alliances
Netivation.com also plans to offer corporate sponsorship programs and
alliances. For example, starting in February 1999, we started seeking sponsors
for co-branded or private-label CapitolWatch products allowing the sponsor to
attach advertising and personalized messages to the CapitolWatch content
delivered to their members. This program also enables these groups to develop a
database of member e-mail addresses, permitting these sponsors to communicate
quickly and cost-effectively with their membership base.
Votenet online fundraising
Fundraising is a critical aspect of any political campaign. Most campaigns
currently raise funds through direct marketing efforts, fundraising events or
personal solicitations. Further, most campaign funds are generally raised by
cash or check, rather than by credit cards. We recently completed development
of our online fundraising system to permit campaigns to raise funds online. We
believe online fundraising will become an attractive method for raising
campaign funds because of its cost-effectiveness, efficiency and ability to
target specific demographic groups. We plan to establish merchant accounts on
behalf of all political candidates or causes wishing to use our online
fundraising system. Fundraisers will have a feature on a Website page or
advertisement allowing potential contributors to click a button and contribute
funds through the Internet. Netivation.com will receive a fee for facilitating
online contributions. Campaign financing is highly regulated and our online
fundraising system may be subject to governmental regulation at the federal,
state and local levels. We have not conducted any formal investigation or
analysis of the governmental regulations applicable to our online fundraising
system. Any such regulations may increase our cost of doing business, cause us
to modify our system, decrease the demand for our system or otherwise have a
material adverse effect on our business, results of operation and financial
condition.
E-commerce opportunities
Netivation.com believes that Website commerce naturally fits into the
Votenet and Medinex community models. We plan to partner with merchants and
service providers to integrate their products and services into the Votenet and
Medinex communities, making them available for sale to the community members.
For example, we participate in Amazon.com's commonly available affiliate
program whereby we receive a fee for each Votenet or Medinex community member
that clicks through to the Amazon.com Website to purchase books or other
products. In addition to our acquisition of Online Medical Bookstore, we
believe that we can increase our e-commerce revenues by attracting other e-
commerce partners to our Votenet and Medinex communities and making strategic
acquisitions or investments in other businesses.
Medinex software and training fees
Netivation.com plans to deliver a comprehensive, Internet based physician's
office management software program to individual physicians and small physician
practice groups. We plan to charge each user a monthly fee to use the software.
Additional revenue sources for the software program are expected to include
training fees for physicians and staff members on the software.
Since the software application is being designed as a java, Website-based
application that will reside on our application servers, we believe that high
speed Internet access will greatly enhance physicians' use of the Medinex
system. We plan to develop partnering arrangements with high speed Internet
access providers to market their services to physicians using the Medinex
office management software. We expect to receive revenue from the access
provider in the form of a percentage of the revenue received by the Internet
access provider or in the form of a monthly surcharge.
We anticipate introducing the office management software in the second half
of 1999, but do not expect to recognize any significant revenue during 1999.
Premium membership services
In addition to our free services and products, Netivation.com plans to offer
fee-based premium services for Votenet and Medinex community members. For
example, Netivation.com provides enhanced Website-page
32
<PAGE>
publishing and hosting services to physicians in the Medinex community and to
all members in the Votenet community to create robust, customized Websites. Our
acquisition of InterLink will enhance our Website design and hosting services.
We intend to introduce additional features and premium service levels to appeal
to a broad range of community members.
Sales, marketing and public relations
As of February 1999, Netivation.com had a direct sales organization
consisting of four sales professionals located in northern Idaho and two sales
professionals located in Washington, D.C. Our sales group plans to consult
regularly with advertisers and agencies on design and placement of Website
based advertising, provide customers with advertising management analysis and
focuses on providing a high level of customer satisfaction. Netivation.com
generally seeks to hire individuals with significant experience in selling
advertising and preexisting relationships with advertisers in a variety of
media.
We employ a variety of methods to promote the Votenet and Medinex
communities and to attract traffic and new members, including advertising on
other Internet sites, targeted publications, direct mail, cross-linking and
other cross-promotional relationships. Netivation.com may also use the services
of outside telemarketing companies to promote the sale and distribution of
certain of products and services, such as the Medinex physician's office
management software.
Additionally, Netivation.com plans to seek relationships designed to drive
additional traffic to its communities, create brand building activities and
allow for the marketing of products and services to the community membership
bases. For example, Netivation.com has relationships with over 20 NBC
television affiliates in small and mid-size markets in the U.S. pursuant to
which the news affiliates market the Votenet community Websites by indicating
in their news broadcasts that additional information about political news
stories can be found on the Votenet.com site. The program includes reciprocal
promotion on the stations' and Votenet community Websites, as well as on-air
promotion by the stations.
Operations and technology
Our strategy is to apply existing technologies in novel ways to deliver
content, products and services to members of our Internet communities. We have
developed and implemented a broad array of products and services for our
communities using a combination of our own proprietary technologies as well as
technologies and content purchased or licensed from third parties. We limit
internal development of software to those components which are either
unavailable on the market or which have major strategic advantages when
developed internally. We believe that this approach is more manageable,
reliable and scalable than single-source solutions. In addition, the emphasis
on commercial components speeds development time, which is an advantage when
competing in a rapidly evolving market.
Our community Websites' content is developed using commercially available
utilities, software and database packages. Other Website features, such as
Website creation tools, e-mail, chat rooms are either provided through internal
development and maintenance, purchased or licensed from a third party vendor
and maintained internally or provided and maintained by third party vendors.
Our search engine technology has been developed internally to provide powerful
context based searching capabilities for the political and healthcare
communities. We do not believe that we are dependent on any single licensor or
technology.
The Governet campaign management software has been developed internally
using shrink-wrap software development tools. This software also uses off-the-
shelf database technology provided by Inprise Corporation and runs on the
Microsoft Windows platform.
We have contracted with a third party developer, Technicalities, Inc., to
develop our Medinex physician's office management software. Technicalities,
Inc. is the development resource for the Medinex office management software.
Technicalities, Inc. is writing the source code and creating the software that
Netivation.com will market to primary care physicians as part of its Medinex
community.
33
<PAGE>
Our hardware systems also consist of commercially available components. We
believe that this architecture provides the ability to increase scale more
quickly and reliably. We have plans to make additional upgrades in anticipation
of increased demand for our Website communities.
We maintain all of our Internet servers at Exodus Communications Inc.'s
facilities in Seattle, Washington. Exodus provides professional data center
hosting facilities and redundant high-speed Internet connectivity. Exodus also
provides monitoring and support 24 hours a day, seven days a week,
supplementing our system administrators and copies our production data to
backup tapes each night and stores them at their facilities. Netivation.com is
in the process of developing a comprehensive disaster recovery plan to respond
to system failures.
Competition
The markets for developing Internet communities and providing Internet
services and products are relatively new, intensely competitive and rapidly
changing. Since the Internet's commercialization in the early 1990's, the
number of Websites on the Internet competing for users' attention has
proliferated with no substantial barriers to entry. We expect that competition
will continue to intensify.
Netivation.com competes, directly or indirectly, for members, consumers,
subscribers, content and service providers, advertisers, e-commerce partners
and acquisition candidates with the following categories of companies:
. online services or Websites targeted to the political and healthcare
markets generally;
. general purpose consumer online services providing access to political
and healthcare content and services;
. Website search and retrieval services and other high-traffic Websites;
and
. vendors and distributors of political and healthcare information,
products and services distributed through other means, including direct
sales, mail and other offline media.
Netivation.com believes that the primary competitive factors in creating
communities on the Internet and in attracting key participants to those
communities are functionality, brand recognition, member affinity and loyalty,
demographic focus, variety of value-added services, and critical mass. Other
important factors include ease-of-use, quality, and reliability of the
communities' services and products. We believe that the principal competitive
factors in attracting advertisers and e-commerce partners include price, the
number of community members, the aggregate traffic to the communities, the
demographics of the community membership base and the creative implementation
of advertising placements and e-commerce transaction opportunities.
Other providers currently offer many of the individual services and products
and certain combinations of the services and products offered by
Netivation.com:
. our e-mail delivery service competes against other e-mail and "push"
technology providers;
. our search engine competes against other Website directories and search
engine providers;
. our free Website based e-mail products compete against products offered
by other Website based e-mail providers;
. our Website design and hosting services compete against numerous other
companies providing such capabilities; and
. our online fundraising system competes against traditional methods by
which campaigns raise funds, such as direct mail, fundraising events and
personal solicitation.
Although we face a broad range of competition from a variety of Internet
service and product providers, we believe that we can compete effectively by
targeting specific communities and offering greater depth of products,
information and services than our competitors. Specifically, competitors for
our Medinex community include other healthcare Websites using manual ledgers,
file cards, standard office software, such as Microsoft,
34
<PAGE>
and services, including those provided by Healtheon and Dr. Koop. To
effectively compete, we are offering advanced search engine capabilities, as
well as offering the physicians office consulting services for the development
of their own Websites. By bringing the physician's office together with
patients and other members of the healthcare community, we believe we can
generate additional traffic through our Medinex site.
With respect to the Votenet community, we face competition from news
services and organizations such as ABC News and other online services
specializing in politics, such as C-Span.org and Roll Call. However, we are not
aware of any competitor that offers all of the services and products of
Votenet. For example, we are not aware of any organization that offers Website
development services and e-mail accounts to politicians and other politically
active persons, as well as real-time congressional voting information delivered
electronically to a user. We believe that the robust nature of our product and
service offerings will position us to compete in our markets.
With respect to Votenet's Governet software program, Netivation.com competes
with existing campaign management software products, the largest of which has
approximately 2,500 users according to the 1998 Campaign and Elections software
buyers' guide. Netivation.com believes that most campaigns are managed Excel
and Microsoft Access or standard personal computer based business accounting
packages. Governet's primary competitive challenge will be to convince
campaigns to switch from these manual and semi-manual methods to Internet-based
technologies.
Similarly, with respect to Medinex's physician's office management software,
Netivation.com believes its primary competition will be manual processes,
standard personal computer based business accounting and billing packages or
single or limited payor functions. Most of these systems are based on desktop
PC applications offering limited access to information managed by the system.
These systems include those offered by Medisoft, KIP Medical Office Software,
Techsoft Medical Systems and CCA Medical Practice Software. Because these
desktop systems are not Internet-based, only users directly networked to the
system and running the software can access or update information. We believe
that our Internet-based solution offers the convenience of remote access
without special equipment or software, other than a PC and a standard web
browser. Additionally, because the systems software application components and
"backbone" are managed on our servers remotely, we believe that our office
management software will be attractive to physician offices concerned with the
cost of implementing and maintaining information technology solutions.
Netivation.com believes that many physicians and small physicians' offices have
been reluctant to invest in information technology solutions and
Netivation.com's primary competitive challenge will be to convince these groups
to switch to an Internet-based solution.
Patents and trademarks
We own no patents on our technology or products. We have applied for federal
registration of each of the following trademarks: "Netivation.com," "Governet,"
"Votenet," "Votenet.com," "Votenet (and design)," "CapitolWatch," "Medinex" and
"Medinex.com." If we receive the registration for these trademarks, the
trademark will be effective for ten (10) years and may be renewed every ten
(10) years indefinitely. Under common law, these trademarks have an unlimited
duration. In addition, we have applied for a federal copyright registration for
our "Governet" software.
Predecessor operations
We were formerly named Nelloro Corporation. Nelloro was formed in 1993 to
own interests in mineral properties. From September 1993 until 1996, Nelloro
owned mining claims near Nelson, Nevada. No mineral extraction or processing of
the mining claims occurred, and, in 1996, the claims were abandoned. There were
no other business operations conducted by Nelloro. We began our current
operations in September 1997 after acquiring the technology developed by our
existing management team in consideration for 2,500,000 shares of common stock
of Nelloro.
35
<PAGE>
Employees
As of March 31, 1999, Netivation.com had 29 employees including seven part-
time employees. Of our 22 full-time employees, seven were in marketing and
sales, three were in senior management, three were in administration, six were
in development and three were in operations. We plan to add approximately ten
employees as a result of the acquisitions. We also plan to hire approximately
eight people to handle customer support functions.
We believe that our relations with our employees are satisfactory. We are
not a party to any collective bargaining agreements and we have never
experienced any work stoppage. As Netivation.com continues to grow and
introduce more products and services, we expect to hire additional personnel.
Our future success will depend, in part, on our ability to continue to attract,
retain and motivate highly qualified technical personnel.
Facilities
The current term of our Coeur d'Alene, Idaho lease expires on December 31,
2000. We intend to relocate our headquarters in the first half of 1999 to a
larger facility and are currently evaluating a number of locations in the Coeur
d'Alene area. Additionally, we lease approximately 600 square feet of office
space in Washington, D.C.
Legal Proceedings
There are no material legal proceedings pending or, to our knowledge,
threatened against us.
36
<PAGE>
MANAGEMENT
Executive officers and directors
Our executive officers and directors are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Anthony J. Paquin................ 40 Chairman of Board of Directors, President
and Chief Executive Officer
David C. Paquin.................. 44 Chief Operating Officer
Lawrence L. Burch................ 58 Chief Financial Officer and Treasurer
Chief Marketing Officer, Secretary and
Gary S. Paquin................... 48 Director
Douglas K. Carnahan.............. 57 Director
T.A. (Drew) Wahlin............... 51 Director
Donna L. Weaver.................. 55 Director
Key employees
Our other key employees are:
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Dr. Robert D. Gober.............. 46 Medical Director
Russell D. Reese................. 42 Product Development Manager
</TABLE>
Anthony J. Paquin has served as Netivation.com's Chairman of the board of
directors, President and Chief Executive Officer since September 1997. Mr.
Paquin was a candidate in the primary elections for the United States House of
Representatives in Idaho's First Congressional District during 1997 and 1998.
Mr. Paquin co-founded Agency One Corporation, a company that developed software
for the insurance industry, in 1989 and served as its President and Chief
Executive Officer until 1993. Agency One Corporation was acquired in 1993 by
Agency Management Services, an insurance software company ("AMS"), and a
subsidiary of CNA Financial Corporation. Mr. Paquin served as the Senior Vice
President of Marketing of AMS from 1993 to March 1997. Mr. Paquin also founded
and is the President of the Idaho Technology Association.
David C. Paquin joined Netivation.com in June 1998 as a General Manager and
has served as its Chief Operating Officer since March 1999. From April 1994 to
June 1998, Mr. Paquin served as the Manager of Customer Service, Human
Resources and Sales at AMS. From April 1989 to April 1994, he served as the
Manager of Technical and Manager Training at Mohawk Power Corporation, an
electric power utility in Oswego, New York. Mr. Paquin holds a B.S. from the
State University of New York and an M.S. from the New York Institute of
Technology.
Lawrence L. Burch joined Netivation.com in February 1999 as its Chief
Financial Officer and Treasurer. From April 1996 to February 1999, Mr. Burch
served as a financial and administrative consultant to various software,
telecommunications and development companies. From January 1993 to March 1996,
Mr. Burch served as the Chief Financial Officer and Executive Vice President of
Pegasus Airwave Inc., a healthcare company in Boca Raton, Florida. In March
1999, Mr. Burch and his spouse filed a Chapter 7 bankruptcy petition with the
United States Bankruptcy Court, Southern District of Florida. The bankruptcy
filing resulted from the default by Mr. and Mrs. Burch on a note that they had
personally guaranteed for the purchase of equipment in a restaurant in which
they had invested. Although the restaurant was sold in 1998 and the direct
obligations under the note were assumed by the purchaser, the purchaser
defaulted on the note. As a result, Mr. and Mrs. Burch remained personally
liable on the note. Mr. Burch holds a B.A from the University of Miami and is a
Certified Public Accountant.
Gary S. Paquin has served as Netivation.com's Chief Marketing Officer since
January 1999, as a director of Netivation.com since September 1997 and as
Netivation.com's Secretary since August 1998. From August
37
<PAGE>
1998 to January 1999, he served as Netivation.com's Chief Operating Officer.
From August 1998 to February 1999, he served as Netivation.com's Treasurer.
From 1997 to July 1998, Mr. Paquin served as Netivation.com's Vice President of
Sales and Corporate Development. Mr. Paquin co-founded Agency One Corporation
in 1989 and served as its Vice President until 1997. Previously, Mr. Paquin
served as a regional manager for Computer Associates International, Inc.
(NYSE--CA), a software, support and integration services company, and held
various management and marketing positions with International Business Machines
Inc. (NYSE--IBM). Currently, Mr. Paquin serves on the local United Way Board of
Directors and as chairman of the 1998 fund drive.
Douglas K. Carnahan has served as a member of Netivation.com's board of
directors since August 1998. Mr. Carnahan served as Senior Vice President of
Hewlett-Packard Company, a computer manufacturing company, from 1995 to 1998.
He also served as general manager of the Measurement Systems Organization from
1993 to 1998. Currently, Mr. Carnahan serves on the Board of Directors of
Molex, Inc. (Nasdaq MOLX), an electronic components company. Mr. Carnahan holds
a B.S. from San Jose State University and an M.B.A. from Santa Clara
University.
T.A. (Drew) Wahlin has served as a member of Netivation.com's board of
directors since August 1998. Mr.Wahlin has served as the managing principal of
Idaho Consulting International, a consulting firm, since January 1994.
Previously, Mr. Wahlin served as President and Chief Operating Officer of White
Cloud Mountain Company, Inc., a wholesaler of coffee products, from January
1991 to March 1993. He holds a B.A. from the University of California, Davis
and an M.B.A. from the University of Puget Sound. Mr. Wahlin is a Certified
Public Accountant.
Donna L. Weaver has served as a member of Netivation.com's board of
directors since August 1998. In 1985, Ms. Weaver founded Weaver, Field &
London, Inc., an investor relations and corporate communications firm, and has
served as its Chairman since inception. Ms. Weaver currently serves as a
director of Ross Stores Inc. (Nasdaq--ROST), a retail store chain, Crown
Vantage Inc. (Nasdaq--CVAN), a producer of paper products, and Hancock Fabrics
Inc. (NYSE--HKF), a retail and wholesale fabric company. Ms. Weaver served as
volunteer campaign chairman of the successful 1996 Congressional Term Limits
Initiative and the 1998 Congressional Term Limits Pledge Initiative in Idaho.
She holds a B.S. from the University of Arizona and an M.S. from the Stanford
Graduate School of Business.
Dr. Robert D. Gober has served as Netivation.com's Medical Director since
February 1999. He is both a practicing physician and attorney. Dr. Gober has a
general medical practice in Baltimore, Maryland and has been a clinical
instructor at the Osteopathic Medical Center of Philadelphia, Pennsylvania
since January 1981. Dr. Gober served as the medical director at the Inns of
Evergreen South in Baltimore from May 1987 to May 1990. In March 1981, Dr.
Gober was a guest lecturer at the Delaware Law School of Widener University.
Dr. Gober simultaneously earned a J.D. from Delaware Law School of Widener
University, and a D.O. from Philadelphia College of Osteopathic Medicine.
Additionally, Dr. Gober holds a B.S. from Muhlenberg College in Allentown,
Pennsylvania.
Russell D. Reese has served as Netivation.com's Product Development Manager
since January 1999. He manages Netivation.com's technical staff and directs
product development. Mr. Reese was previously employed at AMS from August 1994
to December 1998, where he served as a development project manager. While at
AMS, Mr. Reese was responsible for the design and development of AMS' Prime
2000 system, a software package for independent insurance agencies. At both
Netivation.com and at AMS, Mr. Reese implemented the Microsoft Software
Development Discipline and was responsible for initiating code reviews and
computer bug tracking procedures. From September 1989 to August 1994, Mr. Reese
served as the information technology and sales manager at Data Pro Corporation,
a computer hardware reseller in the City of Industry, California, where he
developed internal systems to automate sales and marketing efforts. Mr. Reese
attended Whittier College and holds an A.S. from Riverside College.
Anthony J. Paquin, David C. Paquin and Gary S. Paquin are brothers. There is
no other family relationship among any of the directors, executive officers and
key employees of Netivation.com.
38
<PAGE>
Board of directors
We currently have five directors. In March 1999, our board of directors
approved, subject to stockholder approval, an amendment to our certificate of
incorporation to provide for, among other things, a classified board of
directors. The restated certificate of incorporation states that the terms of
office of the board of directors will be divided into three classes: class I,
whose term will expire at the annual meeting of stockholders to be held in
2000, class II, whose term will expire at the annual meeting of stockholders to
be held in 2001 and class III, whose term will expire at the annual meeting of
stockholders to be held in 2002. Mr. Wahlin and Mr. Gary Paquin are the class I
directors, Mr. Carnahan is the class II director and Mr. Anthony Paquin and Ms.
Weaver are the class III directors. At each annual meeting of stockholders
beginning with the 2000 annual meeting, the successors to directors whose terms
expire will be elected to serve from the time of election and qualification
until the third annual meeting following election and until their successors
have been elected.
Committees of the board of directors
The compensation committee consists of Ms. Weaver, Mr. Carnahan and Mr.
Wahlin. The compensation committee reviews and approves Netivation.com's
compensation and benefits for its executive officers, administers
Netivation.com's compensation and stock option plans and makes recommendations
to the board of directors regarding such matters.
The audit committee consists of Ms. Weaver, Mr. Carnahan and Mr. Wahlin. The
functions of the audit committee are:
. to review the scope of the audit procedures utilized by our independent
auditors;
. to review with the independent auditors our accounting practices and
policies;
. to consult with Netivation.com's independent auditors during the year;
. to approve the audit fee charged by the independent auditors; and
. to report to the board of directors with respect to such matters and to
recommend the selection of independent auditors.
Director compensation
Annually, each non-employee director is entitled to receive restricted stock
having a value of $25,000. Additionally, each non-employee director of
Netivation.com is paid $150 for each meeting he or she attends, as well as a
per diem amount for each meeting.
In January 1999, each non-employee director was granted 10,000 shares of
common stock pursuant to our equity incentive plan in consideration for
services rendered. These shares are subject to forfeiture by each non-employee
director if he or she is not serving as a director on December 31, 1999.
Additionally, in January 1999, each non-employee director was granted an option
to purchase 2,500 shares of common stock at an exercise price of $2.50 per
share, which options vest annually over three years beginning on December 31,
1999.
Stock plans
1999 equity incentive plan. Netivation.com's non-qualified stock option and
restricted stock plan was adopted on July 24, 1998. The board amended and
restated this initial plan as the 1999 equity incentive plan in March 1999. The
plan will be submitted for approval by the stockholders prior to the closing of
this offering. The plan will terminate on March 2, 2009. The plan is
administered by the board or a committee appointed by the board.
Grants may be made to employees, including officers and employee directors,
consultants and non-employee directors of Netivation.com or any of its
subsidiaries. Grants under the plan may consist of:
. options intended to qualify as incentive stock options within the meaning
of Section 422 of the Internal Revenue Code;
39
<PAGE>
. nonqualified stock options that are not intended to so qualify;
. stock bonuses; and
. restricted stock.
No employee is eligible to be granted options covering more than 325,000
shares of our common stock in any calendar year.
Under the plan, 750,000 shares of common stock have been reserved for
issuance. On January 1 of each year, starting in the year 2000, the aggregate
number of shares reserved for issuance will automatically be increased to a
number equal to 15% of the outstanding shares of our common stock. However, the
number of shares that may be issued pursuant to incentive stock options may not
exceed 500,000 shares of common stock. As of January 31, 1999, we granted,
pursuant to the plan, options to purchase an aggregate of 278,875 shares of
common stock at a weighted average exercise price of approximately $2.03, none
of which have been exercised and none of which have been forfeited.
The board determines the exercise price of options granted under the plan in
accordance with the guidelines set forth in the plan. The exercise price of
incentive stock options granted pursuant to the plan cannot be less than 100%
of the fair market value of the common stock on the date of the grant. The
exercise price of incentive stock options granted to any person who at the time
of grant owns stock representing more than 10% of the total combined voting
power of all classes of the company's capital stock or any of its affiliates
must be at least 110% of the fair market value of the company's common stock on
the date of grant and the term of such incentive stock options cannot exceed
five years. The board determines the exercise price of a nonstatutory stock
option. Options granted under the plan vest at the rate specified in the option
agreement.
Any stock bonuses or restricted stock purchase awards granted under the plan
will contain terms and conditions as the board deems appropriate. The board
determines the purchase price under any restricted stock purchase agreement.
Stock bonuses may be awarded for no consideration other than services already
rendered.
Upon certain changes in control of the company, all outstanding options and
awards under the plan must either be assumed or substituted by the surviving
entity. In the event the surviving entity determines not to assume or
substitute such options and awards, then the exercise of such non-assumed
options and awards held by persons whose continuous service did not terminate
prior to the change of control will be accelerated. Such options and awards
will terminate if not exercised prior to such change in control event.
Additional options. We have granted two fully vested nonstatutory stock
options to purchase an aggregate of 200,000 shares of common stock outside of a
written plan at a weighted average exercise price of approximately $.056 per
share.
1999 employee stock purchase plan. In March 1999, the board adopted the 1999
employee stock purchase plan to provide employees of Netivation.com and its
affiliates with an opportunity to purchase common stock through payroll
deductions. The purchase plan will terminate at the board's discretion.
Under the purchase plan, 500,000 shares of common stock have been reserved
for issuance. As of the date of this prospectus, the company had granted no
options and issued no shares pursuant to the purchase plan.
The purchase plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code. The board may
authorize participation by eligible employees, including officers, in periodic
offerings following the adoption of the purchase plan. A new offering period
begins every 12 months. The board has currently authorized an offering
commencing on the effectiveness of this offering and ending January 31, 2000,
with sequential 12-month offerings thereafter.
No employee is eligible to participate in the purchase plan if, immediately
after any rights are granted under the purchase plan, the employee owns stock
possessing 5% or more of the total combined voting power
40
<PAGE>
or value of all classes of stock of the company or of any affiliate. All other
employees are eligible to participate in the currently authorized offerings if
they have been employed by Netivation.com or an affiliate of Netivation.com
incorporated in the U.S. for at least ten days preceding the beginning of the
offering and work at least 20 hours per week and at least five months per
calendar year. Employees may have up to 15% of their earnings withheld pursuant
to the purchase plan and applied on specific purchase dates. The purchase dates
are currently the last day of each of the two shorter purchase periods during
an authorized offering to the purchase of shares of common stock. The price of
common stock purchased under the purchase plan will be equal to 85% of the
lower of the fair market value of the common stock on the commencement date of
each offering or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering. Participation
ends automatically on termination of employment.
In the event of certain changes of control, Netivation.com and the board
have discretion to provide that each right to purchase common stock will be
assumed or an equivalent right substituted by the successor corporation.
Additionally, the board may also shorten an offering and provide for all sums
collected by payroll deductions to be applied to purchase stock immediately
prior to the change in control.
Executive compensation
The following table sets forth the compensation earned by our Chief
Executive Officer and the one other most highly compensated executive officer
whose total annual salary and bonus exceeded $100,000 for services rendered
during the fiscal year ended December 31, 1998 (collectively, the "named
executive officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
All Other
Name and Principal Position Year Salary Compensation
- --------------------------- ---- ------ ------------
<S> <C> <C> <C>
Anthony J. Paquin.............. 1998 $100,600 $432
Chairman of the Board of Di-
rectors, President and Chief
Executive Officer
Gary S. Paquin................. 1998 100,600 817
Chief Marketing Officer,
Secretary and Director
</TABLE>
The amounts set forth in "All Other Compensation" represent payments for term
life insurance. No options were granted to the named executive officers during
the year ended December 31, 1998. As of December 31, 1998 the named executive
officers held no options to purchase shares of our common stock. Please see the
information below with respect to options granted to the named executive
officers in January 1999.
Employment agreements
In January 1999, Netivation.com entered into separate employment agreements
with each of Mr. Anthony J. Paquin and Mr. Gary S. Paquin. Additionally,
Netivation.com has key-man life insurance policies in the amount of $1,000,000
on each of Mr. Anthony J. Paquin and Mr. Gary S. Paquin.
Under Mr. Anthony Paquin's employment agreement, which expires on December
31, 2001, he is entitled to receive an annual base salary of $150,000.
Additionally, in January 1999, pursuant to his employment agreement,
Netivation.com granted Mr. Paquin an option to purchase 25,000 shares of common
stock at an exercise price of $2.50 per share. These options vest over a period
of three years beginning on December 31, 1999. We also granted Mr. Paquin an
option to purchase 37,500 shares of common stock at an exercise price of $1.25
per share. These options vest in full on December 31, 2003, with acceleration
of vesting on December 31, 1999 if certain revenue goals are met.
41
<PAGE>
Under Mr. Gary Paquin's employment agreement, which expires on December 31,
2001, he receives an annual base salary of $125,000. Additionally, in January
1999, pursuant to his employment agreement, Netivation.com granted Mr. Paquin
an option to purchase 25,000 shares of common stock at an exercise price of
$2.50 per share. These options vest over a period of three years beginning on
December 31, 1999. We also granted Mr. Paquin an option to purchase 18,750
shares of common stock at an exercise price of $1.25 per share. These options
vest in full on December 31, 2003, with acceleration of vesting on December 31,
1999 if certain revenue goals are met.
Limitation of liability and indemnification
Our bylaws provide that we will indemnify our directors, officers, employees
and agents to the fullest extent permitted by Delaware law. In addition, our
certificate of incorporation provides that, to the fullest extent permitted by
Delaware law, our directors will not be liable for monetary damages for breach
of the directors' fiduciary duty to Netivation.com and its stockholders. This
provision of the certificate of incorporation does not eliminate the duty of
care. In appropriate circumstances, equitable remedies such as an injunction or
other forms of non-monetary relief are available under Delaware law. This
provision also does not affect a director's responsibilities under any other
laws, such as the federal securities laws.
Each director will continue to be subject to liability for:
. breach of the director's duty of loyalty to Netivation.com;
. acts or omissions not in good faith or involving intentional misconduct;
. knowing violations of law;
. any transaction from which the director derived an improper personal
benefit;
. improper transactions between the director and Netivation.com; and
. improper distributions to stockholders and improper loans to directors
and officers.
We intend to enter into indemnity agreements with each of our directors and
executive officers to indemnify them against expenses and losses incurred for
claims brought against them in their capacities as directors or executive
officers. Netivation.com's board of directors has authorized its officers to
investigate and obtain directors' and officers' liability insurance.
There is no pending litigation or proceeding involving a director or officer
as to which indemnification is being sought. We are not aware of any pending or
threatened litigation that may result in claims for indemnification by any
director or officer.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and control persons of
Netivation.com pursuant to the foregoing provisions, or otherwise,
Netivation.com has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act of
1933, and is, therefore, unenforceable.
42
<PAGE>
CERTAIN TRANSACTIONS
On September 26, 1997, Netivation.com issued 1,057,500 shares of common
stock to Mr. Anthony J. Paquin, 1,057,500 shares of common stock to Mr. Gary S.
Paquin and 250,000 shares of common stock to Mr. David C. Paquin in exchange
for the contribution to Netivation.com of rights to certain computer software
applications and related technology. No value was assigned to the technology as
it had no cost basis and the common stock was deemed to have minimal value.
On October 24, 1997, Ms. Donna L. Weaver and her spouse purchased an
aggregate of 150,000 shares of Netivation.com's common stock at a purchase
price of $.70 per share. Ms. Weaver was elected to Netivation.com's board of
directors in August 1998.
On March 16, 1998, Netivation.com issued a promissory note in the principal
amount of $550,000, at an interest rate of 8% per annum, to Britannia Holdings
Ltd. In connection with such note, Netivation.com issued 137,500 shares of its
common stock to Britannia. This promissory note was amended on July 9, 1998
whereby we issued Britannia an additional 12,500 shares of common stock. The
principal amount and all accrued interest outstanding under the note was paid
by Netivation.com in full on January 8, 1999.
On June 25, 1998, Netivation.com granted Idaho Consulting International, a
sole proprietorship owned by Mr. Wahlin, an option to purchase 125,000 shares
of Netivation.com's common stock at an exercise price of $.03 per share and
paid $35,637 in cash in consideration for professional consulting services
provided by ICI to Netivation.com. Mr. Wahlin was elected to Netivation.com's
board of directors in August 1998.
On June 25, 1998, ICI assigned its option to purchase 62,500 of
Netivation.com's common stock to Moffatt, Thomas, Barrett, Rock & Fields,
Chartered, our legal counsel, in consideration of legal services rendered to us
and to ICI.
On August 18, 1998, Ms. Donna L. Weaver and her spouse purchased 33,750
shares of Netivation.com's common stock from each of Mr. Anthony J. Paquin and
Mr. Gary S. Paquin at a purchase price of $1.50 per share.
On October 1, 1998, Britannia purchased 50,000 shares of Netivation.com's
common stock from each of Mr. Anthony J. Paquin and Mr. Gary S. Paquin at a
purchase price of $1.00 per share.
On October 31, 1998, Netivation.com issued unsecured promissory notes in the
principal amounts of $88,300 and $88,800 to each of Mr. Anthony J. Paquin and
Mr. Gary S. Paquin. These promissory notes did not bear interest. We imputed
interest at an effective rate consistent with the promissory note to Britannia
discussed above. The notes were paid in full in January 1999.
Netivation.com believes that the transactions summarized above were made on
terms no less favorable than terms Netivation.com could have obtained from
unaffiliated third parties. The board of directors has determined that any
future transactions between Netivation.com and its officers, directors or
principal stockholders will be approved by a majority of the disinterested
directors and will be on terms no less favorable than Netivation.com could
obtain from an unaffiliated third party. The board of directors may obtain
independent counsel or other independent advice to assist in that
determination.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table details certain information with respect to the
beneficial ownership of Netivation.com's common stock as of January 31, 1999
by:
. each stockholder known by Netivation.com to beneficially own more than 5%
of its common stock;
. each named executive officer;
. each director; and
. all directors and executive officers as a group.
The table also presents information as adjusted to reflect the sale by
Netivation.com of the shares offered hereby (assuming no exercise of the
representatives' over-allotment option). The table reflects the conversion of
all outstanding shares of preferred stock into shares of common stock on the
closing of this offering.
<TABLE>
<CAPTION>
Percentage of Shares Percentage of Shares
Shares Beneficially Owned Beneficially Owned Beneficially Owned
Prior To Offering Prior to Offering After Offering
------------------------- -------------------- --------------------
<S> <C> <C> <C>
Anthony J. Paquin....... 973,750 16.67% 11.24%
Gary S. Paquin.......... 973,750 16.67 11.24
Donna L. Weaver......... 227,500 3.90 2.63
1677 East Miles Avenue
Hayden Lake, ID 83835
Douglas K. Carnahan .... 10,000 * *
4410 W. Chiden
Meridian, ID 83642
T. A. Drew Wahlin....... 72,500 1.23 *
P. O. Box 20082
Boise, ID 8701-2082
All directors and
executive officers as a
group (seven persons).. 2,507,500 42.48% 28.75%
</TABLE>
Asterisks on the foregoing table indicate beneficial ownership of less than
1%.
Beneficial ownership is determined in accordance with the rules of the SEC.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of common stock subject to options
or warrants held by that person that are currently exercisable or will become
exercisable within 60 days after January 31, 1999 are deemed outstanding, while
such shares are not deemed outstanding for purposes of computing percentage
ownership of any other person. Applicable percentages are based on 5,840,770
shares of common stock outstanding as of January 31, 1999 and 8,660,070 shares
of common stock outstanding after completion of this offering. Unless otherwise
indicated in the following paragraphs, the persons and entities named in the
table have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable. Unless
otherwise indicated in the table above, the address of each individual is
Netivation.com, Inc., 7950 Meadowlark Way, Suite B, Coeur d'Alene, Idaho 83815.
The shares listed as being owned by Mr. Wahlin include 62,500 shares subject
to a stock option granted to ICI. This option is currently exercisable in full
and has no expiration date.
The shares listed as being owned by all directors and executive officers as
a group consists of:
. 2,445,000 shares; and
. 62,500 shares subject to stock options exercisable within 60 days of
January 31, 1999 held by directors and executive officers of
Netivation.com and entities affiliated with such persons.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description summarizes certain terms of our capital stock and
certain provisions of our restated certificate of incorporation and bylaws.
Please refer to our restated certificate of incorporation and bylaws, which
have been filed as exhibits to this registration statement.
On the closing of this offering, our authorized capital stock will consist
of 30,000,000 shares of common stock, $.01 par value per share, and 2,000,000
shares of preferred stock, $.01 par value per share. As of January 31, 1999
there were 5,840,770 shares of common stock outstanding held of record by 262
stockholders.
Common Stock
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
common stock are not entitled to cumulative voting rights with respect to the
election of directors, and as a consequence, minority stockholders will not be
able to elect directors on the basis of their votes alone. Subject to
preferences that may be applicable to any then outstanding shares of preferred
stock, holders of common stock are entitled to receive ratably such dividends
as may be declared by the board out of funds legally available.
In the event of a liquidation, dissolution or winding up, holders of the
common stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive rights and no right
to convert their common stock into any other securities. There are no
redemption provisions applicable to the common stock. All outstanding shares of
common stock are, and all shares of common stock to be outstanding on
completion of this offering will be, fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without further action by the
stockholders, to issue up to 2,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including:
. dividend rights;
. conversion rights;
. voting rights;
. terms of redemption;
. liquidation preferences;
. sinking fund terms; and
. the number of shares constituting any series or the designation of such
series.
Any such issuance could adversely affect the voting power of holders of common
stock and the likelihood that such holders will receive dividend payments and
payments upon liquidation and could have the effect of delaying, deferring or
preventing a change in control of the company. We have no present plan to issue
any shares of preferred stock.
Warrants
We have warrants outstanding to purchase 258,000 shares of common stock,
subject to adjustment in certain circumstances. These warrants were issued in
connection with the private placement of preferred stock completed in January
1999. The exercise price of the warrants is $2.50 per share and such warrants
expire in 2006.
45
<PAGE>
Registration Rights
We have granted registration rights to the holders of 2,325,000 shares of
common stock issuable upon conversion of the preferred stock, referred to as
registrable securities. Following the one year anniversary of the completion of
this offering, these holders may require Netivation.com on one occasion to use
its best efforts to effect the registration of such registrable securities,
subject to certain conditions. In addition, whenever we propose to register any
of our securities under the Securities Act, the holders of registrable
securities are entitled, subject to certain restrictions, to include their
registrable securities in such registration. We are required to bear all
registration expenses in connection with the registration of registrable
securities.
Additionally, we have granted registration rights to the holders of warrants
to purchase 258,000 shares of our common stock. These holders may require
Netivation.com, at our expense, to effect the registration of the shares of
common stock issuable upon exercise of the warrants, subject to certain
conditions. In addition, whenever we propose to register any of our securities
under the Securities Act, subject to certain restrictions, we shall offer these
holders the opportunity to include on the registration statement, their shares
of common stock issuable upon exercise of the warrants.
Delaware Anti-Takeover Law and Certain Charter Provisions
Netivation.com is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. For purposes of Section 203, a "business combination" includes a
merger, asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock. The existence of this
provision would be expected to have anti-takeover effects with respect to
transactions not approved in advance by the board of directors, such as
discouraging takeover attempts that might result in a premium over the market
price of the common stock.
Upon the closing of this offering, our restated certificate of incorporation
will provide for a board of directors that is divided into three classes:
. the directors in class I will hold office until the first annual meeting
of stockholders following this offering;
. the directors in class II will hold office until the second annual
meeting of stockholders following this offering; and
. the directors in class III will hold office until the third annual
meeting of stockholders following this offering (or in each case, until
their successors are duly elected and qualified or until their earlier
resignation, removal from office or death).
After each such election, the directors in each such class will then serve
in succeeding terms of three years and until their successors are elected. The
classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
Netivation.com and may maintain the incumbency of the board of directors, as
the classification of the board of directors generally increases the difficulty
of replacing a majority of the directors.
Our corporate documents contain other provisions that might discourage,
delay or prevent a change in control of Netivation.com or of our management.
These provisions could also limit the price that investors might be willing to
pay for shares of our common stock. These provisions provide that:
. stockholders may not act by written consent;
. special meetings of stockholders may be called by the board of directors,
the chairman of the board or the chief executive officer;
46
<PAGE>
. only the board of directors may change the authorized number of
directors;
. no director can be removed without cause, subject to the right of any
holders of preferred stock; and
. directors may be removed for cause only by a majority vote of the
stockholders.
Listing
We have applied for listing of our common stock on the Nasdaq National
Market under the trading symbol "NTVN."
Transfer Agent and Registrar
American Securities Transfer & Trust, Inc. has been appointed as the
transfer agent and registrar for our common stock.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for Netivation.com's
common stock, and there can be no assurance that a significant public market
for its common stock will develop or be sustained after this offering. Future
sales of substantial amounts of common stock in the public market could
adversely affect market prices prevailing from time to time.
After this offering, Netivation.com will have a total of 8,660,070 shares of
outstanding common stock. Of these shares, the 2,500,000 shares sold in this
offering will be freely tradable in the public market without restriction under
the Securities Act, except for any shares held by "affiliates" of
Netivation.com, as that term is defined in Rule 144 under the Securities Act.
The remaining 6,160,070 shares of common stock held by existing stockholders
are "restricted securities," as that term is defined in Rule 144 under the
Securities Act. All restricted shares were issued and sold by Netivation.com in
private transactions, which relied on the registration exemptions detailed in
the Securities Act. Restricted shares may be sold in the public market only if
they are registered or if they qualify for an exemption from registration, such
as Rule 144 or Rule 701 under the Securities Act.
Netivation.com's executive officers, directors, stockholders and employees,
who collectively hold an aggregate of approximately 3,363,262 restricted
shares, have agreed not to offer, sell, contract to sell, grant any option to
purchase or otherwise dispose of any such shares for a period ranging from
eight months to one year, with a few isolated exceptions, from the date of this
prospectus. EBI Securities Corporation may, in its sole discretion and at any
time without prior notice, release all or any portion of the common stock
subject to these lock-up agreements. EBI Securities Corporation currently has
no plans to release any portion of the securities subject to these lock-up
agreements. When determining whether or not to release shares from the lock-up
agreements, EBI Securities Corporation will consider, among other factors,
market conditions at the time, the number of shares proposed to be released,
and a stockholder's reasons for requesting the release. Netivation.com has also
agreed with the representatives that Netivation.com will not offer, sell or
otherwise dispose of common stock for a period of 12 months from the date of
this prospectus, subject to exceptions for acquisitions approved by the board
and the issuance of shares under our existing compensatory plans.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year is entitled to sell within any three-month period
a number of shares that does not exceed the greater of (i) 1% of the number of
shares of common stock then outstanding (which will equal approximately 86,600
shares immediately after this offering); or (ii) the average weekly trading
volume of the common stock during the four calendar weeks preceding the filing
of a Form 144. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about Netivation.com. Under Rule 144(k), a person who is not deemed
to have been an affiliate of Netivation.com at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years (including the holding period of any prior owner except
an affiliate), is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Rule 701, as currently in effect, permits resales of shares in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to Netivation.com who purchased shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 further provides that non-affiliates may sell such shares
in reliance on Rule 144 without having to comply with the holding period,
public information, volume limitation or notice provisions of Rule 144. All
holders of Rule 701 shares are required to wait until 90 days after the date of
this prospectus before selling such shares.
Taking into account the 3,363,262 shares subject to lock-up agreements, the
number of restricted shares that will be available for sale in the public
market under the provisions of Rules 144, 144(k) and 701 will be as follows:
48
<PAGE>
. approximately 152,508 shares will be eligible for sale 0 to 90 days after
the date of this prospectus;
. approximately 465,000 shares will be eligible for sale 91 to 179 days
after the date of this prospectus upon expiration of lock-up agreements
and holding periods;
. approximately 2,888,262 shares will be eligible for sale 180 to 364 days
after the date of this prospectus upon expiration of lock-up agreements
and holding periods; and
. approximately 2,335,000 shares will be eligible for sale 365 days after
the date of this prospectus upon expiration of lock-up agreements and
holding periods.
The foregoing does not take into account any early release from the lock-up
agreements or for sales in reliance on Rule 701 with the consent of EBI
Securities Corporation.
Within 90 days following the effectiveness of this offering, Netivation.com
plans to file a registration statement on form S-8 registering shares of common
stock subject to outstanding options or reserved for future issuance under its
stock plans. As of January 31, 1999, options to purchase a total 478,875 shares
(including options granted to purchase 200,000 shares outside of any plan) were
outstanding and 428,625 shares were reserved for future issuance under
Netivation.com's stock plans. Common stock issued upon exercise of outstanding
vested options, other than common stock issued to affiliates of Netivation.com,
is available for immediate resale in the open market.
Registration of any shares under the Securities Act pursuant to outstanding
registration rights would result in such shares becoming freely tradable
without restriction.
49
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the underwriting agreement,
the underwriters named below, for which EBI Securities Corporation and
Millennium Financial Group, Inc. are acting as representatives, have severally
agreed to purchase from Netivation.com the respective number of shares of
common stock set forth opposite each underwriter's name.
<TABLE>
<CAPTION>
Underwriter Number of Shares
- ----------- ----------------
<S> <C>
EBI Securities Corporation.....................................
Millennium Financial Group, Inc................................
---------
Total........................................................ 2,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in Netivation.com's business and the receipt of
certain certificates, opinions and letters from Netivation.com, its counsel and
independent auditors. The underwriters will be obligated to purchase all the
shares of common stock offered hereby, if any shares are purchased.
The underwriters propose initially to offer the shares of common stock
directly to the public at the public offering price set forth on the cover page
of this prospectus and to certain dealers at such price less a concession not
in excess of $ per share. The underwriters may allow and such dealers may
reallow a concession not in excess of $ per share to certain other dealers.
After the initial public offering of the shares, the offering price and other
selling terms may be changed by the representatives of the underwriters. The
representatives have advised Netivation.com that the underwriters do not expect
any sales to accounts for which any of the underwriters will exercise
discretion as to such sale.
Netivation.com has granted to the representatives an option, expiring at the
close of business on the 60th day after the date of this prospectus, to
purchase up to 375,000 additional shares at the initial public offering price,
less the underwriting discounts, all as set forth on the cover page of this
prospectus. The representatives may exercise such option only to cover over-
allotments made in connection with the sale of common stock in this offering.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
Upon completion of this offering, Netivation.com will sell to the
representatives for $25 warrants to purchase 250,000 shares of common stock.
The representatives' warrants will become exercisable immediately after the
completion of this offering at a per share exercise price equal to 120% of the
initial public offering price and will expire five years from the date of this
prospectus. The representatives' warrants and underlying shares of common stock
will be restricted from sale, transfer, assignment or hypothecation for a
period of one year from the date of this prospectus, except to the
representatives, underwriters, selling group members and their officers or
partners. During the exercise period, holders of the representatives' warrants
are entitled to certain demand and incidental rights with respect to the shares
of common stock issuable upon exercise of the representatives' warrants. The
common stock issuable on exercise of the representatives' warrants is subject
to adjustment in certain events to prevent dilution.
50
<PAGE>
Netivation.com will pay the representatives a nonaccountable expense
allowance of 3% of the gross proceeds of the offering, which will include
proceeds from the over-allotment option, if exercised. The representatives'
expenses in excess of the nonaccountable expense allowance, including their
legal expenses, will be borne by the representatives. Netivation.com has paid
$85,000 to the representatives as an advance for expenses.
Netivation.com has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act, and to
contribute to payments which the underwriters may be required to make regarding
these liabilities.
Netivation.com has agreed to give notice to the representatives of meetings
of the board of directors and to grant access to such meetings to nominees of
the representatives to attend the meetings as observers. EBI Securities
Corporation also has the right, but not the obligation, to nominate one
director to Netivation.com's board of directors until July 2003. EBI Securities
Corporation has no current intention to exercise this right in the near future
and has not identified a designee to serve in such capacity if it elects to
exercise such right in the future.
For a period of three years after this offering, the representatives have
the right to participate as co-managing underwriters in any additional public
or private offering of debt or equity securities by Netivation.com, excluding
debt financing transactions with banks. During this period, the representatives
also have the right to serve as co-financial advisors with respect to mergers
or other strategic transactions involving Netivation.com. Such rights may be
waived by the representatives if the terms of their participation are
unacceptable.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation
M under the Exchange Act. Over-allotment involves syndicate sales in excess of
the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Neither Netivation.com nor the underwriters can predict the effect that the
transactions described above may have on the price of the common stock. In
addition, neither Netivation.com nor the underwriters represent that the
underwriters will engage in such transactions. If commenced, such transactions
may be discontinued at any time without notice. It is anticipated that certain
of the underwriters will make a market in the common stock on completion of
this offering, as permitted by applicable law. The underwriters are not
obligated to make a market in the common stock and if they do so may
discontinue making a market at any time. There is no assurance an active
trading market will ever develop for the common stock.
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Netivation.com and the representatives. The principal factors to be
considered in determining the initial public offering price include:
. the information set forth in this prospectus and otherwise available;
. the history and the prospects for the industry in which Netivation.com
will compete;
. the ability of Netivation.com's management;
. the prospects for future earnings of Netivation.com;
51
<PAGE>
. the present state of Netivation.com's development and its current
financial condition;
. the general condition of the securities markets at the time of this
offering; and
. the recent market prices of, and the demand for, publicly traded stock of
generally comparable companies.
The estimated initial public offering price per share range set forth on the
cover of this preliminary prospectus is subject to change as a result of the
above and other factors.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Netivation.com by Moffatt, Thomas, Barrett, Rock & Fields, Chartered, Boise,
Idaho and by Cooley Godward LLP, Boulder, Colorado. As of the date of this
prospectus, Moffatt, Thomas, Barrett, Rock & Fields, Chartered beneficially
owns an option to purchase 62,500 shares of Netivation.com's common stock.
Certain legal matters will be passed upon for the representatives by Berliner
Zisser Walter & Gallegos, P.C., Denver, Colorado.
EXPERTS
The audited financial statements included in this prospectus and elsewhere
in the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Netivation.com, Inc.
Report of Independent Public Accountants................................... F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
The Online Medical Bookstore, LLC
Report of Independent Public Accountants................................... F-16
Balance Sheets............................................................. F-17
Statements of Operations................................................... F-18
Statements of Member's Interests........................................... F-19
Statements of Cash Flows................................................... F-20
Notes to Financial Statements.............................................. F-21
</TABLE>
<TABLE>
<S> <C>
InterLink Services, Inc.
Report of Independent Public Accountants................................... F-23
Balance Sheet.............................................................. F-24
Statement of Operations.................................................... F-25
Statement of Stockholders' Equity.......................................... F-26
Statement of Cash Flows.................................................... F-27
Notes to Financial Statements.............................................. F-28
</TABLE>
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Information
Unaudited Pro Forma Combined Financial Information......................... F-30
</TABLE>
<TABLE>
<S> <C>
Unaudited Pro Forma Combined Balance Sheet ................................ F-31
</TABLE>
<TABLE>
<S> <C>
Unaudited Pro Forma Combined Statement of Operations....................... F-32
</TABLE>
<TABLE>
<S> <C>
Notes to Unaudited Pro Forma Combined Balance Sheet and Statement of
Operations.............................................................. F-33
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Netivation.com, Inc.:
We have audited the accompanying balance sheets of Netivation.com, Inc. (a
Delaware corporation in the development stage) as of December 31, 1997 and
1998, and the related statements of operations, stockholders' equity and cash
flows for the periods from inception (September 26, 1997) to December 31, 1998
and 1997 and for the year ended December 31, 1998. 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 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 these 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 our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Netivation.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the periods from inception (September 26, 1997) to December 31, 1998
and 1997 and for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Seattle, WA
March 10, 1999
(except for the stock split and reincorporation discussed in Note 2 for which
the date is May 17, 1999)
F-2
<PAGE>
NETIVATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
EQUITY (NOTE 2) AT
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1998 1999 1999
------------ ------------ ----------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $47 $1,907 $1,385
Short-term investments....................... -- 880 889
Subscriptions receivable for preferred
stock....................................... -- 1,183 --
Prepaids and other........................... -- 35 690
--- ------ ------
Total current assets....................... 47 4,005 2,964
Equipment and furniture, net................... 10 94 151
--- ------ ------
Total assets................................... $57 $4,099 $3,115
=== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................. $13 $ 172 $ 394
Accrued compensation......................... -- 163 41
Other accrued expenses....................... -- 28 133
Convertible note payable to stockholder,
net......................................... -- 501 --
Advances from stockholders................... -- 95 --
--- ------ ------
Total current liabilities.................. 13 959 568
Mandatorily redeemable common stock option..... -- 391 1,406
Other long-term liabilities.................... -- 24 16
--- ------ ------
Total liabilities.......................... 13 1,374 1,990
--- ------ ------
Commitments (Note 7)
Stockholders' equity
8% Convertible preferred stock, $.01 par
value, 3,500,000 shares authorized and no
shares, 1,575,000, 2,325,000 and no shares
issued and outstanding, respectively,
preference in liquidation of $3,938 at
December 31, 1998........................... -- 3,317 4,899 --
Subscriptions receivable for 5,840,770 shares
of preferred stock.......................... -- 1,183 -- --
Common stock and additional paid-in capital,
$.01 par value, 25,000,000 shares autho-
rized, 3,218,270, 3,473,270, 3,515,770 and
5,592,218
shares issued and outstanding, respectively.. 105 628 695 $5,594
Deficit accumulated in the development
stage....................................... (61) (2,403) (4,469) (4,469)
--- ------ ------ ------
Total stockholders' equity................. 44 2,725 1,125 $1,125
--- ------ ------ ======
Total liabilities and stockholders' equity..... $57 $4,099 $3,115
=== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
NETIVATION.COM, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Period from Period from
Inception Inception Three Months
(September 26, (September 26, Ended March 31,
1997) to 1997) to Year Ended --------------------
December 31, 1998 December 31, 1997 December 31, 1998 1998 1999
----------------- ----------------- ----------------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ 82
--------- --------- --------- --------- ---------
Expenses
Operating expenses
General and
administrative....... 880 43 837 99 246
Sales and marketing... 569 18 551 79 423
Stock compensation.... 586 -- 586 -- 1,032
Product development... 171 -- 171 12 323
--------- --------- --------- --------- ---------
Total operating
expenses............... 2,206 61 2,145 190 2,024
--------- --------- --------- --------- ---------
Loss from
operations......... (2,206) (61) (2,145) (190) (1,942)
Interest expense, net... (183) -- (183) (6) (14)
--------- --------- --------- --------- ---------
Loss before income
taxes.................. (2,389) (61) (2,328) (196) (1,956)
Provision for income
taxes.................. -- -- -- -- --
--------- --------- --------- --------- ---------
Net loss................ $ (2,389) $ (61) $ (2,328) $ (196) $ (1,956)
Preferred stock
dividends earned....... (14) -- (14) -- (110)
--------- --------- --------- --------- ---------
Net loss available to
common stock........... $ (2,403) $ (61) $ (2,342) $ (196) $ (2,066)
========= ========= ========= ========= =========
Historical basic and
diluted loss per
share.................. $ (.71) $ (.02) $ (.69) $ (.06) $ (.59)
========= ========= ========= ========= =========
Historical weighted
average shares
outstanding used to
compute loss per
share.................. 3,372,483 3,168,270 3,417,377 3,298,659 3,517,159
========= ========= ========= ========= =========
Pro forma basic and
diluted loss per
share.................. $ (.70) $ (.02) $ (.67) $ (.06) $ (.35)
========= ========= ========= ========= =========
Weighted average shares
outstanding used to
compute pro forma loss
per share.............. 3,430,450 3,168,270 3,490,589 3,298,659 5,832,437
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
NETIVATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK AND
8% CONVERTIBLE ADDITIONAL PAID-
PREFERRED STOCK IN CAPITAL DEFICIT
---------------- SUBSCRIPTIONS ---------------- ACCUMULATED IN
NUMBER OF RECEIVABLE FOR NUMBER OF THE DEVELOPMENT
SHARES AMOUNT PREFERRED STOCK SHARES AMOUNT STAGE TOTAL
--------- ------ --------------- --------- ------ --------------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares in
September 1997 in
exchange for technology
rights and previously
existing corporate
entity (Note 1)........ -- $ -- $ -- 3,068,270 $ -- $ -- $ --
Issuance in October 1997
of shares for cash at
$.70 per share......... -- -- -- 150,000 105 -- 105
Net loss................ -- -- -- -- -- (61) (61)
--------- ------ ------- --------- ---- ------- ------
Balances at December 31,
1997................... -- -- -- 3,218,270 105 (61) 44
Issuance in February
1998 of shares for cash
at $1.20 per share..... -- -- -- 105,000 126 -- 126
Issuance in March 1998
of shares in connection
with issuance of 8%
convertible debenture.. -- -- -- 137,500 165 -- 165
Issuance in July 1998 of
shares in connection
with modification of
terms of 8% convertible
debenture.............. -- -- -- 12,500 15 -- 15
Grant in August 1998 of
75,000 common stock op-
tions at $.10 per
share.................. -- -- -- -- 180 -- 180
Grant in August 1998 of
12,000 common stock op-
tions at $1.25 per
share.................. -- -- -- -- 15 -- 15
Issuance in November and
December 1998 of 8%
convertible preferred
stock at $2.50 per
share, net of issuance
costs of $621.......... 1,575,000 3,317 -- -- -- -- 3,317
Subscriptions to 543,948
shares of preferred
stock, net of issuance
costs of $177.......... -- -- 1,183 -- -- -- 1,183
Preferred stock divi-
dend................... -- -- -- -- -- (14) (14)
Imputed interest on
advances from
stockholders........... -- -- -- -- 22 -- 22
Net loss................ -- -- -- -- -- (2,328) (2,328)
--------- ------ ------- --------- ---- ------- ------
Balances at December 31,
1998................... 1,575,000 $3,317 $ 1,183 3,473,270 $628 $(2,403) $2,725
Issuance in January 1999
of 8% convertible pre-
ferred stock at $2.50
per share, net of issu-
ance costs of $116..... 750,000 1,582 (1,183) -- -- -- 399
Issuance in January 1999
of restricted stock as
compensation for direc-
tors................... -- -- -- 30,000 19 -- 19
Grant in January 1999 of
73,875 common stock op-
tions at $1.25 per
share.................. -- -- -- -- 5 -- 5
Grant in February 1999
of 10,000 common stock
options at $2.50 per
share.................. -- -- -- -- 2 -- 2
Grant in March 1999 of
25,000 common stock op-
tions at $2.50 per
share.................. -- -- -- -- 9 -- 9
Grant in March 1999 of
15,000 common stock op-
tions at $1.25 per
share.................. -- -- -- -- 1 -- 1
Issuance of shares in
March 1999 in
satisfaction of
services rendered...... -- -- -- 12,500 31 -- 31
Preferred stock divi-
dend................... -- -- -- -- -- (110) (110)
Net loss................ -- -- -- -- -- (1,956) (1,956)
--------- ------ ------- --------- ---- ------- ------
Balances at March 31,
1999 (unaudited)....... 2,325,000 $4,899 -- 3,515,770 $695 $(4,469) $1,125
========= ====== ======= ========= ==== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
NETIVATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION THREE MONTHS
(SEPTEMBER 26, (SEPTEMBER 26, ENDED MARCH 31,
1997) TO 1997) TO YEAR ENDED ----------------
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1998 1998 1999
----------------- ----------------- ----------------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net loss.............. $(2,389) $ (61) $(2,328) $ (196) $(1,956)
Adjustments to recon-
cile net loss to net
cash used by operat-
ing activities:
Depreciation........ 17 -- 17 1 8
Expense associated
with the issuance
of stock options... 586 -- 586 -- 1,082
Imputed interest on
advances from
stockholders....... 22 -- 22 -- --
Amortization of debt
discount........... 131 -- 131 7 49
Changes in assets and
liabilities:
Prepaids and other.. (35) -- (35) (54) (664)
Accounts payable.... 172 13 159 2 222
Accrued expenses.... 177 -- 177 20 (127)
------- ----- ------- ------ --------
Net cash used by
operating activi-
ties............. (1,319) (48) (1,271) (220) (1,386)
------- ----- ------- ------ --------
Cash flows from invest-
ing activities:
Purchase of equipment
and furniture........ (87) (10) (77) (4) (65)
Purchase of short-
term investments..... (880) -- (880) -- --
------- ----- ------- ------ --------
Net cash used by in-
vesting activities.... (967) (10) (957) (4) (65)
------- ----- ------- ------ --------
Cash flows from financ-
ing activities:
Proceeds from 8% con-
vertible note pay-
able to stockhold-
er................... 550 -- 550 550 --
Repayment of 8% Con-
vertible note pay-
able................. -- -- -- -- (550)
Proceeds from ad-
vances from stock-
holders.............. 189 -- 189 -- --
Repayment of advances
from stockholders.... (94) -- (94) -- (95)
Proceeds from sale of
8% preferred stock... 3,938 -- 3,938 -- 1,582
Preferred stock of-
fering costs......... (621) -- (621) -- --
Issuance of common
stock for cash....... 231 105 126 126 --
Repayment of other
long-term liabili-
ties................. -- -- -- -- (8)
------- ----- ------- ------ --------
Net cash provided by
financing activi-
ties............... 4,193 105 4,088 676 929
------- ----- ------- ------ --------
Net increase (decrease)
in cash and cash
equivalents........... 1,907 47 1,860 452 (522)
Cash and cash equiva-
lents at beginning of
period................ -- -- 47 47 1,907
------- ----- ------- ------ --------
Cash and cash equiva-
lents at end of peri-
od.................... $ 1,907 $ 47 $ 1,907 $ 499 $ 1,385
======= ===== ======= ====== ========
Supplemental cash flow
disclosures:
Income taxes paid..... $ -- $ -- $ -- -- --
Interest paid......... $ 33 $ -- $ 33 -- $ 14
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
NETIVATION.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
(Dollars in thousands, except per share data)
(Information relating to the three months ended March 31, 1999 and 1998 is
unaudited)
NOTE 1--ORGANIZATION AND DESCRIPTION OF BUSINESS
Netivation.com, Inc. ("Netivation" or the "Company"), a Delaware
corporation, formerly named Nelloro Corporation (Nelloro), was originally
formed in 1993 for the purposes of acquiring interests in mineral properties.
The Company commenced its current operations after acquiring the technology
developed by the existing management team in exchange for 2,500,000 shares of
Nelloro common stock on September 26, 1997. No value was assigned to the
technology as it had no net book value at the time of the transaction and the
common stock was deemed to have minimal value. The transaction has been
accounted for as a reverse acquisition with Netivation as the acquiror.
Netivation's existing business operations commenced upon the acquisition of the
technology. Therefore, historical financial statements prior to September 26,
1997 are not presented. Additionally pro forma financial information for
Nelloro is not presented as the assets and results of operations for Nelloro
were not significant.
The company was formed to develop, design and market software and websites
focused on topic specific internet communities. These communities, known as
vertical portals, are for individuals, groups and businesses sharing a common
interest. The company's activities to date have been primarily related to
organization, raising capital, personnel recruitment, marketing studies, and
the research and development of the company's Votenet.com and Medinex.com
websites, the Governet software product for campaign finance management and the
Medinex software product for back office software support for physician
practices.
The company is in the development stage, has yet to generate any revenues
and has no assurance of future revenues. The company is subject to the risks
and challenges associated with other companies at a similar stage of
development including dependence on key individuals, successful development and
marketing of its products and services, the acceptance of the Internet as a
medium for advertising, competition from substitute services and larger
companies with greater financial, technical, management and marketing
resources. Further, during the period required to develop commercially viable
products, services and sources of revenues, the company may require additional
funds that may not be readily available to it.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Data
The unaudited interim financial statements as of March 31, 1999 and for the
three months ended March 31, 1998 and 1999 have been prepared on the same basis
as the audited financial statements and, in the opinion of management, include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial information set forth therein, in accordance with
generally accepted accounting principles. The Company believes that the results
of operations for the three months ended March 31, 1999 are not necessarily
indicative of the results to be expected for any future period.
F-7
<PAGE>
NETIVATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Stock Split and Reincorporation
On May 17, 1999, the company effected a one-for-two reverse split of its
common and preferred stock and reincorporate in Delaware. All share and per
share amounts in the accompanying financial statements have been adjusted
retroactively to give effect to this reverse stock split.
Loss Per Share
In accordance with SFAS No. 128, "Computation of Earnings Per Share," basic
earnings per share is computed by dividing net loss available to common stock
(net loss less preferred stock dividend requirements) by the weighted average
number of shares of common stock outstanding during the period. Dilutive
earnings per share is computed by dividing net loss by the weighted average
number of common and dilutive common equivalent shares outstanding during the
period. Common equivalent shares consist of the shares of common stock issuable
upon the conversion of the convertible preferred stock (using the if-converted
method) and shares issuable upon the exercise of stock options and warrants
(using the treasury stock method); common equivalent shares are excluded from
the calculation if their effect is antidilutive. The company has not had any
issuances or grants for nominal consideration as defined under Staff Accounting
Bulletin 98.
Diluted net loss per share for all periods shown does not include the
effects of the convertible preferred stock and shares issuable upon the
exercise of stock options and warrants as the effect of their inclusion is
antidilutive during each period.
Pro forma basic and diluted net loss per share is computed based on the
weighted average number of shares of common stock outstanding giving effect to
the conversion of convertible preferred stock outstanding as of December 31,
1998 and March 31, 1999 that will automatically convert upon completion of the
company's initial public offering (using the if-converted method from the
original issuance date). Pro forma diluted net loss per share excludes the
impact of stock options and warrants as the effect of their inclusion would be
antidilutive.
Cash Equivalents
The company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Short-Term Investments
Short-term investments consist of U.S. treasury bills with a maturity date
of July 1999. The company classifies short-term investments as available for
sale under Statement of Financial Accounting Standards No. 115. The short-term
investments are carried at fair value, with unrealized holding gains and losses
reported as a separate component of stockholders' equity. As the short-term
investments were acquired on December 31, 1998, there were no unrealized
holding gains or losses during the year ended December 31, 1998.
Advertising Costs
The cost of advertising is expensed as incurred. During the periods ending
December 31, 1997 and 1998, the company incurred advertising expense of $0 and
$50, respectively.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services.
F-8
<PAGE>
NETIVATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The company's accounting policy is to capitalize eligible computer software
development costs upon the establishment of technological feasibility, which
the company has defined as a completion of a working model. For the periods
ended December 31, 1997 and 1998, the amount of eligible costs to be
capitalized has not been material and accordingly, the company has charged all
software development costs to product development in the accompanying
statements of operations.
Income Taxes
The company recognizes deferred income tax assets and liabilities for the
expected future income tax consequences, based on enacted laws, of temporary
differences between the financial reporting and tax bases of assets,
liabilities and tax carryforwards. Deferred tax assets are then reduced, if
deemed necessary, by a valuation allowance for the amount of any tax benefits
which, more likely than not based on current circumstances, are not expected to
be realized.
Stock-Based Compensation
The company has adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS 123, the company
applies Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plan.
Equipment and Furniture
Equipment and furniture are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and repairs that
do not increase the useful life of the assets are expensed as incurred.
Depreciation is determined using the straight-line method over the expected
useful lives of the assets which range from three to five years.
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by this prospectus is consummated, all of the
preferred stock outstanding and subscribed to as of the closing date will
automatically be converted into an aggregate of 2,325,000 shares of common
stock. Unaudited pro forma stockholders' equity at March 31, 1999, as adjusted
for the conversion of preferred stock, is presented in the accompanying balance
sheet.
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 is effective for
financial statements for years beginning after December 15, 1998. SOP 98-1
provides guidance over accounting for computer software developed or obtained
for internal use including the requirement to capitalize specified costs and
amortization of such costs. The implementation of SOP 98-1 is not expected to
have a material impact on the company's financial position or results of
operations.
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-Up
Activities." SOP 98-5, which is effective for fiscal years beginning after
December 15, 1998, provides guidance on the financial reporting of start-up
costs and organization costs. It requires costs of start up activities and
organization costs to be expensed as incurred. The implementation of SOP 98-5
is not expected to have a material impact on the company's financial position
or results of operations.
F-9
<PAGE>
NETIVATION.COM, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3--FEDERAL INCOME TAXES
The company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception. The
company's total tax net operating loss carryforwards were approximately $1,800
at December 31, 1998 which expire between 2012 and 2018. The significant
components of the deferred tax asset at December 31, 1997 and 1998, were as
follows:
<TABLE>
<CAPTION>
1997 1998
---- -----
<S> <C> <C>
Net operating loss carryforward................................. $ 21 $ 609
Stock compensation.............................................. -- 199
---- -----
Deferred tax asset.............................................. 21 808
Deferred tax asset valuation allowance.......................... (21) (808)
---- -----
$-- $ --
==== =====
</TABLE>
The valuation allowance on deferred tax assets increased by $21 and $787
during 1997 and 1998, respectively.
In accordance with certain provisions of the Internal Revenue Code, as
amended, a change in ownership of greater than 50% of a company within a three
year period results in an annual limitation on the company's ability to utilize
its net operating loss ("NOL") carryforwards from tax periods prior to the
ownership change. Such a change in ownership occurred with respect to the
company in December 1997. Accordingly, at December 31, 1998, use of NOL
carryforwards is restricted to annual amounts of approximately $900 which
accumulate to the extent not used and are subject to the expiration of these
carryforwards. Any future significant changes in ownership interests could
further limit the NOL carryforward.
NOTE 4--DEBT
Convertible Note Payable to Stockholder
At December 31, 1998, the company had an 8% convertible note (the "Note")
with a principal balance of $550, and accrued interest payable quarterly. The
Note was due on March 16, 1999, and was paid in full by the company in January
1999. The company issued 137,500 shares of the company's common stock to the
lender in connection with the granting of the loan in March 1998 and issued an
additional 12,500 shares of common stock in July 1998 in exchange for a
modification of the escrow requirements. The fair market value of these shares
at the date of issuance has been reflected as a debt discount in the
accompanying financial statements and is being accreted to interest expense
over the original one year life of the agreement, using the effective interest
rate method.
As of December 31, 1998, the unamortized debt discount on the Note was $49.
Amortization expense related to the debt discount was $131 for the year ended
December 31, 1998.
Advances From Stockholders
During 1998, the company obtained advances totaling $189 from principal
stockholders for working capital purposes. These loans were payable on demand.
The advances were non-interest bearing, and were not collateralized. Interest
totaling $22 was imputed on these advances based on an effective interest rate
consistent with the convertible note payable discussed above. The balance of
these advances to stockholders at December 31, 1998 was $95. In January 1999,
all advances were paid in full by the company.
F-10
<PAGE>
NETIVATION.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
NOTE 5--STOCKHOLDERS' EQUITY
Convertible Preferred Stock
In January 1999 the company increased the authorized amount of preferred
stock to 3,500,000 shares, with a par value of $.01. Shares of preferred stock
may be issued from time to time in one or more series, with designations,
rights, preferences and limitations established by the company's board of
directors (the Board of Directors).
The company has designated shares of preferred stock as Series A Convertible
preferred stock (Series A). Holders of Series A are entitled to annual
dividends at 8% of the original issue price of the shares held. No
distributions may be made to holders of common stock until all cumulative
dividends on Series A have been paid.
If the net profits in any year are not sufficient to pay this dividend,
either in whole or in part, then any unpaid portion of the dividend will become
a charge against the net profits of the company, and will be paid in full out
of the net profits of the company in subsequent years before any dividends are
paid on the common stock of the company in those years. For a period of three
(3) years from the issue date at the company's option, the company may satisfy
any accrued preferred stock dividend, or portion thereof, with preferred stock
in lieu of cash. After three (3) years from the date hereof, if the company has
a positive cash flow in sufficient amount to pay accrued preferred stock
dividends, ("Sufficient Positive Cash Flow"), then any accrued preferred stock
dividend will be payable in cash. If, after three (3) years from the date
hereof, the company does not have Sufficient Positive Cash Flow, then any
accrued preferred stock dividend will be payable in preferred stock. To account
for the preferred stock dividend, the company has recorded $14 as a charge to
deficit accumulated in the development stage in the accompanying 1998 statement
of stockholders' equity.
The shares of preferred stock are not entitled to vote at meetings of the
stockholders of the company and are not entitled to participate in the profits
of the company beyond the fixed, preferential annual dividend provided herein.
Each share of Series A is convertible, at the option of the holder, into one
half share of common stock, subject to adjustment to prevent dilution. Each
share of Series A is automatically convertible into common stock upon the
closing of a public offering or other change in control that meets certain
conditions.
During 1998, the company issued 1,575,000 shares of Series A preferred stock
and received subscriptions for 543,948 shares of Series A preferred stock at
$2.50 per share. The cash from these subscriptions was received in January
1999. The company has reflected these subscriptions receivable in the
accompanying financial statements net of offering costs.
In January 1999, the company received net proceeds of approximately $450
related to the sale of an additional 206,052 shares of Series A preferred
stock.
Stock Option Plan
In July 1998, the stockholders and Board of Directors approved a
Nonqualified Stock Option and Restricted Stock Plan (the Plan). In March 1999,
the company amended and restated this plan as the 1999 Equity Incentive Plan.
The Board of Directors has the authority to determine all matters relating to
incentive and non-qualified stock options and restricted stock to be granted
under the Plan, including the selection of individuals to be granted options,
number of shares to be subject to each option, the exercise price and the term
F-11
<PAGE>
NETIVATION.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
and vesting period, if any. Options generally vest over periods ranging up to
five years and have lives up to ten years from date of grant. Options
outstanding at December 31, 1998 have an average remaining contractual life of
4.6 years. At December 31, 1998, exercise prices ranged from $.03 to $2.50 per
share.
The following table summarizes the company's stock option activity:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance at December 31, 1997........................ -- --
Options granted................................... 274,500 $.66
------- ----
Balance at December 31, 1998........................ 274,500 $.66
======= ====
</TABLE>
The company had reserved a total of 750,000 shares of common stock for
issuance to its stock option holders under the plan and had 675,500 shares
available for future grant.
Stock options exercisable were 274,500 at December 31, 1998. The following
table summarizes information about all stock options, including those issued
outside of the Plan, outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------
Weighted-
Average Weighted Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Outstanding Price
-------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .03 125,000 Indefinite $ .03 125,000 $ .03
$ .10 75,000 4.6 .10 75,000 .10
$1.25 12,000 4.6 1.25 12,000 1.25
$2.50 62,500 4.6 2.50 62,500 2.50
</TABLE>
Under APB 25, the company records compensation expense over the vesting
period for the difference between the exercise price and the deemed fair market
value for financial reporting purposes of stock options granted. In conjunction
with grants made in 1998, the company recorded $586 as stock compensation
expense in the accompanying 1998 statement of operations.
The company has adopted the disclosure-only provisions of SFAS No. 123. Had
compensation expense been recognized on stock options issued based on the fair
value of the options at the date of grant and recognized over the vesting
period, the company's net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Net loss:
As reported...................................... $ (61) $(2,328)
Pro forma........................................ $ (61) $(2,342)
Basic and diluted loss per share:
As reported...................................... $(.02) $ (.69)
Pro forma........................................ $(.02) $ (.67)
</TABLE>
F-12
<PAGE>
NETIVATION.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
The weighted average grant date fair value of options granted in 1998 was
$1.93. The fair value of each option grant is estimated on the date of grant
using the fair value based method prescribed by SFAS No. 123 for private
companies, which considers only the time value of money. Assumptions used for
the grants were: expected life of three years, risk free interest rate of 5.5%
and no dividend yield.
Stock Options Issued Outside of the Plan
In June 1998, the company issued an option to purchase 125,000 shares
(option shares) of common stock at a price of three cents ($.03) per share in
exchange for consulting services. These options are fully vested and have no
expiration date. The optionee has the right to tender all of its option shares
back to the company for cash and notes payable five years from the date of the
original grant. The price to repurchase the option shares is equal to the
number of shares multiplied by the fair market value of the underlying common
stock, multiplied by 1.25. The right to tender the option shares back to the
company will expire if the company's stock becomes publicly traded. As the
measurement date is not known until a public offering is consummated or the
right to tender shares expires, the company has recorded $391 as stock
compensation expense in the accompanying 1998 statement of operations and as a
long-term liability in the accompanying balance sheet as of December 31, 1998
based on the difference between the exercise price of the option and the
estimated underlying fair market value of the common stock at December 31,
1998.
In August 1998, the company issued an option to purchase 75,000 shares of
common stock at a price of ten cents ($.10) per share in exchange for
consulting services. The company has recorded stock compensation expense of
$180 in the accompanying statement of operations based on the fair market value
of the stock option on the date of the grant.
Employee Stock Purchase Plan
In March 1999, the board adopted the 1999 Employee Stock Purchase Plan, to
provide employees of the company and its affiliates with an opportunity to
purchase common stock through payroll deductions. The purchase plan will
terminate at the board's discretion.
Under the purchase plan, 500,000 shares of common stock have been reserved
for issuance.
The purchase plan is intended to qualify as an employee stock purchase plan
within the meaning of Section 423 of the Internal Revenue Code. The board may
authorize participation by eligible employees, including officers, in periodic
offerings following the adoption of the purchase plan. A new offering period
begins every 12 months. The board has currently authorized an offering
commencing on the effectiveness of an initial public offering of the company's
common stock and ending January 31, 2000, with sequential 12-month offerings
thereafter.
Stock Option and Restricted Stock Grants Subsequent to Year End
Subsequent to year end, the company's Board of Directors approved the
issuance of 204,375 options to purchase common stock priced at $1.25 to $2.50
per share. These options vest over terms ranging from three to five years, but
vesting may accelerate if certain revenue targets are achieved.
In addition, the company issued 30,000 shares of restricted stock to three
outside directors in exchange for services to be performed during 1999. The
shares of restricted stock are forfeited if the individuals are not directors
at December 31, 1999.
F-13
<PAGE>
NETIVATION.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Stock Warrants
In connection with the company's Series A preferred stock financing which
closed in January 1999, the company agreed to issue warrants to purchase
258,000 shares of Series A preferred stock at $2.50 per share. The warrants
expire in 2006.
Reserved for Future Issuance
The following common shares have been reserved for future issuance as of
December 31, 1998:
<TABLE>
<S> <C>
Series A convertible preferred stock............................. 1,750,000
Employee stock options........................................... 750,000
Warrants......................................................... 258,000
---------
2,758,000
=========
</TABLE>
NOTE 6--RELATED PARTY TRANSACTIONS
For the period ended December 31, 1997, two principal stockholders of the
company were entitled to receive base compensation totaling $42. These salaries
were not paid. Had the officers received their 1997 salary, it would have
increased loss per share by $.01 for the period ended December 31, 1997. (Also
see Note 4.)
NOTE 7--COMMITMENTS
Internet Access
In September 1998, the company entered into an agreement with a third party
for the provision of internet access and hosting services. This agreement
expires in September 1999. Under the terms of this agreement, the company is
obligated to pay a total of $12 per month.
Leases
The company has entered into noncancelable operating lease agreements
involving equipment and facilities through the year 2000. Rent expense totaled
$0 and $16 for the years ended December 31, 1997 and 1998, respectively. Future
minimum payments under the operating leases, as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999.................................................................. $21
2000.................................................................. 22
2001.................................................................. 6
---
Total minimum lease payments.......................................... $49
===
</TABLE>
NOTE 8--CONTINGENT ACQUISITIONS
In March 1999, the company entered into an agreement to acquire the
membership interest of The Online Medical Bookstore, LLC (Online) and the stock
of InterLink Services, Inc. (InterLink). The acquisitions will be completed
upon the effectiveness of an initial public offering of the company's common
stock.
The acquisitions will be accounted for by the purchase method of accounting.
Accordingly, the results of operations will be included with the results of
operations of the company for periods subsequent to the date of acquisition. In
connection with the acquisitions, the company made nonrefundable payments of
$75 to
F-14
<PAGE>
NETIVATION.COM, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Dollars in thousands, except per share data)
Online and $50 to InterLink. Should the company effect an initial public
offering, the company would issue shares of common stock valued at $1,929 to
Online and $1,264 to InterLink, based on the price obtained upon the
effectiveness of an initial public offering by the company. In addition, the
sole member of Online will also receive another cash payment totaling $175.
Goodwill from these acquisitions is estimated to be $3,475.
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Netivation.com, Inc.:
We have audited the accompanying balance sheets of The Online Medical
Bookstore, LLC, (a Delaware limited liability corporation) as of December 31,
1997 and 1998, and the related statements of operations, member's interests and
cash flows for the period from inception (May 1, 1997) to December 31, 1997 and
for the year ended December 31, 1998. 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 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 these financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Online Medical
Bookstore, LLC, as of December 31, 1997 and 1998 and the results of its
operations and its cash flows for the period from inception (May 1, 1997) to
December 31, 1997 and for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Seattle, Washington
February 4, 1999
(Except for the matter discussed in Note 4
for which the date is March 4, 1999)
F-16
<PAGE>
THE ONLINE MEDICAL BOOKSTORE, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------
1997 1998
------ -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $1,579 $53,937
Accounts receivable.......................................... -- 11,188
Other........................................................ -- 1,140
------ -------
Total current assets....................................... 1,579 66,265
Equipment and furniture, net................................... 1,800 3,091
------ -------
Total assets................................................... $3,379 $69,356
====== =======
LIABILITIES AND MEMBER'S INTERESTS
Current liabilities:
Accounts payable............................................. $ -- $68,394
Deferred revenue............................................. -- 2,683
Note payable to related party................................ 2,000 --
------ -------
Total current liabilities.................................. 2,000 71,077
Member's interests (deficit)
Contributed capital.......................................... 2,300 2,300
Accumulated deficit.......................................... (921) (4,021)
------ -------
Total member's interests (deficit)........................... 1,379 (1,721)
------ -------
Total liabilities and member's interests................... $3,379 $69,356
====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
THE ONLINE MEDICAL BOOKSTORE, LLC
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
(May 1, 1997) to Year Ended
December 31, December 31,
1997 1998
---------------- ------------
<S> <C> <C>
Revenues.......................................... $ -- $ 290,498
Cost of revenues.................................. -- (272,985)
----- ---------
-- 17,513
Expenses
General and administrative...................... 921 4,324
Sales and marketing............................. -- 1,000
----- ---------
Total operating expenses.......................... 921 5,324
----- ---------
Net income (loss) (Note 3)........................ $(921) $ 12,189
===== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
THE ONLINE MEDICAL BOOKSTORE, LLC
STATEMENTS OF MEMBER'S INTERESTS
<TABLE>
<CAPTION>
Contributed Accumulated
Capital Deficit Total
----------- ----------- --------
<S> <C> <C> <C>
Balance at inception (May 1, 1997)........... $ -- $ -- $ --
Net loss..................................... -- (921) (921)
Contribution of equipment.................... 2,300 -- 2,300
------ -------- --------
Balance at December 31,1997.................. 2,300 (921) 1,379
Net income................................... -- 12,189 12,189
Distributions to member...................... -- (15,289) (15,289)
------ -------- --------
Balance at December 31, 1998................. $2,300 $ (4,021) $ (1,721)
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
THE ONLINE MEDICAL BOOKSTORE, LLC
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Inception
(May 1, 1997) to
December 31, Year Ended
1997 December 31, 1998
--------------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ (921) $ 12,189
Adjustments to reconcile net loss to
net cash used by operating
activities:
Depreciation........................ 500 1,178
Changes in assets and liabilities:
Increase in accounts payable........ -- 68,394
Increase in deferred revenue........ -- 2,683
Increase in accounts receivable..... -- (11,188)
Increase in other assets............ -- (1,140)
------ --------
Net cash provided (used) by operating
activities.......................... (421) 72,116
------ --------
Cash flows from investing activities:
Purchase of equipment and furniture.. -- (2,469)
Cash flows from financing activities:
Distributions of cash................ -- (15,289)
Increase (decrease) in notes
payable............................. 2,000 (2,000)
------ --------
Net cash provided by financing
activities.......................... 2,000 (17,289)
------ --------
Net increase in cash and cash
equivalents......................... 1,579 52,358
Cash and cash equivalents at
beginning of period................. -- 1,579
------ --------
Cash and cash equivalents at end of
period.............................. $1,579 $ 53,937
====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
THE ONLINE MEDICAL BOOKSTORE, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1--ORGANIZATION AND DESCRIPTION OF BUSINESS
The Online Medical Bookstore, LLC (the "company"), a Delaware limited
liability corporation, was operated as a sole proprietorship by the company's
sole member from inception (May 1, 1997) to December 28, 1998. The company
converted to a limited liability corporation on December 28, 1998. During the
period from May 1997 through December 1997, the company was in its development
stage and its activities primarily related to the research, design and
development of the company's e-commerce website, discountmedbooks.com.
Discountmedbooks.com became commercially operational in January 1998 and sells
medical textbooks and certain supplies for medical students, physicians, nurses
and other healthcare providers via the Internet. (See Note 3)
The company is subject to the risks and challenges associated with other
companies at a similar stage of early operations including dependence on key
individuals, successful sales and marketing of products, the continued
acceptance of the Internet as a medium for purchasing goods and services. The
company is also subject to risks of competition from larger e-commerce Websites
and competition from companies with greater financial, technical, management
and marketing resources. Further, the company may require additional funds that
may not be readily available to it.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Income Taxes
The company passes through to the individual member all taxable income and
deductions of the company under income tax reporting regulations governing
limited liability corporations.
Equipment and Furniture
Equipment and furniture are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and repairs that
do not increase the useful life of the assets are expensed as incurred.
Depreciation of equipment and furniture is determined using the straight-line
method over the expected useful lives of the assets, which range from three to
five years.
Revenue Recognition
Revenues from product sales are generally recognized at the time of shipment
to the customer.
F-21
<PAGE>
THE ONLINE MEDICAL BOOKSTORE, LLC
NOTES TO FINANCIAL STATEMENTS--(Continued)
NOTE 3--RELATED PARTY TRANSACTIONS
The sole member of the company serves as the company's president and
performs substantially all management and operational functions of the company
at no charge to the company. The company occupies facilities and uses telephone
and other equipment that is rented or owned by the sole member of the company.
The company is not charged for the use of such facilities, telephone and other
equipment. A relative of the sole member of the company provided initial
financing through a note payable of $2,000 and provides administrative,
shipping and receiving services and customer service to the company at no cost
to the company. The company's e-commerce Website, discountmedbooks.com, was
researched, designed, developed and implemented by the company's sole member,
and the company was not charged for any time or materials related to making the
e-commerce Website operational. (See Note 4)
NOTE 4--ACQUISITION AGREEMENT
On March 4, 1999, the sole member of the company entered into an agreement
to sell all of his membership interests in the company to Netivation.com, Inc.
(Netivation) for $250,000 and common stock in Netivation valued at $1,929,000.
Upon signing the agreement, the member received $75,000 in cash, which is
nonrefundable. If the agreement is consummated, the sole member and the
relative discussed in Note 3 will be compensated through annual salaries
totaling $80,000, and stock options in Netivation. The sale is contingent upon
the effectiveness of an initial public offering of Netivation's common stock.
F-22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Netivation.com, Inc.:
We have audited the accompanying balance sheet of InterLink Services, Inc.
(a Washington corporation) as of December 31, 1998, and the related 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.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of InterLink Services, Inc. as
of December 31, 1998, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Seattle, Washington
March 10, 1999
F-23
<PAGE>
INTERLINK SERVICES, INC.
BALANCE SHEET
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 986
Accounts receivable ............................................... 26,252
--------
Total current assets............................................. 27,238
Equipment and furniture, net......................................... 24,225
--------
Total assets......................................................... $ 51,463
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 16,000
Accrued expenses................................................... 3,638
Line of credit..................................................... 11,198
--------
Total current liabilities........................................ 30,836
--------
Commitments (Note 5)
Stockholders' equity
Common stock and additional paid-in capital (par value $1.00,
authorized 50,000 shares; issued and outstanding, 12,750 shares).. 34,430
Accumulated deficit................................................ (13,803)
--------
Total stockholders' equity....................................... 20,627
--------
Total liabilities and stockholders' equity........................... $ 51,463
========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-24
<PAGE>
INTERLINK SERVICES, INC.
STATEMENT OF OPERATIONS
For The Year Ended December 31, 1998
<TABLE>
<S> <C>
Revenues............................................................. $328,705
Cost of revenues..................................................... 149,289
--------
Gross profit....................................................... 179,416
--------
Operating expenses
General and administrative......................................... 194,019
Sales and marketing................................................ 4,175
--------
Total operating expenses............................................. 198,194
--------
Loss before income taxes............................................. (18,778)
Provision for income taxes........................................... --
--------
Net loss......................................................... $(18,778)
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
INTERLINK SERVICES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For The Year Ended December 31, 1998
<TABLE>
<CAPTION>
Common Stock
and Additional
Paid- Retained
in Capital Earnings
-------------- (Accumulated
Shares Amount Deficit) Total
------ ------- ------------ -------
<S> <C> <C> <C> <C>
Balance, January 1, 1998................... 12,750 $34,430 $ 4,975 $39,405
Net loss................................. -- -- (18,778) (18,778)
------ ------- -------- -------
Balance, December 31, 1998................. 12,750 $34,430 $(13,803) $20,627
====== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-26
<PAGE>
INTERLINK SERVICES, INC.
STATEMENT OF CASH FLOWS
For The Year Ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss........................................................... $(18,778)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation..................................................... 14,400
Changes in operating assets and liabilities:
Accounts receivable............................................ (8,079)
Prepaid expenses and other current assets...................... 6,250
Accounts payable and accrued expenses.......................... (7,414)
--------
Net cash used by operating activities........................ (13,621)
--------
Cash flows from investing activities:
Purchases of computer equipment.................................... (6,244)
--------
Cash flows from financing activities:
Borrowings on line of credit....................................... 9,843
--------
Net decrease in cash and cash equivalents............................ (10,022)
Cash and cash equivalents, beginning of year......................... 11,008
--------
Cash and cash equivalents, end of year............................... $ 986
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE>
INTERLINK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. ORGANIZATION OF THE COMPANY AND NATURE OF OPERATIONS
InterLink Services, Inc., a Washington corporation (the "company"), was
incorporated in June 1995, and specializes in website design and hosting
services. These services include development of Internet application software,
software consulting services, and the design of working website pages primarily
for customers in the Pacific Northwest.
The company is subject to the risks and challenges associated with other
companies at a similar stage of development including dependence on key
individuals, successful sales and marketing of products, and competition from
companies with greater financial, technical, management and marketing
resources. Further, the company may require additional funds that may not be
readily available to it.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The company considers all highly liquid short-term investments with a
maturity of three months or less at the date of purchase to be cash
equivalents.
Equipment and Furniture
Equipment and furniture consist primarily of computer equipment and are
stated at cost less accumulated depreciation. Depreciation is computed using
the straight-line method over the estimated useful lives of three to five years
and totals $49,018 at December 31, 1998. Maintenance and repairs are expensed
as incurred. When properties are retired or otherwise disposed, gains and
losses are reflected in the income statement.
Revenue Recognition
The company's revenues are derived primarily from website design and hosting
services and are recognized as follows:
Time and Material Consulting Contracts--The company recognizes revenue
as services are rendered.
Fixed-Price Consulting Contracts--Revenue from fixed-price contracts is
recognized on the percentage-of-completion method, measured primarily by
output measures established in the specific contract. This method is used
as management considers output measures to be the best available measure of
contract performance.
Website Hosting--Revenue is recognized ratably over the service period.
Income Taxes
The company computes income taxes using the asset and liability method,
under which deferred income taxes are provided for the temporary differences
between the financial reporting basis and the tax basis of the
F-28
<PAGE>
INTERLINK SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
company's assets and liabilities. Deferred tax assets and liabilities are
measured using currently enacted tax rates that are expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled. A valuation allowance is established when necessary
to reduce deferred tax assets to the amounts expected to be realized.
3. INCOME TAXES
The company did not provide an income tax benefit for the period presented
because, based on a number of factors, there is sufficient uncertainty
regarding the realizability of carryforwards that a full valuation allowance
has been recorded against the net deferred tax asset. The company's total tax
net operating loss carryforwards were approximately $30,000 at December 31,
1998 which expire between 2011 and 2018. The significant components of the
deferred tax asset at December 31, 1998, were as follows:
<TABLE>
<S> <C>
Net operating loss carryforward..................................... $11,000
Cash to accrual adjustment.......................................... (8,000)
-------
Deferred tax asset.................................................. 3,000
Deferred tax asset valuation allowance.............................. (3,000)
-------
--
=======
</TABLE>
The valuation allowance on the deferred tax asset increased by $2,000 during
1998.
In accordance with certain provisions of the Internal Revenue Code, as
amended, a change in ownership of greater than 50% of a company within a three
year period results in an annual limitation on the company's ability to utilize
its net operating loss ("NOL") carryforwards from tax periods prior to the
ownership change.
4. BANK LINE OF CREDIT
On February 4, 1998, the company obtained a $15,000 revolving line of credit
from a financial institution to support working capital. The line of credit is
secured by substantially all of the company's assets, has been guaranteed by
certain stockholders and bears interest at the financial institution's index
rate plus 1.50% (9.0% at December 31, 1998). Interest is payable monthly. The
line of credit expires March 20, 1999.
5. COMMITMENTS
The company leases its office space under noncancelable operating leases
expiring December 31, 1999. Future minimum lease payments under noncancelable
operating leases at December 31, 1998, are $10,410.
Rental expense amounted to approximately $10,000 for the year ended December
31, 1998
6. ACQUISITION AGREEMENT
On March 9, 1999, the company entered into an agreement to sell its stock to
Netivation.com, Inc. (Netivation) for $50,000 and common stock in Netivation
valued at $1,264,000. Upon signing the agreement, the stockholders received
$50,000 in cash which is nonrefundable. The sale is contingent upon the
successful completion of an initial public offering of Netivation's common
stock.
F-29
<PAGE>
NETIVATION.COM, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The unaudited pro forma combined balance sheet of Netivation.com at March
31, 1999 gives effect to the acquisitions of The Online Medical Bookstore, LLC
and InterLink Services, Inc. as if they were consummated on March 31, 1999. The
unaudited pro forma combined statement of operations of Netivation.com for the
year ended December 31, 1998 and for the three months ended March 31, 1999
gives effect to the acquisition of The Online Medical Bookstore, LLC and
InterLink Services, Inc. as if they had been acquired on January 1, 1998.
The unaudited pro forma combined balance sheet and statement of operations
are presented for informational purposes only and do not purport to represent
what the company's financial position and results of operations for the year
ended December 31, 1998 or for the three months ended March 31, 1999 would
actually have been had the acquisitions, in fact, occurred on January 1, 1998,
or the company's results of operations for any future period. The unaudited pro
forma combined balance sheet and statement of operations should be read in
conjunction with the Financial Statements and related notes thereto included
elsewhere in this prospectus and the information set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
F-30
<PAGE>
NETIVATION.COM, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
THE
NETIVATION.COM, ONLINE MEDICAL INTERLINK PRO FORMA PRO FORMA
INC. BOOKSTORE, LLC SERVICES, INC. ADJUSTMENTS COMBINED TOTAL
--------------- -------------- -------------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and short-term
investments.......... $2,274 $ 35 $ 38 $ (175)(a)(b) $ 2,172
Accounts receivable... -- 3 25 -- 28
Prepaids and other.... 690 -- -- -- 690
Equipment and furni-
ture, net............ 151 3 22 -- 176
Intangible assets..... -- -- -- 3,418(a)(b) 3,418
------ ---- ---- ------ -------
Total assets......... $3,115 $ 41 $ 85 $3,243 $ 6,484
====== ==== ==== ====== =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and
accruals............. $ 568 $ 39 $ 12 $ -- $ 619
Other long term lia-
bilities............. 16 -- -- -- 16
Redeemable common
stock option......... 1,406 -- -- -- 1,406
------ ---- ---- ------ -------
Total liabilities..... 1,990 39 12 -- 2,041
------ ---- ---- ------ -------
Preferred stock......... 4,899 -- -- -- 4,899
Common stock and paid in
capital................ 695 2 84 3,232(a)(b)(c) 4,013
Deficit................. (4,469) -- (11) 11(c) (4,469)
------ ---- ---- ------ -------
Total stockholders'
equity............... 1,125 2 73 3,243 4,443
------ ---- ---- ------ -------
Total liabilities and
stockholders' equi-
ty.................. $3,115 $ 41 $ 85 $3,243 $ 6,484
====== ==== ==== ====== =======
</TABLE>
F-31
<PAGE>
NETIVATION.COM, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
The
Online Medical InterLink Pro Forma Pro Forma
Netivation.com, Inc. Bookstore, LLC Services, Inc. Adjustments Combined Total
-------------------- -------------- -------------- ----------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ -- $290 $ 329 $ -- $ 619
Cost of revenues................... -- (273) (149) -- (422)
--------- ---- ----- ------- ---------
Gross profit....................... -- 17 180 -- 197
Expenses
Operating expenses
General and administrative....... 837 4 194 123(e) 1,158
Sales and marketing.............. 551 1 4 -- 556
Stock compensation............... 586 -- -- -- 586
Product development.............. 171 -- -- -- 171
Amortization of intangible
assets.......................... -- -- -- 1,158(d) 1,158
--------- ---- ----- ------- ---------
Total operating expenses........... 2,145 5 198 1,281 3,629
--------- ---- ----- ------- ---------
Income (loss) from operations...... (2,145) 12 (18) (1,281) (3,432)
Interest expense................... (183) -- -- -- (183)
--------- ---- ----- ------- ---------
Income (loss) before income taxes.. (2,328) 12 (18) (1,281) (3,615)
Provision for income taxes......... -- -- -- -- --
--------- ---- ----- ------- ---------
Net (loss) income.................. $ (2,328) $ 12 $ (18) $(1,281) $ (3,615)
Preferred stock dividends ......... (14) -- -- -- (14)
--------- ---- ----- ------- ---------
Net income (loss) available to com-
mon stock......................... $ (2,342) $ 12 $ (18) $(1,281) $ (3,629)
========= ==== ===== ======= =========
Basic and diluted net loss per
share ............................ $ (.69) $ (.96)
========= =========
Weighted average shares outstanding
.................................. 3,417,377 3,772,155
========= =========
</TABLE>
F-32
<PAGE>
NETIVATION.COM, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the three months ended March 31, 1999
<TABLE>
<CAPTION>
The
Online Medical InterLink Pro Forma Pro Forma
Netivation.com, Inc. Bookstore, LLC Services, Inc. Adjustments Combined Total
-------------------- -------------- -------------- ----------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 82 $112 $ 76 $ -- $ 270
Cost of revenues................... -- (104) (30) -- (134)
--------- ---- ---- ----- ---------
Gross profit....................... 82 8 46 -- 136
Expenses
Operating expenses
General and administrative....... 246 4 41 31(e) 322
Sales and marketing.............. 423 -- 1 -- 424
Stock compensation............... 1,032 -- -- -- 1,032
Product development.............. 323 -- -- -- 323
Amortization of intangible
assets.......................... -- -- -- 290(d) 290
--------- ---- ---- ----- ---------
Total operating expenses........... 2,024 4 42 321 2,391
--------- ---- ---- ----- ---------
Income (loss) from operations...... (1,942) 4 4 (321) (2,255)
Interest expense................... (14) -- (2) -- (16)
--------- ---- ---- ----- ---------
Income (loss) before income taxes.. (1,956) 4 2 $(321) (2,271)
Provision for income taxes......... -- -- -- -- --
--------- ---- ---- ----- ---------
Net (loss) income.................. $ (1,956) $ 4 $ 2 $(321) $ (2,271)
Preferred stock dividends ......... (110) -- -- -- (110)
--------- ---- ---- ----- ---------
Net income (loss) available to com-
mon stock......................... $ (2,066) $ 4 $ 2 $(321) $ (2,381)
========= ==== ==== ===== =========
Basic and diluted net loss per
share ............................ $ (.59) $ (.62)
========= =========
Weighted average shares outstanding
.................................. 3,517,159 3,836,459
========= =========
</TABLE>
F-33
<PAGE>
NETIVATION.COM, INC.
NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEET AND STATEMENT OF OPERATIONS
March 31, 1999
(Dollars in thousands, except per share data)
1. BASIS OF PRESENTATION
The unaudited pro forma combined balance sheet gives effect to the
acquisitions of The Online Medical Bookstore, LLC and InterLink Services, Inc.
as if they were consummated on March 31, 1999. The pro forma adjustments are
based on consideration exchanged, including the estimated fair value of assets
acquired, liabilities assumed and common stock issued. The actual adjustments,
which will be based on valuations of fair value as of the date of acquisition,
may differ from that made herein.
The pro forma combined statement of operations for the year ended December
31, 1998 and for the three months ended March 31, 1999 gives effect to the
acquisition of (1) The Online Medical Bookstore, LLC and (2) InterLink
Services, Inc., as if these entities had been acquired January 1, 1998. As both
entities will be acquired subsequent to March 31, 1999 the results of
operations of Netivation for the year ended December 31, 1998 and for the three
months ended March 31, 1999 do not include any amounts related to these
acquisitions.
The pro forma combined financial statements are presented for illustrative
purposes only and should not be construed to be indicative of the actual
combined results of operations as may exist in the future. The pro forma
adjustments are based on the cash and common stock consideration exchanged by
Netivation for the fair value of the assets acquired and liabilities assumed.
The consummation of these acquisitions is dependent upon Netivation
effecting an initial public offering.
2. PRO FORMA ADJUSTMENTS
(a) To record the acquisition of The Online Medical Bookstore, LLC as
follows:
<TABLE>
<S> <C>
Purchase price.................................................... $ 2,179
Net assets acquired............................................... 2
-------
Purchase price allocated to goodwill.............................. $ 2,177
=======
</TABLE>
The purchase price of The Online Medical Bookstore, LLC is $250 in cash plus
$1,929 of Netivation's common stock based on the price of its common stock upon
the effectiveness of an initial public offering.
(b) To record the acquisition of InterLink Services, Inc. as follows:
<TABLE>
<S> <C>
Purchase price.................................................... $ 1,314
Net assets acquired............................................... 73
-------
Purchase price allocated to goodwill.............................. $ 1,241
=======
</TABLE>
The purchase price of InterLink Services, Inc. is $50 in cash plus $1,264 of
Netivation's common stock based on the price of its common stock upon the
effectiveness of an initial public offering.
(c) To eliminate the equity of the acquired businesses.
(d) To record annual and quarterly goodwill amortization totaling $1,158
and $290, respectively. Goodwill is amortized over three years.
(e) To record annual and quarterly salary expense totaling $123 and $31,
respectively, for key employees of acquired companies. This amount
represents compensation above historical levels and is $80 for The
Online Medical Bookstore, LLC and $43 for InterLink Services, Inc.
F-34
<PAGE>
[LOGO OF NETIVATION.COM, INC. APPEARS HERE]
CAPITOLWATCH.COM
GOVERNET.COM
MEDINEX.COM
VOTENET.COM
<PAGE>
[LOGO OF NETIVATION.COM, INC. APPEARS HERE]
2,500,000 Shares
Common Stock
-------------------------
PROSPECTUS
, 1999
-------------------------
EBI Securities Corporation
Millenium Financial Group, Inc.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Under Section 145 of the Delaware General Corporation Law, we have broad
powers to indemnify its directors and officers against liabilities they may
incur in such capacities, including liabilities under the Securities Act.
Our Certificate of Incorporation provides for the elimination of liability
for monetary damages for breach of the directors' fiduciary duty of care to the
company and its stockholders. These provisions do not eliminate the directors'
duty of care and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of nonmonetary relief will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the company, for acts
or omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for any transaction from which the director derived an
improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
does not affect a director's responsibilities under any other laws, such as the
federal securities laws or state or federal environmental laws.
We intend to enter into indemnity agreements with each of our directors and
executive officers pursuant to which we will indemnify each director and
executive officer against expenses and losses incurred for claims brought
against them by reason of their being a director or executive officer of the
company, and we plan to maintain directors' and officers' liability insurance.
The underwriting agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the underwriters of the company and
our officers and directors for certain liabilities arising under the Securities
Act or otherwise.
Item 25. Other Expenses Of Issuance And Distribution
The following table sets forth the costs and expenses, other than the
underwriting discounts, payable by the company in connection with the sale of
the common stock being registered hereby. All amounts shown are estimates,
except the SEC registration fee, the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 8,792.00
NASD filing fee................................................. 3,663.00
Nasdaq National Market listing application fee.................. 5,000.00
Blue Sky fees and expenses...................................... 10,000.00
Printing and engraving expenses................................. 125,000.00
Legal fees and expenses......................................... 300,000.00
Accounting fees and expenses.................................... 200,000.00
Transfer Agent and Registrar fees............................... 10,000.00
Miscellaneous expenses.......................................... 87,545.00
-----------
Total......................................................... $750,000.00
===========
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1996, the company has issued and sold unregistered
securities as follows:
1. During the period, the company authorized the grant of stock options to
employees, consultants, directors and officers of the company as provided
below:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE PER
DATE GRANTS SHARE
---- --------- ---------
<S> <C> <C>
June 1998................................................ 125,000 $0.03
August 1998.............................................. 75,000 $0.10
August 1998.............................................. 12,000 $1.25
August 1998.............................................. 62,500 $2.50
January 1999............................................. 77,625 $1.25
January 1999............................................. 76,750 $2.50
February 1999............................................ 10,000 $2.50
March 1999............................................... 15,000 $1.25
March 1999............................................... 25,000 $2.50
------- -----
478,875
=======
</TABLE>
2. During the period January 1, 1996 through December 31, 1997, the company
issued an aggregate of 102,500 shares of stock to directors of the company for
their services as directors.
3. During the period January 1, 1996 through December 31, 1997, the company
issued an aggregate of 162,500 shares of stock to consultants of the company
for their services.
4. On September 27, 1997, the company issued an aggregate of 2,500,000
shares to five investors in consideration for the transfer of technology and
services to the company. No value was assigned to the technology as it had no
cost basis and the common stock was deemed to have minimal value.
5. On October 24, 1997 the company sold 150,000 shares of its stock at a
cash price of $.70 per share to one accredited investor.
6. In February 1998, the company issued 105,000 shares of its stock at a
cash price of $1.20 per share to six accredited investors.
7. In March and July 1998, the company issued an aggregate of 150,000 shares
of its stock to one foreign accredited investor in consideration of its
entering into a bridge loan with the company.
8. In March 1999, the company issued to employees and directors of the
company an aggregate of 42,500 shares of stock pursuant to its 1999 Equity
Incentive Plan.
9. Commencing in November 1998 and ending in January 1999, the company sold
an aggregate of 2,325,000 shares of its Series A Preferred Stock at a purchase
price of $2.50 per share to accredited investors.
10. In January 1999, the company sold warrants to purchase an aggregate of
258,000 shares of its stock at an exercise price of $2.50 per share to 22
accredited and nonaccredited investors.
The sales and issuance of securities in the transactions described in
paragraphs (1) and (8) above were deemed to be exempt from registration under
the Securities Act by virtue of Rule 701 promulgated thereunder in that they
were offered and sold either pursuant to written compensatory benefit plans or
pursuant to a written contract relating to compensation, as provided by Rule
701.
II-2
<PAGE>
The issuances of securities in the transactions described in paragraphs (2),
(5), and (7) above were deemed exempt under the Securities Act by virtue of
Section 4(2) thereof and/or Regulation D, Rule 505 or 506. The purchasers were
all accredited investors as defined in Rule 501, the offering price of the
securities did not exceed $1,000,000, and information regarding the company was
delivered or available to purchasers. In addition, paragraph (7) qualifies
under Regulation S of the Securities Act.
The issuance of securities in the transactions described in paragraphs (3)
and (4) above were deemed to be exempt from registration under the Securities
Act by virtue of Section 4(2). The purchasers in paragraph (3) were consultants
who were sophisticated, experienced and knowledgeable about the company. The
purchasers in paragraph (4) were sophisticated and experienced individuals who
contributed the technology to the company or individuals who became employees
of the company and then received stock from the company.
The issuances of securities in the transactions described in paragraph (6)
above were deemed exempt under the Securities Act by virtue of Section 4(2)
thereof and/or Regulation D, Rule 504, 505 or 506. The purchasers were all
accredited investors as defined in Rule 501, the offering price of the
securities did not exceed $1,000,000, and information regarding the company was
delivered or available to purchasers.
The issuance of securities in the transactions described in paragraphs (9)
and (10) above were deemed to be exempt from registration under the Securities
Act by virtue of Regulation D, Rule 506. The investors, although not all
accredited investors, were sophisticated and knowledgeable and received
information about the company. EBI Securities Corporation was involved in these
transactions as the underwriter.
II-3
<PAGE>
Item 27. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Underwriting Agreement.
2.1* Agreement and Plan of Merger, dated as of March 4, 1999, among
Netivation.com, The Online Medical Bookstore, Inc., The Online
Medical Bookstore, LLC and Dr. Daniel Kraft.
2.2* Agreement and Plan of Merger, dated as of March 9, 1999, among
Netivation.com, Netivation Acquisition Company, Inc., InterLink
Services, Inc. and the other parties named therein.
3(i).1* Articles of Incorporation of Netivation.com, as amended, as
filed with the Secretary of State of the State of Nevada.
3(i).2* Certificate of Incorporation, as filed with the Secretary of
State of the State of Delaware.
3(i).3* Form of Restated Certificate of Incorporation, to be effective
upon the closing of this offering.
3(ii).1* Nevada Bylaws of Netivation.com.
3(ii).2* Delaware Bylaws.
3(ii).3* Form of Restated Bylaws, to be effective upon the closing of
this offering.
4.1* Reference is made to Exhibits 3(i).1 through 3(ii).3.
4.2 Specimen stock certificate representing shares of common stock
of Netivation.com.
4.3 Warrant for the purchase of Common Stock to be issued to the
representatives upon the closing of this offering.
5.1 Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1* 1999 Equity Incentive Plan.
10.2* 1999 Employee Stock Purchase Plan.
10.3* Irrevocable Non-Qualified Option Agreement, dated as of June 25,
1998, between Netivation.com and Idaho Consulting
International, as amended.
10.4* Form of Restricted Stock Purchase Agreement.
10.5* Form of Indemnity Agreement.
10.6* Executive Employment Agreement, effective January 1, 1999,
between Netivation.com and Anthony J. Paquin.
10.7* Executive Employment Agreement, effective January 1, 1999,
between Netivation.com and Gary S. Paquin.
10.8* Executive Employment Agreement, effective February 25, 1999,
between Netivation.com and Lawrence L. Burch.
10.9* Executive Employment Agreement, effective January 1, 1999,
between Netivation.com and David C. Paquin.
10.10* Office Lease Agreement, as amended, dated October 27, 1997,
between Netivation.com and Parkwood Business Properties, Inc.
10.11* Subscription Agreement among Netivation.com and the investors
named therein.
10.12* Form of Warrant to Purchase Shares of Preferred Stock.
10.13 Forms of Lock-up Agreement between the representatives and
certain of the stockholders of Netivation.com.
21.1 Statement re: subsidiaries of Netivation.com.
23.1 Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2* Consent of Moffatt, Thomas, Barrett, Rock & Fields, Chartered.
23.4 Consent of Arthur Andersen LLP, Independent Public Accountants.
24.1* Power of Attorney. Reference is made to II-5.
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
II-4
<PAGE>
All schedules are omitted because they are inapplicable or the requested
information is shown in the consolidated financial statements of the registrant
or related notes thereto.
Item 28. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
The small business issuer will provide to the underwriters at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
The undersigned small business issuer hereby undertakes to:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the small business issuer pursuant to Rule
424(b)(1), or (4), or 497(h) under the Securities Act as part of this
Registration Statement as of the time the Commission declared effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the Registration
Statement, and that offering of such securities at that time as the initial
bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this Amendment No. 1 to the Registration Statement to be signed on its behalf
by the undersigned, in the City of Coeur d'Alene, State of Idaho, on the 18th
day of May, 1999.
NETIVATION.COM, INC.
/s/ Anthony J. Paquin
By: _________________________________
Anthony J. Paquin
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Anthony J. Paquin Chairman of Board of May 18, 1999
______________________________________ Directors, President and
Anthony J. Paquin Chief Executive Officer
(Principal Executive
Officer)
/s/ Gary S. Paquin* Chief Marketing Officer, May 18, 1999
______________________________________ Secretary and Director
Gary S. Paquin
/s/ Lawrence L. Burch* Chief Financial Officer May 18, 1999
______________________________________ and Treasurer (Principal
Lawrence L. Burch Financial and Accounting
Officer)
/s/ Douglas K. Carnahan* Director May 18, 1999
______________________________________
Douglas K. Carnahan
/s/ T.A. Wahlin* Director May 18, 1999
______________________________________
T.A. (Drew) Wahlin
/s/ Donna L. Weaver* Director May 18, 1999
______________________________________
Donna L. Weaver
*By: /s/ Anthony J. Paquin
______________________________________
Anthony J. Paquin
Attorney-In-Fact
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1 Underwriting Agreement.
2.1* Agreement and Plan of Merger, dated as of March 4, 1999, among
Netivation.com, The Online Medical Bookstore, Inc., The Online
Medical Bookstore, LLC and Dr. Daniel Kraft.
2.2* Agreement and Plan of Merger, dated as of March 9, 1999, among
Netivation.com, Netivation Acquisition Company, Inc., InterLink
Services, Inc. and the other parties named therein.
3(i).1* Articles of Incorporation of Netivation.com, as amended, as
filed with the Secretary of State of the State of Nevada.
3(i).2* Certificate of Incorporation, as filed with the Secretary of
State of the State of Delaware.
3(i).3* Form of Restated Certificate of Incorporation, to be effective
upon the closing of this offering.
3(ii).1* Nevada Bylaws of Netivation.com.
3(ii).2* Delaware Bylaws.
3(ii).3* Form of Restated Bylaws, to be effective upon the closing of
this offering.
4.1* Reference is made to Exhibits 3(i).1 through 3(ii).3.
4.2 Specimen stock certificate representing shares of common stock
of Netivation.com.
4.3 Warrant for the purchase of Common Stock to be issued to the
representatives upon the closing of this offering.
5.1 Opinion of Cooley Godward LLP regarding the legality of the
securities being registered.
10.1* 1999 Equity Incentive Plan.
10.2* 1999 Employee Stock Purchase Plan.
10.3* Irrevocable Non-Qualified Option Agreement, dated as of June 25,
1998, between Netivation.com and Idaho Consulting
International, as amended.
10.4* Form of Restricted Stock Purchase Agreement.
10.5* Form of Indemnity Agreement.
10.6* Executive Employment Agreement, effective January 1, 1999,
between Netivation.com and Anthony J. Paquin.
10.7* Executive Employment Agreement, effective January 1, 1999,
between Netivation.com and Gary S. Paquin.
10.8* Executive Employment Agreement, effective February 25, 1999,
between Netivation.com and Lawrence L. Burch.
10.9* Executive Employment Agreement, effective January 1, 1999,
between Netivation.com and David C. Paquin.
10.10* Office Lease Agreement, as amended, dated October 27, 1997,
between Netivation.com and Parkwood Business Properties, Inc.
10.11* Subscription Agreement among Netivation.com and the investors
named therein.
10.12* Form of Warrant to Purchase Shares of Preferred Stock.
10.13 Forms of Lock-up Agreement between the representatives and
certain of the stockholders of Netivation.com.
21.1 Statement re: subsidiaries of Netivaiton.com.
23.1 Consent of Cooley Godward LLP (included in Exhibit 5.1).
23.2* Consent of Moffatt, Thomas, Barrett, Rock & Fields, Chartered.
23.4 Consent of Arthur Andersen LLP, Independent Public Accountants.
24.1* Power of Attorney. Reference is made to II-5.
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
<PAGE>
EXHIBIT 1.1
NETIVATION.COM, INC.
2,500,000 Shares/1/
Common Stock
UNDERWRITING AGREEMENT
----------------------
_________ , 1999
EBI Securities Corporation
2049 Century Park Lane
Suite 3310
Los Angeles, CA 90067
Millennium Financial Group, Inc.
235 West 56th Street, Suite 37E
New York, New York 10019
As Representatives of the Several Underwriters
Dear Sirs:
Netivation.com, Inc., a Delaware corporation (the "Company"), hereby
confirms its agreement with the several underwriters named in Schedule 1 hereto
(the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacity, the "Representatives"), as set forth below.
If you are the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained, the
----------
Company proposes to sell an aggregate of 2,500,000 shares to the several
Underwriters (the "Firm Securities") of the Company's Common Stock, $.01 par
value per share (the "Common Stock"). The Company also proposes to sell to the
several Underwriters not more than 375,000 additional shares of Common Stock
(15% of the Firm Securities to be sold by the Company) if requested by the
Representatives as provided in Section 3 of this Agreement. Any and all shares
of Common Stock to be purchased by the Underwriters pursuant to such option are
referred to herein as the "Option Securities." The Firm Securities and any
Option Securities are collectively referred to herein as the "Securities."
2. Representations and Warranties of the Company.
---------------------------------------------
(a) The Company represents and warrants to, and agrees with, each of
the several Underwriters that:
- ----------
/1/ Plus an option to purchase up to 375,000 additional shares to cover
over-allotments, if any.
<PAGE>
(i) A registration statement filed on Form SB-2 (File No.
333-74569) with respect to the Securities, including a prospectus
subject to completion, has been filed by the Company with the
Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and one or more
amendments to such registration statement may have been so filed.
After the execution of this Agreement, the Company will file with the
Commission either (A) if such registration statement, as it may have
been amended, has been declared by the Commission to be effective
under the Act, a prospectus in the form most recently included in an
amendment to such registration statement (or, if no such amendment
shall have been filed, in such registration statement), with such
changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act, and as have been provided to
and approved by the Representatives prior to the execution of this
Agreement, or (B) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under
the Act, an amendment to such registration statement, including a form
of prospectus, a copy of which amendment has been furnished to and
approved by the Representatives prior to the execution of this
Agreement. As used in this Agreement, the term "Registration
Statement" means the registration statement initially filed relating
to the Securities, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and
including any information omitted therefrom pursuant to Rule 430A
under the Act and included in the Prospectus (as hereinafter defined);
the term "Preliminary Prospectus" means each prospectus subject to
completion filed with such registration statement or any amendment
thereto (including the prospectus subject to completion, if any,
included in the Registration Statement or any amendment thereto at the
time it was or is declared effective); the term "Prospectus" means:
the prospectus first filed with the Commission pursuant to Rule 424(b)
under the Act; or if no prospectus is required to be filed pursuant to
Rule 424(b) under the Act, the prospectus included in the Registration
Statement;
(ii) The Commission has not issued or, to the best knowledge
of the Company, threatened or contemplated any order preventing or
suspending the use of any Preliminary Prospectus; no stop order
suspending the sale of the Securities in any jurisdiction has been
issued and no proceedings for that purpose are pending or, to the best
knowledge of the Company, threatened or contemplated, and any request
of the Commission for additional information (to be included in the
Registration Statement, any Preliminary Prospectus or the Prospectus
or otherwise) has been complied with. When the Prospectus or any
amendment or supplement to the Prospectus is filed with the Commission
pursuant to Rule 424(b) (or, if the Prospectus or any part thereof or
such amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such
amendment or supplement to the Prospectus was or is declared
effective) and on the Firm Closing Date and any Option Closing Date
(both as hereinafter defined), the Prospectus, as amended or
supplemented at any such time, (A) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the requirements
of, the Act and the rules and regulations of the Commission thereunder
and (B) did not or will not include any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements
2
<PAGE>
therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph
(ii) do not apply to statements or omissions made in the Registration
Statement or any amendment thereto or the Prospectus or any amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein;
(iii) The Company and its two subsidiaries at the Closing Date
(hereinafter defined), The Online Medical Bookstore, LLC and InterLink
Services, Inc. (the "Subsidiaries") have been duly organized and are
validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation and are duly qualified
to transact business as foreign corporations and are in good standing
under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their
respective businesses requires such qualification, except where the
failure to be so qualified does not result in a material adverse
change in the condition (financial or otherwise), business, prospects,
net worth or results of operations of the Company and its
Subsidiaries, taken as a whole (a "Material Adverse Effect");
(iv) The Company and its Subsidiaries have full power
(corporate and other) to own or lease their respective properties and
conduct their respective businesses as described in the Registration
Statement and the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus); the Company has
full power (corporate and other) and authority to enter into this
Agreement and to carry out all the terms and provisions hereof to be
carried out by it; and the Company has full power (corporate and
other) and authority to execute and deliver the warrants to purchase
Common Stock to be issued and sold to the Representatives in
accordance with Section 5(n) hereto (the "Representatives' Warrants");
(v) The issued shares of capital stock of the Company's
Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and are owned beneficially by the Company free
and clear of any security interests, liens, encumbrances, equities or
claims. The Common Stock issuable pursuant to the Representatives'
Warrants, when issued in accordance with the terms thereof, will be
duly authorized, validly issued, fully paid and nonassessable. The
Representatives' Warrants and the shares of Common Stock issuable
thereunder were not and will not be issued in violation of any
preemptive rights of any security holder of the Company. The Company
has reserved a sufficient number of shares of Common Stock for
issuance pursuant to the Representatives' Warrants. The holders of the
Common Stock issuable pursuant to the Representatives' Warrants will
not be subject to personal liability solely by reason of being such
holders. The issuance and sale of the Common Stock pursuant to the
Representatives' Warrants will be made in conformity with the
applicable registration requirements or exemptions therefrom under
federal and applicable state securities law;
(vi) As of the respective dates set forth in the Prospectus,
the Company had an authorized, issued and outstanding capitalization
as set forth in the Prospectus (or,
3
<PAGE>
if the Prospectus is not in existence, the most recent Preliminary
Prospectus). All of the issued shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. The Firm Securities and the Option Securities have been
duly authorized and at the Firm Closing Date or the Option Closing
Date (as the case may be), after payment therefor in accordance
herewith, will be validly issued, fully paid and nonassessable. Except
as otherwise disclosed in the Prospectus, the Firm Closing Date or the
Option Closing Date, no holders of outstanding shares of capital stock
of the Company will be entitled as such to any preemptive or other
rights to subscribe for any of the Securities, and no holder of
securities of the Company has any right which has not been fully
exercised or waived to require the Company to register the offer or
sale of any securities owned by such holder under the Act in the
public offering contemplated by this Agreement;
(vii) The capital stock of the Company conforms in all
material respects to the description thereof contained in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and this Agreement and the Representatives'
Warrants conform in all material respects to the descriptions thereof
contained in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus);
(viii) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), there are no outstanding (A) securities or obligations of
the Company or its Subsidiaries convertible into or exchangeable for
any capital stock of the Company or its Subsidiaries, (B) warrants,
rights or options to subscribe for or purchase from the Company or its
Subsidiaries any such capital stock or any such convertible or
exchangeable securities or obligations, or (C) obligations of the
Company or its Subsidiaries to issue any shares of capital stock, any
such convertible or exchangeable securities or obligations, or any
such warrants, rights or options;
(ix) The financial statements and schedules of the Company
and its Subsidiaries included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present in all material respects the
financial position of the Company and its Subsidiaries and the results
of operations and cash flows as of the dates and periods therein
specified. Such financial statements and schedules have been prepared
in accordance with generally accepted accounting principles ("GAAP")
consistently applied throughout the periods involved (except as
otherwise noted therein). The selected financial data set forth under
the captions "Summary Financial Data," "Capitalization" and "Selected
Financial Data" in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present, in
accordance with GAAP, on the basis stated in the Prospectus (or such
Preliminary Prospectus), the information included therein. No other
financial statements or schedules are required to be included in the
Registration Statement;
(x) Arthur Andersen LLP, which has audited the financial
statements of the Company and the predecessors of the two Subsidiaries
and delivered its reports with
4
<PAGE>
respect to the audited financial statements included in the
Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), are
independent public accountants as required by the Act and the
applicable rules and regulations thereunder;
(xi) The execution and delivery of this Agreement and the
Representatives' Warrants have been duly authorized by the Company;
this Agreement has been duly executed and delivered by the Company
and, as of the Closing Date, the Representatives' Warrants will have
been duly executed and delivered by the Company and this Agreement is,
and the Representatives' Warrants when executed and delivered by the
Company on the Closing Date, and in the case of the Representatives'
Warrants, paid for by the Representatives, will be the valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforceability
may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to rights
and remedies of creditors or by general equitable principles. The
information in the Registration Statement and the Prospectus insofar
as it relates to the Representatives' Warrants, in each case as of the
date on which the Registration Statement is declared effective by the
Commission, the Closing Date and any Option Closing Date, is true,
correct and complete in all material respects;
(xii) No legal or governmental proceedings are pending to
which the Company or its Subsidiaries is a party or to which the
property of the Company or its Subsidiaries is subject that are
required to be described in the Registration Statement or the
Prospectus and are not described therein (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus), and, to the
Company's knowledge, no such proceedings have been threatened against
the Company or its Subsidiaries or with respect to any of their
respective properties; and no contract or other document is required
to be described in the Registration Statement or the Prospectus or to
be filed as an exhibit to the Registration Statement that is not
described therein (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or filed as required;
(xiii) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement and of the
Representatives' Warrants to the Representatives by the Company
pursuant to the terms thereof; the execution and delivery of this
Agreement and the Representatives' Warrants by the Company; the
compliance by the Company with the provisions of this Agreement and
the Representatives' Warrants; and the consummation of all
transactions contemplated therein do not (A) require the consent,
approval, authorization, registration or qualification of or with any
court, government or governmental authority, domestic or foreign,
except such as have been obtained, such as may be required under state
securities or blue sky laws, such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") and, if the
Registration Statement filed with respect to the Securities (as
amended) is not effective under the Act as of the time of execution
hereof, such as may be required (and shall be obtained as provided in
this Agreement) under the Act, or (B) conflict with or result in a
breach or violation of any
5
<PAGE>
of the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or its Subsidiaries is a party or by
which the Company or its Subsidiaries or any of their respective
properties are bound, or the Certificate of Incorporation or by-laws
of the Company or its Subsidiaries, or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental
authority or any arbitrator applicable to the Company or its
Subsidiaries, which would have a Material Adverse Effect;
(xiv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), neither the Company nor its Subsidiaries has
sustained any loss or interference with their respective businesses or
properties having or resulting in a Material Adverse Effect from fire,
flood, hurricane, accident or other calamity, whether or not covered
by insurance, or from any labor dispute or any legal or governmental
proceeding and there has not been any event, circumstance, or
development that results in, or that the Company believes would result
in, a Material Adverse Effect, except in each case as described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus);
(xv) The Company and its Subsidiaries have not, directly or
indirectly (except for the sale of Securities under this Agreement),
(i) taken any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities, or (ii)
since the filing of the Registration Statement, and except for the
transactions contemplated herein, (A) sold, bid for, purchased, or
paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation
for soliciting another to purchase any other securities of the
Company;
(xvi)(a) The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses except where the failure to possess any
such item would not have a Material Adverse Effect, and (b) none of
the Company or its Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit that, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a
Material Adverse Effect, except as described in the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary
Prospectus);
(xvii) The Company is not an investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and this
transaction will not cause the Company to become an investment company
subject to registration under the 1940 Act;
(xviii) The Company and its Subsidiaries have filed all foreign,
federal, state and local tax returns that are required to be filed or
has requested extensions thereof (except in any case in which the
failure so to file would not have a Material Adverse
6
<PAGE>
Effect) and has paid all taxes required to be paid by them and any
other assessment, fine or penalty levied against them, to the extent
that any of the foregoing is due and payable, except for any such
assessment, fine or penalty that is currently being contested in good
faith or as described in or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus);
(xix) Except for the shares of capital stock of the
Subsidiaries owned by the Company, neither the Company nor its
Subsidiaries owns any shares of stock or any other equity securities
of any corporation or has any equity interest in any company,
partnership, association or other entity;
(xx) The books, records and accounts of the Company and its
Subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in and dispositions of the assets of the Company and its
Subsidiaries, respectively. The Company and its Subsidiaries maintain
a system of internal accounting controls sufficient to provide
reasonable assurance that (A) transactions are executed in accordance
with management's general or specific authorizations; (B) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles
and to maintain asset accountability; (C) access to assets is
permitted only in accordance with management's general or specific
authorization; and (D) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences;
(xxi) Except as described in the Registration Statement and
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), no default exists and no event has
occurred that, with notice or lapse of time or both, would constitute
a default, in the due performance and observance of any term, covenant
or condition of any contract, indenture, mortgage, deed of trust,
lease or other agreement or instrument to which the Company or its
Subsidiaries are a party or by which the Company or its Subsidiaries
or any of their respective properties are bound or may be affected, in
any respect that would have a Material Adverse Effect. The agreements
to which the Company or its Subsidiaries are a party described in the
Registration Statement are valid agreements, enforceable by the
Company or its Subsidiaries, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles and, to the best
of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of
such agreements;
(xxii) The Company and the Subsidiaries have not distributed
and, prior to the later of (A) the Firm Closing Date or any Option
Closing Date and (B) the completion of the distribution of the
Securities, will not distribute any written offering material in
connection with the offering and sale of the Securities other than the
Registration Statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or
other materials, if any, permitted by the Act;
7
<PAGE>
(xxiii) The Company and its Subsidiaries have good and
marketable title to all personal property owned by each of them, in
each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except for those
relating to debts of the Company or its Subsidiaries described in the
Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) and those
that do not interfere with the use made or proposed to be made of such
property by the Company or its Subsidiaries, and any real property and
buildings held under lease by the Company or its Subsidiaries are held
under valid, subsisting and enforceable leases (except as
enforceability may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to rights
and remedies of creditors or by general equitable principles), with
such exceptions as are not material and do not interfere with the use
made or proposed to be made of such property and buildings by the
Company or its Subsidiaries, in each case except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). The Company and
its Subsidiaries own or lease all such properties as are necessary to
their respective operations as now conducted and as described in the
Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus);
(xxiv) No labor dispute with the employees of the Company or
its Subsidiaries exists or to the Company's knowledge, is threatened
or imminent that could result in a Material Adverse Effect, except as
described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), and the
Company is not aware of an existing, imminent or threatened labor
disturbance by the employees of any principal suppliers, contractors
or others that could result in a Material Adverse Effect, except as
described in or contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus);
(xxv) The Company and its Subsidiaries own or possess all
material trademarks, service marks, trade names, licenses, copyrights
and proprietary or other confidential information currently employed
by them in connection with their respective businesses, and neither
the Company nor its Subsidiaries has received any notice of
infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the
aggregate, if the subject of unfavorable decisions, rulings or
findings, would have a Material Adverse Effect, except as described in
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus). The description of the Company's
corporate sponsorships and alliances and customers contained in the
Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), are true
and complete in all material respects. All such corporate sponsorships
and alliances and customer relationships are in effect and neither the
Company nor its Subsidiaries has received any notice seeking to
terminate or modify such corporate sponsorships and alliances or
customer relationships;
(xxvi) The Company and its Subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks
and in such amounts as are prudent
8
<PAGE>
and customary in the businesses in which they are engaged; and neither
the Company nor its Subsidiaries has any reason to believe that it
will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect, except as described in or
contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus);
(xxvii) The Common Stock will be registered in accordance with
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on the date hereof pursuant to the filing of a Form
8-A and, upon notice of issuance, the Securities will be traded on the
Nasdaq National Market in accordance with a confirmation that the
Company has received from The Nasdaq Stock Market, Inc.;
(xxviii) Neither the Company nor the Subsidiaries has at any time
during the last five (5) years (A) made any unlawful contribution to
any candidate for foreign office or failed to disclose fully any
contribution in violation of law, (B) made any payment to any federal
or state governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any
jurisdiction thereof, (C) violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended by the International Anti-
Bribery Act of 1998, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment, or (D) accepted any
material advertising allowance or marketing allowance from suppliers
or partners and, to the extent any such allowance has been accepted,
the Company and its Subsidiaries have provided proper documentation to
the supplier or partner with respect to advertising as to which the
advertising allowance has been granted;
(xxix) Any pro forma financial or other information and related
notes included in the Registration Statement, each Preliminary
Prospectus and the Prospectus comply (or, if the Prospectus has not
been filed with the Commission, as to the Prospectus, will comply) in
all material respects with the requirements of the Act and the rules
and regulations of the Commission thereunder and present fairly in all
material respects the pro forma information shown, as of the dates and
for the periods covered by such pro forma information. Such pro forma
information, including any related notes and schedules, has been
prepared on a basis consistent with the historical financial
statements and other historical information, as applicable, included
in the Registration Statement, the Preliminary Prospectus and the
Prospectus, except for the pro forma adjustments specified therein,
and give effect to assumptions made on a reasonable basis to give
effect to historical and, if applicable, proposed transactions
described in the Registration Statement, each Preliminary Prospectus
and the Prospectus;
(xxx) Except as set forth in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), there are no outstanding loans, advances or guaranties of
indebtedness by the Company or its Subsidiaries to or for the benefit
of any of (i) its "affiliates," as such term is defined in the Act and
the rules and regulations thereof, or (ii) any of the members of the
families of any of them;
9
<PAGE>
(xxxi) The Company and its Subsidiaries have no known
liability, absolute or contingent, relating to: (A) public health or
safety; (B) worker health or safety; (C) product defect or warranty
(except, as to product defect or warranty, as is disclosed in the
Registration Statement and Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus)); or (D) pollution,
damage to or protection of the environment, including, without
limitation, relating to damage to natural resources, emissions,
discharges, releases or threatened releases of hazardous materials
into the environment (including, further without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
otherwise relating to the manufacture, processing, use, treatment,
storage, generation, disposal, transport or handling of any hazardous
materials, except any such liability that would not result in a
material adverse effect. The Company is not aware of the date hereof
of the existence of any such liability, absolute or contingent, of the
type discussed above. As used herein, "hazardous material" includes
chemical substances, wastes, pollutants, contaminants, hazardous or
toxic substances, constituents, materials or wastes, whether solid,
gaseous or liquid in nature; and
(xxxii) Neither the Company nor its Subsidiaries is presently
doing business with the government of Cuba or with any person or
affiliate located in Cuba.
(xxxiii) In the event the Company presents a "road show" over the
Internet, the Company and any contractor engaged by it to prepare and
transmit such"road show" presentation by means of the Internet shall
comply with that certain no-action request from Net Roadshow, Inc. to
the Securities and Exchange Commission on July 23, 1997, as responded
to by the Securities and Exchange Commission on July 30, 1997.
(xxxiv) Except as disclosed in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary
Prospectus), and to the Company's best knowledge after reasonable
investigation, all hardware, firmware, software and computer systems
of the Company and its Subsidiaries and, to the Company's knowledge,
of respective material vendors and suppliers of the Company and its
Subsidiaries are, or will by the Firm Closing Date, year 2000
Compliant (as defined below) and will continue to function in
accordance with their independent purpose without material error or
material interruption as a result of the transition to the year 2000,
to the extent that data submitted or processed is unambiguous and date
specific. The Company will not incur any additional material costs for
the Company or its Subsidiaries to become year 2000 Complaint. For
purposes of this paragraph, "year 2000 Compliant" means, with respect
to the Company, its Subsidiaries, or its respective material vendors
and suppliers, that the hardware, firmware, software and computer
systems of each of the foregoing (i) will completely and accurately
address, produce, store and calculate data involving dates before, on
or after January 1, 2000 and will not produce abnormally ending or
incorrect results involving such dates as used in any forward or
regression dated based functions, and (ii) will provide that date
related functionalities and data fields include the indication of
century and millennium and will perform calculations that involve a
four-digit year.
10
<PAGE>
(b) Any certificate signed by any officer of the Company and
delivered to the Representatives or to counsel for the Representatives
pursuant to this Agreement shall be deemed a representation and warranty by
the Company to each Underwriter, as to the matters covered thereby.
(c) The Representatives shall receive, on the date hereof, at the
Firm Closing Date and any Option Closing Date (the Firm Closing Date and
the Option Closing Date, hereinafter collectively the "Closing Date"),
representations and warranties of The Online Medical Bookstore, LLC and
InterLink Services, Inc. which shall be identical in form and substance to
the representations and warranties of the Company set forth in Section 2(a)
above. Such representations and warranties shall be set forth in a
certificate effective and relating to the period through and until the
acquisition of the respective subsidiary and shall be signed by the
executive officers of The Online Medical Bookstore, LLC and InterLink
Services, Inc., respectively, and delivered to the Representatives or to
counsel for the Representatives on the date hereof, at the Firm Closing
Date and at any Option Closing Date.
3. Purchase, Sale and Delivery of the Securities.
---------------------------------------------
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein
set forth, (i) the Company agrees to sell the 2,500,000 shares of common
stock constituting Firm Securities, (ii) each of the Underwriters agrees to
purchase from the Company, at a purchase price of $______ per share, an
aggregate number of Firm Securities set forth opposite the name of such
Underwriter in Schedule 1 hereto. One or more certificates in definitive
form for the Firm Securities that the several Underwriters have agreed to
purchase hereunder from the Company, in such denomination or denominations
and registered in such name or names as the Representatives request upon
written notice to the Company at least 48 hours prior to the Firm Closing
Date, shall be delivered by or on behalf of the Company to the
Representatives for the respective accounts of the Underwriters, against
payment by or on behalf of the Underwriters of the aggregate purchase price
therefor by wire transfer in same day funds (the "Wired Funds") to the
account of the Company. Such delivery of and payment for the Firm
Securities shall be made at the offices of EBI Securities Corporation, 6300
South Syracuse Way, Suite 400, Englewood, Colorado 80111, at 7:30 a.m.,
Mountain time, on _____________________, 1999, or at such other place, time
or date as the Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 9 hereof, such time and
date of delivery against payment being herein referred to as the "Firm
Closing Date." The Company will make such certificate or certificates for
the Firm Securities available for checking and packaging by the
Representatives at the offices of the Company's transfer agent or registrar
at least 24 hours prior to the Firm Closing Date or, if available, will
coordinate the transfer of the Firm Securities to the Underwriters through
the book-entry facilities of the Depository Trust Company.
(b) For the sole purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, on the basis of the covenants and
agreements of the Underwriters contained in this Agreement and subject to
the terms and conditions set forth in this Agreement, the Company hereby
grants to the several Underwriters an option to purchase the Option
Securities. The purchase price to be paid for any Option Securities shall
be the same price per share as the price per share for the Firm
11
<PAGE>
Securities set forth above in paragraph (a) of this Section 3. The option
granted hereby may be exercised as to all or any part of the Option
Securities from time to time within 60 days after the date of the
Prospectus (or, if such 60th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the Nasdaq National
Market or applicable exchange is open). The Underwriters shall not be under
any obligation to purchase any of the Option Securities prior to the
exercise of such option. The Representatives may from time to time exercise
the option granted hereby by giving notice in writing or by telephone
(confirmed within 24 hours in writing) to the Company setting forth the
aggregate number of Option Securities as to which the several Underwriters
are then exercising the option and the date and time for delivery of and
payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two
business days or later than five business days after such exercise of the
option and, in any event, shall not be earlier than the Firm Closing Date.
The time and date set forth in such notice, or such other time on such
other date as the Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 9 hereof, is herein
called the "Option Closing Date" with respect to such Option Securities.
Upon exercise of the option as provided herein, the Company shall become
obligated to sell to each of the several Underwriters, and, subject to the
terms and conditions herein set forth, each of the Underwriters (severally
and not jointly) shall become obligated to purchase from the Company, the
same percentage of the total number of the Option Securities as to which
the several Underwriters are then exercising the option as such Underwriter
is obligated to purchase of the aggregate number of Firm Securities, as
adjusted by the Representatives in such manner as it deems advisable to
avoid fractional shares. If the option is exercised as to all or any
portion of the Option Securities, one or more certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered
on the related Option Closing Date in the manner, and upon the terms and
conditions, set forth in paragraph (a) of this Section 3, except that
reference therein to the Firm Securities and the Firm Closing Date shall be
deemed, for purposes of this paragraph 3(b), to refer to such Option
Securities and Option Closing Date, respectively.
(c) It is understood that you, individually and not as the
Representatives, may (but shall not be obligated to) make payment on behalf
of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their
obligations hereunder.
(d) The Company hereby acknowledges that the wire transfer by or on
behalf of the Underwriters of the purchase price for any Securities does
not constitute closing of a purchase and sale of the Securities. Only
execution and delivery of a receipt (by facsimile or otherwise) for the
Securities by the Underwriters indicates completion of the closing of a
purchase of the Securities from the Company. Furthermore, in the event that
the Underwriters wire funds to the Company prior to the completion of the
closing of a purchase of Securities, the Company hereby acknowledges that
until the Underwriters execute and deliver a receipt for the Securities, by
facsimile or otherwise, the Company will not be entitled to the wired funds
and shall return the wired funds received by it to the Underwriters as soon
as practicable (by wire transfer of same-day funds) upon demand. In the
event that the closing of a purchase of Securities is not completed and the
wired funds are not returned by the Company to the Underwriters on the same
day the wired funds were received by the Company, the Company agrees to pay
to the Underwriters in respect of each day the wired funds are not returned
by
12
<PAGE>
it, in same-day funds, interest at the Prime Rate (as defined in Section
8(a)) on the date hereof on the amount of such wired funds received from
the Underwriters.
4. Offering by the Underwriters. Upon your authorization of the release
----------------------------
of the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
5. Covenants of the Company. The Company covenants and agrees with each
------------------------
of the Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the time of execution of this Agreement, to
become effective as promptly as possible. If required, the Company will
file the Prospectus and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act. During any time when a prospectus relating to the
Securities is required to be delivered under the Act, the Company (i) will
comply with all requirements imposed upon it by the Act and the rules and
regulations of the Commission thereunder to the extent necessary to permit
the continuance of sales of or dealings in the Securities in accordance
with the provisions hereof and of the Prospectus, as then amended or
supplemented, and (ii) will not file with the Commission the Prospectus or
the amendment referred to in the second sentence of Section 2(a)(i) hereof,
any amendment or supplement to such Prospectus, or any amendment to the
Registration Statement of which the Representatives shall not previously
have been advised and furnished with a copy for a reasonable period of time
prior to the proposed filing and as to which filing the Representatives
shall not have given their consent. The Company will prepare and file with
the Commission, in accordance with the rules and regulations of the
Commission, promptly upon request by the Representatives or counsel for the
Representatives, any amendments to the Registration Statement or amendments
or supplements to the Prospectus that may be deemed necessary or advisable
in connection with the distribution of the Securities by the several
Underwriters, and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective by the Commission as
promptly as possible. The Company will advise the Representatives,
promptly after receiving notice thereof, of the time when the Registration
Statement or any amendment thereto has been filed or declared effective or
the Prospectus or any amendment or supplement thereto has been filed and
will provide to the Representatives copies of each such filing.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, (ii) the suspension of the qualification
of the Securities for offering or sale in any jurisdiction, (iii) the
institution, threatening or contemplation of any proceeding for any such
purpose, or (iv) any request made by the Commission for amending the
Registration Statement, for amending or supplementing the Prospectus or for
additional information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order is issued,
to obtain the withdrawal thereof as promptly as possible.
13
<PAGE>
(c) The Company will endeavor to qualify the Securities for offering
and sale under the securities or blue sky laws of such jurisdictions as the
Representatives may designate and will endeavor to continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Securities; provided, however, that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction. If, after the public offering of the Securities by the
Underwriters and during such period, the Underwriters propose to vary the
terms of offering thereof by reason of changes in general market conditions
or otherwise, the Representatives will advise the Company in writing of the
proposed variation and if, in the opinion either of counsel for the Company
or counsel for the Representatives, such proposed variation requires that
the Prospectus be supplemented or amended, the Company will forthwith
prepare and file with the Commission a supplement to the Prospectus or an
amended Prospectus setting forth such variation. The Company authorizes
the Underwriters and all dealers to whom any of the Securities may be sold
by the Underwriters to use the Prospectus, as from time to time so amended
or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Act and the rules and
regulations thereunder for such period.
(d) If, at any time prior to the later of (i) the final date when a
prospectus relating to the Securities is required to be delivered under the
Act, or (ii) the Option Closing Date, any event occurs as a result of which
the Prospectus, as then amended or supplemented, would include any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if for any other reason it
is necessary at any time to amend or supplement the Prospectus to comply
with the Act or the rules or regulations of the Commission thereunder, the
Company will promptly notify the Representatives thereof and, subject to
Section 5(a) hereof, will prepare and file with the Commission, at the
Company's expense, an amendment to the Registration Statement or an
amendment or supplement to the Prospectus that corrects such statement or
omission or effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Representatives a signed copy of the
registration statement originally filed with respect to the Securities and
each amendment thereto (in each case including exhibits thereto), (ii) to
each other Underwriter, a conformed copy of such registration statement and
each amendment thereto (in each case without exhibits thereto), and (iii)
so long as a prospectus relating to the Securities is required to be
delivered under the Act, as many copies of each Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request; without limiting the application of
clause (iii) of this sentence, the Company shall, as soon as practicable
following the determination of the public offering price, deliver to the
Underwriters, without charge, as many copies of the Prospectus and any
amendment or supplement thereto as the Representatives may reasonably
request for purposes of confirming orders that are expected to settle on
the Firm Closing Date.
(f) The Company, as soon as practicable, will make generally
available to its security holders and to the Representatives an earnings
statement of the Company and its Subsidiaries that satisfies the provisions
of Section 11(a) of the Act and Rule 158 thereunder.
14
<PAGE>
(g) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(h) The Company will not, directly or indirectly, without the prior
written consent of the Representatives on behalf of the Underwriters,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer
of sale, contract of sale, pledge, grant of any option to purchase or other
sale or disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of Common
Stock for a period of 12 months after the date hereof, except pursuant to
this Agreement, issuances pursuant to warrants and options outstanding
prior to the date hereof, issuances pursuant to the Representatives'
Warrants, stock options granted under the company's stock option plan or
shares issued pursuant to its stock purchase plan to officers, employees,
directors and consultants and any stock issued on exercise thereof or
issuances in connection with an acquisition or business combination
transaction. If the Company plans to issue any Common Stock or other
securities in connection with an acquisition or a business combination
transaction, the Company shall provide the Representatives with three days'
advance written notice of its intention to so issue such securities
including the terms of any such proposed transaction.
(i) The Company will not, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Securities, or (ii) for a period of 12 months after
the date hereof (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree to pay to
any person any compensation for soliciting another to purchase any other
securities of the Company. The Company will not, directly or indirectly,
without the prior written consent of the Representatives on behalf of the
Underwriters, offer, purchase, offer to purchase, contract to purchase,
enter into any option to purchase or otherwise purchase or acquire (or
announce any offer, purchase, offer of purchase, contract to purchase,
execution of any option to purchase or other purchase or acquisition of)
any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock for a period of 12
months after the date hereof.
(j) The Company will obtain the lockup agreements described in
Section 7(e) hereof prior to the Firm Closing Date. Any person required to
execute a lock-up agreement shall cause his or her pledgee to also agree in
writing to comply with the pledgor's agreement with the Representatives.
The pledgor shall promptly deliver a copy of any such written agreement
relating to any pledge to the Representatives after execution thereof by
the pledgee.
(k) The Company will use its commercially reasonable efforts to
cause the Securities to be duly traded on the Nasdaq National Market prior
to the Firm Closing Date. The Company will use its best efforts to ensure
that the Securities continue to be traded on the Nasdaq National Market
following the Firm Closing Date.
15
<PAGE>
(l) During a period of five years commencing with the date of this
Agreement, the Company will promptly furnish to the Representatives and to
each Underwriter who may so request in writing copies of (i) all periodic
and special reports furnished by it to stockholders of the Company, (ii)
all information, documents and reports filed by it with the Commission, or
the Nasdaq National Market, (iii) all press releases and material news
items or articles in respect of the Company, its services or affairs
released or prepared by the Company (other than promotional and marketing
materials disseminated solely to customers and potential customers of the
Company in the ordinary course of business) and (iv) any additional
information concerning the Company or its business which the
Representatives may reasonably request.
(m) The Company will use its best efforts to maintain insurance of
the types and in the amounts which it deems adequate for its business
consistent with insurance coverage maintained by companies of similar size
and engaged in similar businesses including, but not limited to, general
liability insurance covering products and services sold or distributed by
the Company, all real and personal property owned or leased by the Company
and its Subsidiaries, and providing coverage for theft, damage,
destruction, acts of vandalism and all other risks customarily insured
against.
(n) On the Closing Date, the Company will sell to the
Representatives, for an aggregate purchase price of $25, warrants to
purchase 250,000 shares of Common Stock (in an amount equal to one warrant
for each ten Firm Shares sold). Such Representatives' Warrants will have an
exercise price equal to $ , subject to adjustment, will be exercisable
during the period beginning on the Effective Date and ending on the fifth
anniversary of the Effective Date and will contain customary anti-dilution
and registration rights provisions.
(o) Comply with all periodic reporting and proxy solicitation
requirements which may from time to time be applicable to the Company as a
result of the Company's registration under Section 12 of the Exchange Act
on a Registration Statement on Form 8-A.
(p) Refrain from filing a Form S-8 Registration Statement (or
successor form of registration statement) in connection with the issuance
of the Company's securities under its stock option plan and stock purchase
plan to employees, consultants or advisors for a period of ninety (90) days
from the Effective Date of the Registration Statement without the
Representatives' prior written consent.
(q) For a period of one year after the Effective Date the Company
will not conduct a sale of any securities of the Company in reliance upon
the exemptions from registration provided by "Regulation S" and "Regulation
D" without the express written consent of the Representatives, which
consent shall not be unreasonably withheld.
(r) Inform the Florida Department of Banking and Finance at any time
prior to the consummation of the distribution of the Firm Securities and
the Additional Securities by the Representatives if it commences engaging
in business with the government of Cuba or with any person or affiliate
located in Cuba. Such information will be provided within 90 days after
the commencement thereof or after a change occurs with respect to
previously reported information.
16
<PAGE>
(s) For a period of three years after the Effective Date, the
Representatives shall be designated as Co-Managing Underwriters for any of
the Company's additional private or public securities offerings, or the
mergers or other financial transactions involving the Company, unless the
Representatives decline to accept such appointment or are unable or
unwilling to effect such transaction on terms acceptable to the Company and
offered by another investment bank of recognized national standing. The
Representatives shall respond within 15 business days of notification from
the Company of such a pending transaction.
(t) Promptly after the Effective Date and for a period of three
years thereafter, the Company shall engage at least three investment
banking firms acceptable to the Representatives (one of which shall be one
of the Representatives) to provide industry research and advice to the
Company.
(u) For a period of five years after the Effective Date, the Company
shall maintain an active Board of Directors which shall include at least
two outside and independent members. The Company agrees that its Board of
Directors will have both audit and compensation committees consisting of no
more than three members on each committee and whose respective rosters will
include at least one independent director and, if the Representatives have
designated a nominee to the Board of Directors, will also include such
nominee.
(v) The Company shall invite Company counsel to attend Board
meetings no less than quarterly for requisite approval of all quarterly and
annual reports and at least annually invite the Company's independent
auditors to its Board meetings.
(w) After the Effective Date, the Company will continue to adopt
annual business plans and monthly financial projections (including balance
sheet, profit/loss statement, statement of cash flows, revenue and
earnings) and an annual budget which are agreeable to the Board of
Directors.
(x) After the Effective Date, the Company commits to and shall pay
reasonable expenses for a minimum of one annual U.S. and European road show
with the Representatives for the purpose of providing an annual update to
investors of the Company.
(y) During the five year period commencing on the Effective Date,
the Company shall provide to the Representatives notice of each annual or
special meeting of the Board of Directors of the Company contemporaneously
with such notice being provided to the members of the Board of Directors of
the Company. During such five year period, the Representatives shall have
the right (i) for each of the Representatives to send an observer
designated by the Representatives to each such meeting of the Board of
Directors of the Company, and (ii) at the sole discretion of EBI Securities
Corporation to designate one member to serve on the Board of Directors of
the Company. In the event EBI Securities Corporation notifies the Company
of its desire to place a member on the Board of Directors, the Company's
existing Board of Directors shall take action within 30 days of the date of
such notice to expand the Board of Directors by one additional seat (unless
the Board of Directors shall then have a vacancy) and shall cause that
person identified by EBI Securities Corporation to be nominated to serve in
such vacancy or in such newly created position on the Board of Directors of
the Company for
17
<PAGE>
the duration of such five year period. Subject to applicable fiduciary
duties owed by members of the Board of Directors to the Company, the Board
of Directors of the Company agrees that it shall (i) vote in favor or
consent to the nomination of the director nominee designated by EBI
Securities Corporation such that, subject to a favorable vote by the
stockholders of the Company, the nominee designated by EBI Securities
Corporation shall continue to fill such position for the duration of such
five year period, and (ii) recommend a vote by stockholders in favor of the
nominee designated by EBI Securities Corporation to serve on the Board of
Directors at each annual or special meeting of stockholders at which such
director nominee shall stand for election. In addition, the members of the
Board of Directors of the Company agree that, in their capacity as
stockholders of the Company, they shall vote in favor of the election of
the nominee designated by the Representatives at each annual or special
meeting of stockholders of the Company for the duration of such five year
period after the Effective Date .
6. Expenses. The Company will pay all costs and expenses incident to the
--------
performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, including:
(a) Reasonable fees and disbursements of all counsel and independent
accountants retained by the Company and all other expenses incurred in
connection with the offering of the shares of Common Stock and
Representative's Warrants.
(b) The expenses of preparing, printing and distributing preliminary
and final prospectuses and the expenses associated with the placement of
tombstone advertisements in newspapers to which the Company and
Representatives will mutually agree. The Company and Representatives
specifically agree there shall be a tombstone advertisement in The Wall
Street Journal national edition. The Company will also be responsible for
the costs of DTC tracking and all fees and expenses of the transfer agent
and registrar.
(c) Registration and other fees and expenses related to compliance
with the Act and the Rules, state blue-sky laws and the securities laws of
any foreign jurisdiction in which the Company and Representatives agree the
shares of Common Stock will be offered and the fees and disbursements of
Underwriters' counsel in connection with state blue-sky filings and
preparation of preliminary and final blue-sky surveys.
(d) The filings fees of the SEC, the NASD, state blue-sky
commissions and all regulatory filings.
(e) Expenses relating to the preparation and filing of the
Registration Statement, the final prospectus and all amendments thereto,
including expenses to comply with the SEC's EDGAR filing requirements.
(f) Any costs associated with issuing the shares of Common Stock.
(g) Any expenses for Company personnel and the Company's own out-of-
pocket expenses including, without limitation, the fees and expenses of its
legal counsel, auditors and other outside advisors, the expenses related to
road show meetings and travel and other similar
18
<PAGE>
expenses. The Company shall provide arrangements for the payment of these
expenses when incurred.
(h) All expenses for due diligence, including meetings and drafting
meetings associated with this offering. All due diligence expenses and
meetings associated with this offering are reimbursable monthly or as
incurred, as may be requested by the Representatives.
(i) The costs of any luncheons, functions, special expenses and all
road show and travel expenses which shall be paid by the Company when
incurred.
(j) The cost of any videotapes and/or CDs, which are prepared for
the purpose of describing the Company's business, which costs of
preparation will be approved by the Company .
(k) The costs of preparing and broadcasting any Internet-based road
show for viewing by prospective investors selected by the Representatives.
(l) The costs of preparing a total of six bound volumes of the
public offering documents for the Representatives and their counsel.
(m) With respect to expenses, the Company will be required to pay
all direct out-of-pocket expenses incurred in connection with the offering.
7. Conditions of the Underwriters' Obligations. The obligations of the
-------------------------------------------
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the sole discretion of the Representatives, to the accuracy of the
representations and warranties of the Company contained herein as of the date
hereof and as of the Firm Closing Date, as if made on and as of the Firm Closing
Date, to the accuracy of the statements of the Company's officers made pursuant
to the provisions hereof, to the performance by the Company of its covenants and
agreements hereunder and to the following additional conditions:
(a) If the Registration Statement or any amendment thereto filed
prior to the Firm Closing Date has not been declared effective as of the
time of execution hereof, the Registration Statement or such amendment
shall have been declared effective not later than the earlier of (i) 9:00
A.M., Mountain time, on the date on which the amendment to the Registration
Statement originally filed with respect to the Securities or to the
Registration Statement, as the case may be, containing information
regarding the offering price of the Securities has been filed with the
Commission, and (ii) such later time and date as shall have been consented
to by the Representatives; if required, the Prospectus and any amendment or
supplement thereto shall have been filed with the Commission in the manner
and within the time period required by Rule 424(b) under the Act; no stop
order suspending the effectiveness of the Registration Statement or any
amendment thereto shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of
the Company or the Representatives, shall be contemplated by the
Commission; and the Company shall have complied with any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise).
19
<PAGE>
(b) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Cooley Godward LLP, in a form to be agreed upon by
the parties.
(c) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Moffatt, Thomas, Barrett, Rock & Fields, Chartered,
dated the Closing Date, to the effect that:
(i) The Subsidiaries have been duly incorporated and are
validly existing as corporations in good standing under the laws of
their respective states of incorporation and are duly qualified to
transact business as foreign corporations and are in good standing
under the laws of such jurisdictions and, to such counsel's knowledge,
are not required to be so qualified in any state in the United States
by reason of the ownership or lease of their properties or the conduct
of their business.
(ii) The Subsidiaries have the corporate power to own or
lease their properties and conduct their business as described in the
Registration Statement and the Prospectus, and the Company has no
subsidiaries except as disclosed in the Prospectus.
(iii) The Company had an authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption
"Capitalization" as of the date set forth therein. All of the issued
and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable,
and were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities. To
the best of such counsel's knowledge, no holders of securities of the
Company are entitled to have such securities registered under the
Registration Statement or, if so entitled, the Company has obtained
valid and enforceable waivers thereof.
(iv) No legal or governmental proceedings are pending to
which the Company or the Subsidiaries are a party or to which the
property of the Company or the Subsidiaries are subject that are
required to be described in the Registration Statement or the
Prospectus and are not described therein and, to such counsel's
knowledge, no such proceedings have been threatened against the
Company or its Subsidiaries or with respect to any of their respective
properties.
(v) None of the Company and its Subsidiaries has declared,
paid or otherwise made any dividend or distribution of any kind on its
capital stock, except in each case as described in or contemplated by
the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) .
(vi) At the Closing Date and upon issuance of the securities
set forth in the Registration Statement, the Company's acquisition of
InterLink Services, Inc. (to be operated as a subsidiary of the
Company by the same name) and The Online Medical Bookstore, LLC (to be
operated as a subsidiary of the Company known as The Online Medical
Bookstore, Inc.) shall have been duly authorized by the parties
thereto, and properly consummated in accordance with: (a) the
description set forth in the
20
<PAGE>
Prospectus, (b) the Purchase Agreements between the above-referenced
companies, and (c) the laws of the States of Delaware, Washington and
Idaho, respectively. At the Closing Date and upon payment of the
consideration set forth in the Registration Statement, the Company
shall have purchased all of the outstanding common stock of the
Subsidiaries, and shall have received good title to such shares of
common stock of the Subsidiaries, free and clear of all liens,
security interests, pledges, charges, encumbrances, shareholders'
agreements and voting trusts. Each outstanding share of common stock
of the Subsidiaries is validly authorized, validly issued, fully paid
and nonassessable, with no personal liability attaching to the
ownership thereof, and has not been issued and is not owned or held in
violation of any preemptive right of shareholders. There is no
commitment, plan or arrangement to issue, and no outstanding option,
warrant and or other right for the issuance of any share of capital
stock of the Subsidiaries or any other security or other instrument
which by its terms is convertible into, exercisable for, or
exchangeable for capital stock of the Subsidiaries, except as is
properly described in the Prospectus.
(vii) Neither the Company's offering and sale of 8%
Convertible Preferred Stock commencing in August 1998 nor the
Company's prior offerings and sales of certain shares of Common Stock,
results in an integration with any other offering of securities by the
Company or with this offering.
(viii) Both the Company's offering and sale of 8% Convertible
Preferred Stock commencing in August 1998 and the Company's prior
offerings and sales of shares of Common Stock were exempt from the
registration requirements of Section 5 of the Securities Act of 1933,
as amended, and from the securities registration requirements of any
and all states which have jurisdiction over such transactions.
Such counsel shall also state that, during the course of the
preparation of the Registration Statement, such counsel participated in
conferences with you and with officers and other representatives of the
Company, its independent public accountants and your counsel at which the
contents of the Registration Statement and the Prospectus were discussed.
While such counsel has not independently verified and is not passing upon
the accuracy, completeness or fairness of the statements made in the
Registration Statement and Prospectus, on the basis of the foregoing no
facts have come to such counsel's attention that have caused such counsel
to believe that the Registration Statement, as of the time it became
effective, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus, as of its
date or the date hereof, contained or contains an untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (except such counsel need express no view as the
financial statements and schedules and related notes and other financial
and statistical data derived therefrom included in the Registration
Statement or Prospectus).
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates or opinions
of responsible officers of the Company
21
<PAGE>
and public officials, and may limit its opinions to the laws of the United
States of America and the States of Idaho, Nevada and Washington, as
appropriate.
References to the Registration Statement and the Prospectus in this
paragraph (b), (c) and (d) below shall include any amendment or supplement
thereto at the date of such opinion.
(d) The Representatives shall have received from Arthur Andersen LLP
(on behalf Netivation.com, Inc. and the predecessors of the two
Subsidiaries) letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Representatives, to
the effect that:
(i) They are independent accountants with respect to the
Company and the predecessors of the two Subsidiaries, respectively,
within the meaning of the Act and the applicable pro forma rules and
regulations thereunder;
(ii) In their opinion, the audited financial statements and
the "pro forma" and "as adjusted" financial data examined by them and
included in the Registration Statement and the Prospectus comply in
form in all material respects with the applicable accounting
requirements of the Act and the related published rules and
regulations;
(iii) On the basis of carrying out certain specified
procedures (which do not constitute an examination made in accordance
with generally accepted auditing standards) that would not necessarily
reveal matters of significance with respect to the comments set forth
in this paragraph (iii), a reading of the minute books of the
shareholders, the board of directors and any committees thereof of the
Company and the predecessors of the two Subsidiaries, respectively,
and inquiries of certain officials of the Company and the predecessors
of the two Subsidiaries, respectively, who have responsibility for
financial and accounting matters, nothing came to their attention that
caused them to believe that at a specific date not more than five
business days prior to the date of such letter, there were any changes
in the capital stock or total debt of the Company and the predecessors
of the two Subsidiaries, respectively, or any decreases in total
assets or shareholders' equity of the Company and the predecessors of
the two Subsidiaries, respectively, in each case compared with amounts
shown on the latest balance sheet included in the Registration
Statement and the Prospectus, or for the period from December 31, 1998
to such specified date there were any decreases, as compared with the
same period in the prior year, in total revenues, net loss or net loss
per share of the Company and the predecessors of the two Subsidiaries,
respectively, except in all instances for changes, decreases or
increases set forth in such letters;
(iv) They have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages
and financial information that are derived from the general accounting
records of the Company and the predecessors of the two Subsidiaries,
respectively, that are included in the Registration Statement and the
Prospectus, and have compared such amounts, percentages and financial
information with such records of the Company and the predecessors of
the two
22
<PAGE>
Subsidiaries, respectively, and with information derived from such
records and have found them to be in agreement, excluding any
questions of legal interpretation; and
(v) Their review of the system of internal controls of the
Company and the predecessors of the two Subsidiaries, respectively, to
the extent they deemed necessary in establishing the scope of their
examination of the Company's and the predecessors of the two
Subsidiaries' financial statements as of December 31, 1998 did not
disclose any weaknesses in internal controls that they considered to
be material weaknesses.
In the event that the letters referred to above set forth any
such changes, decreases or increases which, in the reasonable
discretion of the Representatives, are likely to result in a Material
Adverse Effect, it shall be a further condition to the obligations of
the Underwriters that such letters shall be accompanied by a written
explanation of the Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary.
References to the Registration Statement and the Prospectus in
this paragraph (c) with respect to either letter referred to above
shall include any amendment or supplement thereto by the date of such
letter.
(e) The Representatives shall have received a certificate, dated the
Firm Closing Date, of Anthony J. Paquin, David C. Paquin and Lawrence L.
Burch, in their capacities as Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer, respectively, of the Company to the
effect that:
(i) The representations and warranties of the Company in
this Agreement are true and correct as if made on and as of the Firm
Closing Date; the Registration Statement, as amended as of the Firm
Closing Date, does not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements
therein not misleading, and the Prospectus, as amended or supplemented
as of the Firm Closing Date, does not include any untrue statement of
a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company has
performed all covenants and agreements and satisfied all conditions on
its part to be performed or satisfied at or prior to the Firm Closing
Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and
no proceedings for that purpose have been instituted or, to the best
of the Company's knowledge, threatened or are contemplated by the
Commission; and
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
neither the Company nor the two Subsidiaries has sustained any loss or
interference with their respective businesses or properties having or
resulting in a Material Adverse Effect from fire, flood, hurricane,
accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, and
there has not been any event,
23
<PAGE>
circumstance, or development that results in, or that the Company
reasonably believes will result in, a Material Adverse Effect, except
in each case as described in or contemplated by the Prospectus
(exclusive of any amendment or supplement thereto).
(f) The Representatives shall have received from each officer and
director of the Company, the persons and entities listed in Schedule 3 and
an agreement to the effect that such person or entity will not, except to
the extent otherwise specifically permitted by the terms of each such
person's or entity's agreement, directly or indirectly, without the prior
written consent of the Representatives, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of an option to purchase or other sale or disposition) of any
shares of Common Stock or any securities convertible into, or exchangeable
or exercisable for, shares of Common Stock for a period of 12 months after
the date of this Agreement or such earlier period as the Representatives
may have agreed in writing, without the Representatives' prior written
consent; provided, however, that intra-family transfers or transfers to a
trust for estate planning purposes shall not be so restricted.
(g) On or before the Firm Closing Date, the Representatives and
their counsel shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
(h) Upon consummation of the offering of the Securities, the
Securities shall have approved for trading, on notice of issuance, on the
Nasdaq National Market.
(i) The Representatives shall have received an opinion, dated the
Firm Closing Date, of Berliner Zisser Walter & Gallegos, P.C., counsel for
the Representatives, with respect to the issuance and sale of the Firm
Securities, the Registration Statement and Prospectus, and such other
related matters as the Representatives may reasonably require, and the
Company shall have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon such
matters.
(j) The Company shall have executed and delivered, and there shall
have been tendered to the Representatives, all of the Representatives'
Warrants described in Section 5(n) hereof to be purchased by the
Representatives on the Closing Date.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Representatives. The Company shall furnish to the
Representatives such conformed copies of such opinions, certificates, letters
and documents in such quantities as the Representatives and counsel for the
Representatives shall reasonably request.
The respective obligations of the several Underwriters to purchase and pay
for any Option Securities shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Securities, except that all references
to the Firm Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date, respectively.
24
<PAGE>
8. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless each
Underwriter, its counsel and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, against any losses, claims, damages or liabilities to
which such Underwriter or such controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) Any breach by the Company of its representations or
warranties set forth in Sections 2(a) and (b) of this Agreement;
(ii) Any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto, the Prospectus or any amendment or supplement
thereto or (B) any application or other document, or any amendment or
supplement thereto, executed by the Company or based upon written
information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the securities
or blue sky laws thereof or filed with the Commission or any
securities association or securities exchange (each, an
"Application");
(iii) The omission or alleged omission to state in the
Registration Statement or any amendment thereto, or the Prospectus or
any amendment or supplement thereto, or any Application, a material
fact required to be stated therein or necessary to make the statements
therein not misleading; or
(iv) Any untrue statement or alleged untrue statement of any
material fact made by the Company or prepared at its direction and
contained in any audio, visual, electronic or electronically
transmitted materials produced by the Company or at its direction and
used in connection with the marketing of the Securities, including
without limitation, slides, videos, films, Internet presentations,
tape recordings, and, such party or parties, as the case may be, will
reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with
investigating, defending against or appearing as a third-party witness
in connection with any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in such Registration
Statement or any amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or any Application
in reliance upon and in conformity with written information furnished
to the Company by any Underwriter through the Representatives
specifically for use therein; and provided, further, that the Company
will not be liable to any Underwriter or any person controlling such
Underwriter with respect to any such untrue statement or omission made
in any Preliminary Prospectus that is corrected in the Prospectus (or
any amendment or supplement thereto) if the person asserting any such
loss, claim, damage or liability purchased Securities from such
Underwriter but
25
<PAGE>
was not sent or given a copy of the Prospectus (as amended or
supplemented) at or prior to the written confirmation of the sale of
such Securities to such person in any case where such delivery of the
Prospectus (as amended or supplemented) is required by the Act, unless
such failure to deliver the Prospectus (as amended or supplemented)
was a result of noncompliance by the Company with Section 5(d) and (e)
of this Agreement. The Company shall not, without the prior written
consent of the Representatives, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action, suit
or proceeding in respect of which indemnification may be sought
hereunder (whether or not any Underwriter or any person who controls
any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of all of the Underwriters and such controlling
persons from all liability arising out of such claim, action, suit or
proceeding.
In addition to its other obligations under this Section 8(a), the
Company agrees that, as an interim measure during the pendency of any
claim, action, investigation, inquiry, or other proceeding arising out of
or based upon any statement or omission, or any alleged statement or
omission, described in this Section 8(a), it will reimburse the
Representatives and each Underwriter on a monthly basis for all reasonable
legal fees or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry, or other
proceeding, notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation to reimburse
the Representatives or Underwriters for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Representatives and the
Underwriters shall promptly return it to the party or parties that made
such payment, together with interest, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) announced from time to time by Chase Manhattan Bank (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Representatives and Underwriters within 45 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request and the Representatives shall be entitled to receive such
reimbursement payments together with interest upon demand therefor. This
indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act, against any losses, claims, damages or liabilities to
which the Company or any such director, officer or controlling person of
the Company may become subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or
any amendment thereto, any
26
<PAGE>
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application, (ii) the omission or the alleged omission to
state therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application or
necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein, or
(iii) any use of the access code for any Internet-based road show by other
than qualified investors, registered broker-dealers or investment advisors
which results in action taken against the Company by such third party
obtaining access to the Internet-based road show; provided, however, the
Underwriter responsible for distributing such access code to other than a
qualified investor shall be the sole party responsible to the Company in
connection therewith. The Representatives shall not, without the prior
written consent of the Company settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder
(whether or not the Company or any person who controls the Company within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of the Company and
such controlling persons from all liability arising out of such claim,
action, suit or proceeding. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates it has been
irreparably prejudiced by such failure to receive notice.
(d) In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded or shall have been advised by its counsel that there may be one
or more legal defenses available to it and/or other indemnified parties
that conflict with those available to the indemnifying party, the
indemnifying party shall not have the right to direct the defense of such
action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend
such action on behalf of such indemnified party or parties. After notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof and approval by such indemnified party of
counsel appointed to defend such action, the indemnifying party will not be
liable to such indemnified party under this Section 8 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying
party shall not be liable for the expenses of
27
<PAGE>
more than one separate counsel (in addition to local counsel) in any one
action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this
Section 8, representing the indemnified parties under such paragraph (a)
who are parties to such action or actions), or (ii) the indemnifying party
does not promptly retain counsel satisfactory to the indemnified party, or
(iii) the indemnifying party has authorized the employment of counsel for
the indemnified party at the expense of the indemnifying party.
(e) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient,
for any reason, to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof),
each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Securities, or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law,
not only such relative benefits but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault of the
parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the Company on one hand or by the Underwriters, on the other
hand, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances. The Company and
the Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if
the Underwriters were treated as one entity for such purpose) or by any
other method of allocation that does not take into account the equitable
considerations referred to above in this paragraph (f). Notwithstanding
any other provision of this paragraph (f), no Underwriter shall be
obligated to make contributions hereunder that in the aggregate exceed the
total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or
any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
hereunder are several in proportion to their respective underwriting
obligations and not joint, and as between themselves, contributions among
Underwriters shall be governed by the provisions of the Agreement Among
Underwriters. For the purposes of this paragraph 9(f), each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Act or Section 20 of the Exchange Act shall have the same rights to
contribution as such Underwriter, and each
28
<PAGE>
director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange
Act, shall have the same rights to contribution as the Company.
9. Default of Underwriters. If one or more Underwriters default in their
-----------------------
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, then the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or Option
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase. If one or more Underwriters so default with respect to an aggregate
number of Securities that is more than ten percent of the aggregate number of
Firm Securities or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements satisfactory to
the Representatives are not made within 36 hours after such default for the
purchase by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives) of the Securities with respect to
which such default occurs, this Agreement will terminate without liability on
the part of any non-defaulting Underwriter or the Company other than as provided
in Section 10 hereof. In the event of any default by one or more Underwriters
as described in this Section 9, the Representatives shall have the right to
postpone the Firm Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than seven business
days in order that any necessary changes may be made in the arrangements or
documents for the purchase and delivery of the Firm Securities or Option
Securities, as the case may be. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting Underwriter from
liability for its default.
10. Survival. The respective representations, warranties, agreements,
--------
covenants, indemnities and other statements of the Company, its officers and the
several Underwriters set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement shall remain in full force and
effect, regardless of (i) any investigation made by or on behalf of the Company,
any of its officers or directors, any Underwriter or any controlling person
referred to in Section 8 hereof, and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 7 and 8 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
11. Termination.
-----------
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing
Date or the related Option Closing Date, respectively, in the event that
the Company shall have failed, refused or been unable to perform all
obligations and
29
<PAGE>
satisfy all conditions on its part to be performed or satisfied hereunder
at or prior thereto or, if at or prior to the Firm Closing Date or, such
Option Closing Date, respectively,
(i) After the respective dates as of which information is given
in the Registration Statement and the Prospectus, any Material Adverse
Effect or development involving a prospective adverse change in or
affecting particularly the business, properties, condition (financial
or otherwise), results of operations or prospects of the Company,
whether or not arising in the ordinary course of business, occurs
which would, in the Representatives' sole judgment, make the offering
or the delivery of the Securities impracticable or inadvisable;
(ii) Trading in the Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or minimum or maximum
prices shall have been established on the Nasdaq National Market;
(iii) A banking moratorium shall have been declared by New York
or United States authorities; or
(iv) There shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the U.S. financial markets that, in the
sole judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the delivery of the
Securities as contemplated by the Registration Statement, as amended
as of the date hereof.
(b) If the sale of the Securities provided for herein is not
consummated for any reason, the Company will reimburse the Representatives
upon demand in the amount of $10,000 each for investment banking advisory
fees plus all actual accountable expenses (including counsel fees and
disbursements), less any amounts advanced to the Representatives against
expenses incurred prior to the date hereof, that shall have been incurred
by them in connection with the proposed purchase and sale of the
Securities. The Company shall not in any event be liable to any of the
Underwriters for the loss of anticipated profits from the transactions
covered by this Agreement.
(c) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 11(b) and Section 10 hereof.
12. Information Supplied by Underwriters. The statements set forth in (a)
------------------------------------
the last paragraph on the front cover page of any Preliminary Prospectus or the
Prospectus,(b) under the heading "Underwriting" in any Preliminary Prospectus or
the Prospectus, and (c) under the heading "Legal Matters" with respect to the
identification of counsel to the Representatives, constitute the only
information furnished by any Underwriter through the Representatives to the
Company for the purposes of Section 8 hereof. The Underwriters confirm that
such statements (to such extent) are correct.
30
<PAGE>
13. Notices. All communications hereunder shall be in writing and, if
-------
sent to any of the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to EBI Securities Corporation,
2049 Century Park Lane, Suite 3310, Los Angeles, California 90067, with copies
to EBI Securities Corporation at 6300 South Syracuse Way, Suite 650, Englewood,
Colorado 80111 and Millennium Financial Group, Inc. , 235 West 56/th/ Street,
Suite 37E, New York, New York, 10019, with copies to Robert W. Walter, Esq.,
Berliner Zisser Walter & Gallegos, P.C., 1700 Lincoln Street, Suite 4700,
Denver, Colorado 80203, and if sent to the Company, shall be delivered or sent
by mail, telex or facsimile transmission and confirmed in writing to the Company
at 7950 Meadowlark Way, Coeur d'Alene, Idaho 83815, Attention: Chief Executive
Officer, with copies to Michael L. Platt, Esq., Cooley Godward LLP, 2595 Canyon
Boulevard, Suite 250, Boulder, Colorado 80302-6737, and Mark A. Ellison, Esq.,
Moffatt Thomas Barrett Rock & Fields, Chtd., 101 South Capitol Boulevard, Boise,
Idaho 83701.
14. Successors. This Agreement shall inure to the benefit of and shall be
----------
binding upon the several Underwriters, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (a)
the indemnities of the Company contained in Section 8 of this Agreement shall
also be for the benefit of any person or persons who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
and (b) the indemnities of the Underwriters contained in Section 8 of this
Agreement shall also be for the benefit of the directors of the Company and the
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act. No purchaser of Securities from any
Underwriter shall be deemed a successor because of such purchase.
15. Applicable Law. The validity and interpretation of this Agreement,
--------------
and the terms and conditions set forth herein, shall be governed by and
construed in accordance with the laws of the State of Colorado, without giving
effect to any provisions relating to conflicts of laws.
16. Consent to Jurisdiction and Service of Process. All judicial
----------------------------------------------
proceedings arising out of or relating to this Agreement may be brought in any
state or federal court of competent jurisdiction in the State of Colorado, and
by execution and delivery of this Agreement, the Company accepts for itself and
in connection with its Subsidiaries and properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts and waive
any defense of forum non conveniens and irrevocably agree to be bound by any
judgment rendered thereby in connection with this Agreement. The Company
designates and appoints Anthony J. Paquin and such other persons as may
hereafter be selected by the Company irrevocably agreeing in writing to so
serve, as its agent to receive on its behalf service of all process in any such
proceedings in any such court, such service being hereby acknowledged by the
Company to be effective and binding service in every respect. A copy of any
such process so served shall be mailed by registered mail to the Company at its
address provided in Section 13 hereof; provided, however, that, unless otherwise
provided by applicable law, any failure to mail such copy shall not affect the
validity of service of such process. If any agent appointed by the Company
refuses to accept service, the Company hereby agrees that service of process
sufficient for personal jurisdiction in any action against the Company in the
State of Colorado may be made by
31
<PAGE>
registered or certified mail, return receipt requested, to the Company at its
address provided in Section 13 hereof, and the Company hereby acknowledges that
such service shall be effective and binding in every respect. Nothing herein
shall affect the right to serve process in any other manner permitted by law or
shall limit the right of any Underwriter to bring proceedings against the
Company in the courts of any other jurisdiction.
17. No Rule of Construction. The parties acknowledge that this Agreement
-----------------------
was initially prepared by the Representatives, and that all parties have read
and negotiated the language used in this Agreement. The parties agree that,
because all parties participated in negotiating and drafting this Agreement, no
rule of construction shall apply to this Agreement which construes ambiguous
language in favor of or against any party by reason of that party's role in
drafting this Agreement.
18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute an agreement binding the Company and each of the
several Underwriters.
Very truly yours,
Netivation.com, Inc.
By:___________________________________________
Anthony J. Paquin, Chief Executive Officer
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
EBI SECURITIES CORPORATION
AS REPRESENTATIVE
By: _________________________________
Name: ___________________________
Title: _________________________
MILLENNIUM FINANCIAL GROUP, INC.
AS REPRESENTATIVE
By: _________________________________
Name: ___________________________
Title: _________________________
RWW/NETIVAT/UNDAG#5
32
<PAGE>
Schedule 1
UNDERWRITERS
NUMBER OF
FIRM SECURITIES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
EBI Securities Corporation...............................
Millennium Financial Group, Inc..........................
......................................................... ---------
Total.............................................. 2,500,000
=========
33
<PAGE>
Schedule 2
Subsidiaries
Name Jurisdiction of Incorporation
- ---- -----------------------------
The Online Medical Bookstore, LLC Idaho
InterLink Services, Inc. Washington
34
<PAGE>
Schedule 3
PERSONS AND ENTITIES SUBJECT TO LOCK-UP AGREEMENTS
Name
----------------------------------------------------------------
Britannia Holdings, Ltd.
James C. Czirr
Donald Davis
Crosby Enterprises
William L. Herron
Karin L. Jorgensen
Robert Jorgensen
Allen E. Knutsen
Badlands Marketing
Anthony J. Paquin
David Paquin
Gary S. Paquin
Robert Reed
Russell Reese
Carman Ridland
John Ryan
Jon L. Sandstrom
Donna L. Weaver
David J. Wilson
================
[TO BE UPDATED]
35
<PAGE>
Schedule 4
OPINION OF COOLEY GODWARD LLP
RWW\NETIVAT\UNDAG#5.WPD
36
<PAGE>
EXHIBIT 4.2
FRONT
COMMON STOCK COMMON STOCK
NET
Netivation.com, Inc.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 64115R 10 8
SEE REVERSE FOR CERTAIN DEFNITIONS
This certifies that is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE, OF
Netivation.com, Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are issued and
shall be held subject to all the provisions of the Certificate of Incorporation
as amended, copies of which are on file at the office of the Transfer Agent, all
of which the holder of this Certificate by acceptance hereof assents. This
Certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar. WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
Dated:
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1596, Denver, Colorado 80201
BY
TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE
<PAGE>
BACK
Netivation.com, Inc.
The Corporation will furnish without charge to each stockholder who so requests
a copy of the powers, preferences, relative, participating, optional or other
special rights to each class of stock or series thereof, and the qualifications,
limitations, or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM N as tenants in common
TEN ENT N as tenants by the entireties
JT TEN N as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT N ......................... Custodian
......................
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
.......................................................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR EN-
LARGEMENT OR ANY CHANGE WHATEVER.
X
(SIGNATURE)
X
(SIGNATURE)
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
SIGNATURE(S) GUARANTEED BY:
<PAGE>
EXHIBIT 4.3
THE REPRESENTATIVE'S WARRANTS EVIDENCED AND REPRESENTED BY THIS CERTIFICATE (THE
"REPRESENTATIVE'S WARRANTS") AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
(THE "WARRANT SHARES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION AND WITH THE SECURITIES ADMINISTRATORS OF CERTAIN STATES
UNDER THE SECURITIES ("BLUE SKY") LAWS OF SUCH STATES. HOWEVER, NEITHER THE
REPRESENTATIVE'S WARRANTS NOR SUCH WARRANT SHARES MAY BE SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (i) A POST-EFFECTIVE AMENDMENT TO
SUCH REGISTRATION STATEMENT, (ii) A SEPARATE REGISTRATION STATEMENT UNDER SUCH
ACT, OR (iii) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND UNDER THE
APPLICABLE BLUE SKY LAWS.
THIS REPRESENTATIVE'S WARRANT MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED EXCEPT AS
OTHERWISE PROVIDED HEREIN AND THE HOLDER OF THIS REPRESENTATIVE'S WARRANT, BY
ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL NOT SELL, TRANSFER OR ASSIGN THIS
REPRESENTATIVE'S WARRANT EXCEPT AS OTHERWISE PROVIDED HEREIN.
Netivation.com, Inc.
Representative's Warrant for the Purchase of Common Stock
---------------------------------------------------------
No. UW-001 250,000 Representative's Warrants
THIS CERTIFIES that, for receipt in hand of $25 and other value received,
EBI Securities Corporation (the "Holder"), is entitled to subscribe for and
purchase from Netivation.com, Inc., a Delaware corporation (the "Company"), upon
the terms and conditions set forth herein, at any time, or from time to time,
after _________, 1999, and before 5:00 p.m. Mountain time on __________, 2004
(the "Exercise Period"), 250,000 shares of Common Stock (the "Warrant Shares"),
at a price of $_________ per Warrant Share (the "Exercise Price"), or 120% of
the offering price of Common Stock to be sold by the Company in a public
offering (the "Public Offering") at or prior to the date hereof.
The term the "Holder" as used herein shall include any transferee to whom
this Representative's Warrant has been transferred in accordance with the above.
As used herein the term "this Representative's Warrant" shall mean and include
this Representative's Warrant and any Representative's Warrant or
Representative's Warrants hereafter issued as a consequence of the exercise or
transfer of this Representative's Warrant in whole or in part, and the term
"Common Stock" shall mean and include the Company's Common Stock with ordinary
voting power, which class at the date hereof is publicly traded.
1. This Representative's Warrant may not be sold, transferred, assigned,
pledged or hypothecated until ________, 2000 (12 months from the Effective Date
of the Registration Statement on which it is initially registered) except that
it may be transferred, in whole or in part, (i) to one or more officers or
partners of the Holder (or the officers or partners of any such partner); (ii)
to a member of the underwriting syndicate and/or its officers or partners; (iii)
by reason of reorganization of the
<PAGE>
Company; or (iv) by operation of law. After _________, 2000, this
Representative's Warrant may be sold, transferred, assigned or hypothecated in
accordance with applicable law.
2. a. This Representative's Warrant may be exercised during the Exercise
Period as to the whole or any lesser number of Warrant Shares, by the
surrender of this Representative's Warrant (with the election attached
hereto duly executed) to the Company at its office at 7950 Meadowlark Way,
Coeur d'Alene, Idaho 83815, or such other place as is designated in writing
by the Company, together with a certified or bank cashier's check payable
to the order of the Company in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares for which this Representative's
Warrant is being exercised.
b. Upon written request of the Holder, and in lieu of payment for the
Warrant Shares by check in accordance with paragraph 2(a) hereof, the
Holder may exercise the Representative's Warrant (or any portion thereof)
for and receive the number of Warrant Shares equal to a fraction, the
numerator of which equals (i) the amount by which the Current Market Price
of the Common Stock for the ten (10) trading days preceding the date of
exercise exceeds the Exercise Price per Share, multiplied by (ii) the
number of Warrant Shares to be purchased; the denominator of which equals
the Current Market Price.
c. For the purposes of any computation under this Representative's
Warrant, the "Current Market Price" at any date shall be the closing price
of the Common Stock on the business day next preceding the event requiring
an adjustment hereunder. If the principal trading market for such
securities is an exchange, the closing price shall be the reported last
sale price on such exchange on such day provided if trading of such Common
Stock is listed on any consolidated tape, the closing price shall be the
reported last sale price set forth on such consolidated tape. If the
principal trading market for such securities is the over-the-counter
market, the closing price shall be the last reported sale price on such
date as set forth by The Nasdaq Stock Market, Inc., or, if the security is
not quoted on such market, the average closing bid and asked prices as set
forth in the National Quotation Bureau pink sheet or the Electronic
Bulletin Board System for such day. Notwithstanding the foregoing, if
there is no reported last sale price or average closing bid and asked
prices, as the case may be, on a date prior to the event requiring an
adjustment hereunder, then the current market price shall be determined as
of the latest date prior to such day for which such last sale price or
average closing bid and asked price is available.
2
<PAGE>
3. Upon each exercise of this Representative's Warrant, the Holder shall
be deemed to be the holder of record of the Warrant Shares issuable upon such
exercise, notwithstanding that the transfer books of the Company shall then be
closed or certificates representing such Warrant Shares shall not then have been
actually delivered to the Holder. As soon as practicable after each such
exercise of this Representative's Warrant, the Company shall issue and deliver
to the Holder a certificate or certificates for the Warrant Shares issuable upon
such exercise, registered in the name of the Holder or its designee. If this
Representative's Warrant should be exercised in part only, the Company shall,
upon surrender of this Representative's Warrant for cancellation, execute and
deliver a new Representative's Warrant evidencing the right of the Holder to
purchase the balance of the Warrant Shares (or portions thereof) subject to
purchase hereunder.
4. The Representative's Warrants shall be registered in a
Representative's Warrant Register as they are issued. The Company shall be
entitled to treat the registered holder of any Representative's Warrant on the
Representative's Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Representative's Warrant on the part of any other person. The
Representative's Warrants shall be transferable only on the books of the Company
upon delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Representative's
Warrant or Representative's Warrants to the person entitled thereto. The
Representative's Warrants may be exchanged, at the option of the Holder thereof,
for another Representative's Warrant, or other Representative's Warrants of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Warrant Shares (or portions thereof) upon
surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause Representative's
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of the
Securities Act of 1933, as amended (the "Act"), or applicable state blue sky
laws and the rules and regulations thereunder.
5. The Company shall, during the Exercise Period, reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of providing for the exercise of this Representative's Warrant, such
number of shares of Common Stock as shall, from time to time, be
3
<PAGE>
sufficient therefor. The Company covenants that all Warrant Shares issuable upon
exercise of this Representative's Warrant shall be validly issued, fully paid,
nonassessable, and free of preemptive rights.
6. a. If the Company shall at any time subdivide its outstanding Common
Stock by recapitalization, reclassification or split-up thereof, the number of
Warrant Shares subject to this Representative's Warrant immediately prior to
such subdivision shall be proportionately increased, and if the Company shall at
any time combine the outstanding Common Stock by recapitalization,
reclassification or combination thereof, the number of Warrant Shares subject to
this Representative's Warrant immediately prior to such combination shall be
proportionately decreased. Any corresponding adjustment to the Exercise Price
shall become effective at the close of business on the record date for such
subdivision or combination.
b. If the Company after the date hereof shall distribute to the
holders of its Common Stock any securities or other assets (other than a
distribution of Common Stock or a cash distribution made as a dividend
payable out of earnings or out of any earned surplus legally available for
dividends under the laws of the jurisdiction of incorporation of the
Company), the Board of Directors shall be required to make such equitable
adjustment in the Exercise Price in effect immediately prior to the record
date of such distribution as may be necessary to preserve the rights
substantially proportionate to those enjoyed hereunder by the Holder
immediately prior to such distribution. Any such adjustment made in good
faith by the Board of Directors shall be final and binding upon the Holder
and shall become effective as of the record date for such distribution.
c. No adjustment in the number of Warrant Shares subject to this
Representative's Warrant shall be required unless such adjustment would
require an increase or decrease in such number of Warrant Shares of at
least 1% of the then adjusted number of Warrant Shares issuable upon
exercise of this Representative's Warrant, provided, however, that any
adjustments which by reason of the foregoing are not required at the time
to be made shall be carried forward and taken into account and included in
determining the amount of any subsequent adjustment; and provided further,
however, that in case the Company shall at any time subdivide or combine
the outstanding Common Stock or issue any additional Common Stock as a
dividend, said percentage shall forthwith be proportionately increased in
the case of a combination or decreased in the case of a subdivision or
dividend of Common Stock so
4
<PAGE>
as to appropriately reflect the same. If the Company shall make a record of
the holders of its Common Stock for the purpose of entitling them to
receive any dividend or distribution and legally abandon its plan to pay or
deliver such dividend or distribution then no adjustment in the number of
Warrant Shares subject to this Representative's Warrant shall be required
by reason of the making of such record.
d. Whenever the number of Warrant Shares purchasable upon the
exercise of this Representative's Warrant is adjusted as provided herein,
the Exercise Price shall be adjusted (to the nearest one tenth of a cent)
by respectively multiplying such Exercise Price immediately prior to such
adjustment by a fraction, the numerator of which shall be the number of
Warrant Shares purchasable upon the exercise of this Representative's
Warrant immediately prior to such adjustment, and the denominator of which
shall be the number of Warrant Shares purchasable immediately thereafter.
e. In case of any reclassification of the outstanding Common Stock
(other than a change covered by (a) hereof or which solely affects the par
value of such Common Stock) or in the case of any merger or consolidation
of the Company with or into another corporation (other than a consolidation
or merger in which the Company is the continuing corporation and which does
not result in any reclassification or capital reorganization of the
outstanding Common Stock), or in the case of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is
dissolved, the Holder of this Representative's Warrant shall have the right
thereafter (until the expiration of the right of exercise of this
Representative's Warrant) to receive upon the exercise hereof, for the same
aggregate Exercise Price payable hereunder immediately prior to such event,
the kind and amount of shares of stock or other securities or property
receivable upon such reclassification, capital reorganization, merger or
consolidation, or upon the dissolution following any sale or other
transfer, by a holder of the number of Warrant Shares obtainable upon the
exercise of this Representative's Warrant immediately prior to such event;
and if any reclassification also results in a change in Common Stock
covered by (a) above, then such adjustment shall be made pursuant to both
this paragraph (e) and paragraph (a). The provisions of this paragraph (e)
shall similarly apply to successive re-classifications, or capital
reorganizations, mergers or consolidations, sales or other transfers.
5
<PAGE>
If the Company after the date hereof shall issue or agree to issue
Common Stock, options or convertible securities, other than as described
herein, and such issuance or agreement would in the opinion of the Board of
Directors of the Company materially affect the rights of the Holders of the
Representative's Warrants, the Exercise Price and the number of Warrant
Shares purchasable upon exercise of the Representative's Warrants shall be
adjusted in such manner, if any, and at such time as the Board of Directors
of the Company, in good faith, may determine to be equitable in the
circumstances. The minutes or unanimous consent approving such action
shall set forth the Board of Director's determination as to whether an
adjustment is warranted and the manner of such adjustment. In the absence
of such determination, any Holder may request in writing that the Board of
Directors make such determination. Any such determination made in good
faith by the Board of Directors shall be final and binding upon the
Holders. If the Board fails, however, to make such determination within
sixty (60) days after such request, such failure shall be deemed a
determination that an adjustment is required.
f. i. Upon occurrence of each event requiring an adjustment of the
Exercise Price and of the number of Warrant Shares purchasable upon
exercise of this Representative's Warrant in accordance with, and as
required by, the terms hereof, the Company shall forthwith employ a
firm of certified public accountants (who may be the regular
accountants for the Company) who shall compute the adjusted Exercise
Price and the adjusted number of Warrant Shares purchasable at such
adjusted Exercise Price by reason of such event in accordance
herewith. The Company shall give to each Holder of the
Representative's Warrants a copy of such computation which shall be
conclusive and shall be binding upon such Holders unless contested by
Holders by written notice to the Company within thirty (30) days after
receipt thereof.
ii. In case the Company after the date hereof shall propose (A)
to pay any dividend payable in stock to the holders of its Common
Stock or to make any other distribution (other than cash dividends) to
the holders of its Common Stock or to grant rights to subscribe to or
purchase any additional shares of any class or any other rights or
options, (B) to effect any reclassification involving merely the
subdivision or combination of outstanding Common Stock, or (C) any
capital reorganization or any consolidation or merger, or any sale,
transfer or other disposition of its property, assets
6
<PAGE>
and business substantially as an entirety, or the liquidation,
dissolution or winding up of the Company, then in each such case, the
Company shall obtain the computation described above and if an
adjustment to the Exercise Price is required, the Company shall notify
the Holders of the Representative's Warrants of such proposed action,
which shall specify the record date for any such action or if no
record date is established with respect thereto, the date on which
such action shall occur or commence, or the date of participation
therein by the holders of Common Stock if any such date is to be
fixed, and shall also set forth such facts with respect thereto as
shall be reasonably necessary to indicate the effect of such action on
the Exercise Price and the number, or kind, or class of shares or
other securities or property obtainable upon exercise of this
Representative's Warrant after giving effect to any adjustment which
will be required as a result of such action. Such notice shall be
given at least twenty (20) days prior to the record date for
determining holders of the Common Stock for purposes of any such
action, and in the case of any action for which a record date is not
established then such notice shall be mailed at least twenty (20) days
prior to the taking of such proposed action.
iii Failure to file any certificate or notice or to give any
notice, or any defect in any certificate or notice, shall not effect
the legality or validity of the adjustment in the Exercise Price or in
the number, or kind, or class of shares or other securities or
property obtainable upon exercise of the Representative's Warrants or
of any transaction giving rise thereto.
g. The Company shall not be required to issue fractional Warrant
Shares upon any exercise of the Representative's Warrants. As to any final
fraction of a Share which the Holder of a Representative's Warrant would
otherwise be entitled to purchase upon such exercise, the Company shall pay
a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the market price of a share of such stock on the
business day preceding the day of exercise. The Holder of a
Representative's Warrant, by his acceptance of a Representative's Warrant,
expressly waives any right to receive any fractional Warrant Shares.
h. Regardless of any adjustments pursuant to this section in the
Exercise Price or in the number, or kind, or class of shares or other
securities or other property obtainable upon exercise of a Representative's
Warrant, a Representative's Warrant may continue to express the
7
<PAGE>
Exercise Price and the number of Warrant Shares obtainable upon exercise at
the same price and number of Warrant Shares as are stated herein.
i. The number of Warrant Shares, the Exercise Price and all other
terms and provisions of the Company's agreement with the Holder of this
Representative's Warrant shall be determined exclusively pursuant to the
provisions hereof.
j. The above provisions of this section 6 shall similarly apply to
successive transactions which require adjustments.
k. Notwithstanding any other language to the contrary herein, the
anti-dilution terms of this Representative's Warrant will not be enforced
so as to provide the Holder the right to receive, or for the accrual of,
cash dividends prior to the exercise of this Representative's Warrant.
7. The issuance of any Warrant Shares or other securities upon the
exercise of this Representative's Warrant and the delivery of certificates or
other instruments representing such securities, or other securities, shall be
made without charge to the Holder for any tax or other charge in respect of such
issuance. The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the Company shall not be
required to issue or deliver any such certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
8. a. If, at any time after _____________, 1999 (the Effective Date of
the Registration Statement), and ending ____________, 2006 (seven years
after the Effective Date of the Registration Statement), the Company shall
file a registration statement (other than on Form S-4, Form S-8, or any
successor form) with the Securities and Exchange Commission (the
"Commission") while Warrant Shares are available for purchase upon exercise
of this Representative's Warrant or while any Warrant Shares (collectively,
the "Representative's Warrants and the underlying Warrant Shares, the
"Representative's Securities") are outstanding, the Company shall give the
Holder and all the then holders of such Representative's Securities at
least 30 days prior written notice of the filing of such registration
statement. If requested by the Holder or by any such holder in writing
within 20 days after receipt of any such notice, the Company shall, at the
Company's sole expense (other than the fees and disbursements of
8
<PAGE>
counsel for the Holder or such holder and the underwriting discounts, if
any, payable in respect of the securities sold by the Holder or any such
holder), register or qualify the Representative's Securities of the Holder
or any such holders who shall have made such request concurrently with the
registration of such other securities, all to the extent requisite to
permit the public offering and sale of the Representative's Securities
requested to be registered, and will use its best efforts through its
officers, directors, auditors and counsel to cause such registration
statement to become effective as promptly as practicable. Notwithstanding
the foregoing, if the managing underwriter of any such offering shall
advise the Company in writing that, in its opinion, the distribution of all
or a portion of the Representative's Securities requested to be included in
the registration concurrently with the securities being registered by the
Company would materially adversely affect the distribution of such
securities by the Company for its own account, then the Holder or any such
holder who shall have requested registration of his or its Representative's
Securities shall delay the offering and sale of such Representative's
Securities (or the portions thereof so designated by such managing
underwriter) for such period, not to exceed 90 days, as the managing
underwriter shall request, provided that no such delay shall be required as
to any Representative's Securities if any securities of the Company are
included in such registration statement for the account of any person other
than the Company and the Holder unless the securities included in such
registration statement for such other person shall have been reduced pro
rata to the reduction of the Representative's Securities which were
requested to be included in such registration.
b. If at any time after __________, 1999 (the Effective Date of the
Registration Statement), and before ___________, 2004 (five years after the
Effective Date of the Registration Statement), the Company shall receive a
written request from holders of Representative's Securities who, in the
aggregate, own (or upon exercise of all Warrant Shares will own) a majority
of the total number of Warrant Shares, the Company shall, as promptly as
practicable, prepare and file with the Commission a registration statement
sufficient to permit the public offering and sale of the Representative's
Securities, within 45 days after receipt of such request, provided that, in
any event, the Company will file such registration statement within 90 days
after receipt of such request, notwithstanding the foregoing, if the Board
of Directors of the Company determines in good faith that the Company is in
receipt of material non-public information that would be required to be set
forth in a registration statement (such as a potential
9
<PAGE>
acquisition or other material transaction) and the disclosure of such
information at that time would not be in the best interests of the Company,
the Company may exercise a one-time delay in the filing of the registration
statement for a period not to exceed 90 days, and will use its best efforts
through its officers, directors, auditors and counsel to cause such
registration statement to become effective as promptly as practicable;
provided, however, that the Company shall only be obligated to file and
-------- -------
obtain effectiveness of one such registration statement for which all
expenses incurred in connection with such registration (other than the fees
and disbursements of counsel for the Holder or such holders and
underwriting discounts, if any, payable in respect of the Representative's
Securities sold by the Holder or any such holder) shall be borne by the
Company. Should the filing of the registration be delayed by the Company
for any reason other than as described in the preceding sentence, the
exercise period for the Underwriter Warrants shall be extended for a period
of time equal to the length of such delay in filing to register these
securities and the number of Warrant Shares underlying the Representative's
Warrants shall be increased by two percent (2%) per month for each such 30
day delay or fraction thereof.
c. In the event of a registration pursuant to the provisions of this
paragraph 8, the Company shall use its best efforts to cause the
Representative's Securities so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the
Holder or such holders may reasonably request; provided, however, that the
-------- -------
Company shall not be required to qualify to do business in any state by
reason of this paragraph 8(c) in which it is not otherwise required to
qualify to do business and provided further, that the Company has no
obligation to qualify the Representative's Securities where such
qualification would cause any unreasonable delay or expenditure by the
Company.
d. The Company shall keep effective any registration or qualification
contemplated by this paragraph 8 and shall from time to time amend or
supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document and communication for such period
of time as shall be required to permit the Holder or such holders to
complete the offer and sale of the Representative's Securities covered
thereby. The Company shall in no event be required to keep any such
registration or qualification in effect for a period in excess of nine
months from the date on which the Holder and such holders are first free to
sell such Representative's Securities; provided, however, that if the
-------- -------
Company is
10
<PAGE>
required to keep any such registration or qualification in effect with
respect to securities other than the Representative's Securities beyond
such period, the Company shall keep such registration or qualification in
effect as it relates to the Representative's Securities for so long as such
registration or qualification remains or is required to remain in effect in
respect of such other securities. In the event the Holder or holders of the
Representative's Securities request registration of the Representative's
Securities under subparagraphs (a) or (b) of this Paragraph 8 within one
year of the date hereof, the Company shall not be obligated to obtain
effectiveness of the registration statement until after one year from the
date hereof.
e. In the event of a registration pursuant to the provisions of this
paragraph 8, the Company shall furnish to the Holder and to each such
holder such reasonable number of copies of the registration statement and
of each amendment and supplement thereto (in each case, including all
exhibits), such reasonable number of copies of each prospectus contained in
such registration statement and each supplement or amendment thereto
(including each preliminary prospectus), all of which shall conform to the
requirements of the Act and the rules and regulations thereunder, and such
other documents as the Holder or such holders may reasonably request in
order to facilitate the disposition of the Representative's Securities
included in such registration.
f. In the event of a registration pursuant to the provisions of this
paragraph 8, the Company shall furnish the Holder and each holder of any
Representative's Securities so registered with an opinion of its counsel to
the effect that (i) the registration statement has become effective under
the Act and no order suspending the effectiveness of the registration
statement, preventing or suspending the use of the registration statement,
any preliminary prospectus, any final prospectus, or any amendment or
supplement thereto has been issued, nor to such counsel's actual knowledge
has the Securities and Exchange Commission or any securities or blue sky
authority of any jurisdiction instituted or threatened to institute any
proceedings with respect to such an order and (ii) the registration
statement and each prospectus forming a part thereof (including each
preliminary prospectus), and any amendment or supplement thereto, complies
as to form with the Act and the rules and regulations thereunder. Such
counsel shall also provide a Blue Sky Memorandum setting forth the
jurisdictions in which the Representative's Securities have been registered
or qualified for sale pursuant to the provisions of paragraph 8(c).
11
<PAGE>
g. The Company agrees that until all the Representative's Securities
have been sold under a registration statement or pursuant to Rule 144 under
the Act, it shall keep current in filing all reports, statements and other
materials required to be filed with the Commission to permit holders of the
Representative's Securities to sell such securities under Rule 144.
h. The Holder and any holders who propose to register their
Representative's Securities under the Act shall execute and deliver to the
Company a selling shareholder questionnaire on a form to be provided by the
Company.
9. a. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Holder, their officers, directors,
partners, employees and agents, and each person, if any, who controls any
such person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from
and against any and all loss, liability, charge, claim, damage and expense
whatsoever (which shall include, for all purposes of this Section 9, but
not be limited to, attorneys' fees and any and all expense whatsoever
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts
paid in settlement of any claim or litigation), as and when incurred,
arising out of, based upon, or in connection with (i) any untrue statement
or alleged untrue statement of a material fact contained (A) in any
registration statement, preliminary prospectus or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement
thereto, or (B) in any application or other document or communication (in
this Section 9 collectively called an "application") executed by or on
behalf of the Company or based upon written information furnished by or on
behalf of the Company filed in any jurisdiction in order to register or
qualify any of the Representative's Securities under the securities or blue
sky laws thereof or filed with the Commission or any securities exchange;
or any omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading,
unless such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company with respect
to the Holder or any holder of any of the Representative's Securities by or
on behalf of such person expressly for inclusion in any registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, as the case may be, or (ii) any
breach of any representation, warranty, covenant or agreement of the
Company contained in this
12
<PAGE>
Representative's Warrant. The foregoing agreement to indemnify shall be in
addition to any liability the Company may otherwise have, including
liabilities arising under this Representative's Warrant.
If any action is brought against any indemnified party in respect of
which indemnity may be sought against the Company pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the
Company in writing of the institution of such action (but the failure so to
notify shall not relieve the Company from any liability it may otherwise
have to Holder or any holder of any of the Representative's Securities) and
the Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall
have the right to employ its or their own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall
have been authorized in writing by the Company in connection with the
defense of such action or the Company shall not have promptly employed
counsel reasonably satisfactory to such indemnified party or parties to
have charge of the defense of such action or such indemnified party or
parties shall have reasonably concluded that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any of
which events such fees and expenses shall be borne by the Company and the
Company shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties. Anything in this paragraph to
the contrary notwithstanding, the Company shall not, without the written
consent of the indemnified party, effect the settlement or consent to the
entry of any judgment in respect of which indemnification may be sought
hereunder unless such settlement or judgment includes an unconditional
release of the indemnified party from all liability arising out of such
action and does not include an admission of fault.
b. The Holder and each holder agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who
shall have signed any registration statement covering the Representative's
Securities held by the Holder and each holder and each other person, if
any, who controls the Company within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, to the same extent as the foregoing
13
<PAGE>
indemnity from the Company to the Holder and each holder in paragraph 9(a),
but only with respect to statements or omissions, if any, made in any
registration statement, preliminary prospectus, or final prospectus (as
from time to time amended and supplemented), or any amendment or supplement
thereto, or in any application, in reliance upon and in conformity with
written information furnished to the Company with respect to the Holder and
each holder by or on behalf of the Holder and each holder expressly for
inclusion in any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be. If any action shall be brought against
the Company or any other person so indemnified based on any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of
which indemnity may be sought against the Holder and each holder pursuant
to this paragraph 9(b), the Holder and each holder shall have the rights
and duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of paragraph 9(a).
c. To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to paragraph
9(a) or 9(b) (subject to the limitations thereof) but it is found in a
final judicial determination, not subject to further appeal, that such
indemnification may not be enforced in such case, even though this
Agreement expressly provides for indemnification in such case, or (ii) any
indemnified or indemnifying party seeks contribution under the Act, the
Exchange Act or otherwise because the indemnification provided for in this
Section 9 is for any reason held to be unenforceable by the Company and the
Holder and any holder, then the Company (including for this purpose any
contribution made by or on behalf of any director of the Company, any
officer of the Company who signed any such registration statement and any
controlling person of the Company), as one entity, and the Holder and any
holder of any of the Representative's Securities included in such
registration in the aggregate (including for this purpose any contribution
by or on behalf of the Holder or any holder), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses
whatsoever to which any of them may be subject, on the basis of relevant
equitable considerations such as the relative fault of the Company and the
Holder or any such holder in connection with the facts which resulted in
such losses, liabilities, claims, damages and expenses. The relative
fault, in the case of an untrue statement, alleged untrue
14
<PAGE>
statement, omission or alleged omission, shall be determined by, among
other things, whether such statement, alleged statement, omission or
alleged omission relates to information supplied by the Company, by the
Holder or by any holder of Representative's Securities included in such
registration, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Company and the Holder agree
that it would be unjust and inequitable if the respective obligations of
the Company and the Holder for contribution were determined by pro rata or
per capita allocation of the aggregate losses, liabilities, claims, damages
and expenses (even if the Holder and the other indemnified parties were
treated as one entity for such purpose) or by any other method of
allocation that does not reflect the equitable considerations referred to
in this paragraph 9(c). No person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this paragraph 9(c), each person, if
any, who controls the Holder or any holder of any of the Representative's
Securities within the meaning of Section 15 of the Act or Section 20(a) of
the Exchange Act and each officer, director, partner, employee, agent and
counsel of each such person, shall have the same rights to contribution as
such person and each person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each
officer of the Company who shall have signed any such registration
statement, and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
paragraph 9(c). Anything in this paragraph 9(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to
the settlement of any claim or action effected without its written consent.
This paragraph 9(c) is intended to supersede any right to contribution
under the Act, the Exchange Act or otherwise.
10. Unless the Representative's Securities have been registered or an
exemption from such registration is available, the Warrant Shares issued upon
exercise of the Representative's Warrants shall be subject to a stop transfer
order and the certificate or certificates evidencing any such Warrant Shares
shall bear the following legend:
15
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
NOR HAVE THEY BEEN REGISTERED UNDER THE SECURITIES ("BLUE SKY") LAWS OF ANY
STATE. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR
HYPOTHECATED UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND UNDER THE APPLICABLE STATE SECURITIES ("BLUE SKY") LAWS OR
UNLESS THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT
AND LAWS IS ESTABLISHED TO THE SATISFACTION OF THE COMPANY, WHICH MAY
NECESSITATE A WRITTEN OPINION OF SELLER'S COUNSEL SATISFACTORY TO COMPANY
COUNSEL.
11. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Representative's Warrant (and upon
surrender of any Representative's Warrant if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Representative's Warrant of like date, tenor
and denomination.
12. The Holder of any Representative's Warrant shall not have, solely on
account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Representative's Warrant.
13. This Representative's Warrant shall be construed in accordance with
the laws of the State of Colorado, without giving effect to conflict of laws.
Dated: _____________, 1999
Netivation.com, Inc.
By:____________________________________________
Anthony J. Paquin, Chief Executive Officer
[SEAL]
16
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Representative's Warrant.)
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________ Representative's Warrants to
purchase __________ shares of Common Stock of Netivation.com, Inc. (the
"Company"), together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint ____________________________ attorney to
transfer such Representative's Warrants on the books of the Company, with full
power of substitution.
Dated:_____________________
Signature:_______________________________________
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of this Representative's Warrant in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must
be guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
17
<PAGE>
ELECTION TO EXERCISE
(To be executed by the holder if such holder desires to
exercise the attached Representative's Warrant)
The undersigned hereby exercises his or its rights to subscribe for
__________ shares of Common Stock covered by the within Representative's Warrant
(each as defined in the within Representative's Warrant) and tenders payment
herewith in the amount of $__________ in accordance with the terms thereof, and
requests that certificates for such Warrants be issued in the name of, and
delivered to:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print Name, Address and Social Security or
Tax Identification Number)
and, if such number of Warrants (or portions thereof) shall not be all the
Warrants covered by the within Representative's Warrant, that a new
Representative's Warrant for the balance of the Representative's Warrants (or
portions thereof) covered by the within Representative's Warrant be registered
in the name of, and delivered to, the undersigned at the address stated below.
Name:__________________________________________________________________________
(Print)
Address:_______________________________________________________________________
________________________________________
(Signature)
Dated: _________________________________ Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Representative's Warrant in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
18
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF COOLEY GODWARD LLP]
May 18, 1999
Netivation.com, Inc.
7950 Meadowlark Way
Ladies & Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Netivation.com, Inc. (the "Company") of a Registration
Statement on Form SB-2 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission"), including a prospectus to be filed with
the Commission pursuant to Rule 424(b) of Regulation C promulgated under the
Securities Act of 1933, as amended, and the underwritten public offering of up
to 2,875,000 shares of the Company's Common Stock, $.01 par value (the
"Shares"), which amount includes 375,000 shares for which the underwriters have
been granted an over-allotment option.
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus; (ii) reviewed the Company's
Certificate of Incorporation and Bylaws, and the originals or copies certified
to our satisfaction of such records, documents, certificates, memoranda and
other instruments as in our judgment were necessary or appropriate to enable us
to render the opinion expressed below; and (iii) assumed that the Shares to be
sold to the underwriters by the Company will be sold at a price established by
the Board of Directors of the Company or the Pricing Committee thereof in
accordance with Section 153 of the Delaware General Corporation Law. We have
assumed the genuineness and authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof, and the due execution and delivery of all documents where due
execution and delivery are a prerequisite to the effectiveness thereof.
On the basis of the foregoing and in reliance thereon, we are of the opinion
that the Shares, when issued and sold in accordance with the Registration
Statement, will be validly issued, fully paid and nonassessable.
<PAGE>
Netivation.com, Inc.
May 18, 1999
Page Two
We consent to the reference to our firm under the caption "Legal Matters" in the
prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Very truly yours,
Cooley Godward LLP
By: /s/ Michael L. Platt
--------------------
Michael L. Platt
<PAGE>
EXHIBIT 10.13
LOCK-UP AGREEMENT
-----------------
February 27, 1999
EBI Securities Corporation
6300 S. Syracuse Way, Suite 400
Englewood, Colorado 80111
Ladies and Gentlemen:
The undersigned understands that EBI Securities Corporation (the
"Representative") proposes to enter into an Underwriting Agreement with
Netivation.com, Inc., a Delaware corporation (the "Company"), providing for the
public offering of shares of Common Stock of the Company (the "Securities")
pursuant to a Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission.
In consideration of the agreement by the Representative to offer and sell
the Securities pursuant to the public offering, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees that he, she or it will not, directly or indirectly, for a
period of 12 months following the date of the Prospectus relating to the public
offering of the Securities, sell, offer to sell, contract to sell, grant any
option for the sale of, grant any security interest in, pledge, margin,
hypothecate, or otherwise sell or dispose of any of the Common Stock, or any
options or warrants to purchase any Common Stock, or any securities convertible
into or exchangeable for Common Stock, or any interest in such securities or
rights, owned directly by the undersigned or with respect to which the
undersigned has the power of disposition, in any such case whether now owned or
hereafter acquired at any time prior to the Effective Date of the Registration
Statement, other than (i) as a bona fide gift or gifts, provided that the
undersigned provides prior written notice of such gift or gifts to the
Representative and the donee or donees thereof agree to be bound by the
restrictions set forth herein or (ii) with the prior written consent of EBI
Securities Corporation. The undersigned also agrees and consents to the entry
of stop transfer instructions with the Company's transfer agent and registrar
against the transfer of any of the Common Stock held by the undersigned except
in compliance with the foregoing restrictions. EBI Securities Corporation may
in its sole discretion without notice, release all or any portion of the
securities subject to this Lock-Up Agreement or any similar agreement executed
by any other security holder, and if EBI Securities Corporation releases any
securities of any other security holder, securities of the undersigned shall not
be entitled to release from this Lock-Up Agreement.
In the event that the undersigned owns no Common Stock of the Company at
the date hereof or prior to the Effective Date, but has the right to acquire
Common Stock of the Company pursuant to options or warrants, and if the
undersigned exercises such options or warrants prior to the expiration of the 12
month period commencing on the Effective Date, he, she or it agrees that the
Common Stock purchased on such exercise of options or warrants will be subject
to the terms of this Lock-Up Agreement for the remaining portion of such 12
month period which commenced on the Effective Date. In addition, the
undersigned agrees that he, she or it will not sell, pledge, margin,
hypothecate or otherwise dispose of such Common Stock pursuant to the
<PAGE>
EBI Securities Corporation
February 25, 1999
Page 2
exemption afforded by Rule 701 under the Securities Act of 1933, as amended,
during such 12 month period without the prior written consent of the
Representative.
The undersigned further agrees that he, she or it shall not enter into any
swap or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock owned by the
undersigned at the date hereof, or that the undersigned obtains ownership of
during the 12 month period commencing on the Effective Date (regardless of
whether any of the transactions are to be settled by the delivery of Common
Stock, other securities, cash or otherwise), for a period of 12 months from the
Effective Date without the prior written consent of EBI Securities Corporation.
The undersigned further agrees that all of the rights, authority and
preemptive provisions granted to the Representative pursuant to this Lock-Up
Agreement may be transferred by the Representative to any other NASD member firm
that participates in the proposed public offering of the Company's securities.
The undersigned understands that the Company and the Representative will
undertake the public offering in reliance upon this Lock-Up Agreement.
Very truly yours,
By:
Print Name:
----------------------
<PAGE>
LOCK-UP AGREEMENT
-----------------
March 12, 1999
EBI Securities Corporation
6300 S. Syracuse Way, Suite 400
Englewood, Colorado 80111
Ladies and Gentlemen:
The undersigned understands that EBI Securities Corporation (the
"Representative") proposes to enter into an Underwriting Agreement with
Netivation.com, Inc., a Delaware corporation (the "Company"), providing for the
public offering of shares of common stock of the Company (the "Securities")
pursuant to a Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission.
In consideration of the agreement by the Representative to offer and sell
the Securities pursuant to the public offering, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees that she will not, directly or indirectly, sell, offer to
sell, contract to sell, grant any option for the sale of, grant any security
interest in, pledge, margin, hypothecate, or otherwise sell or dispose of the
following shares of the Company's preferred stock (the "Locked-Up Shares") or
any other Restricted Securities during the Lock-Up Period:
Certificate #201 - 6,250 shares
Certificate #202 - 6,250 shares
Certificate #203 - 6,250 shares
Certificate #204 - 6,250 shares
The "Lock-Up Period" shall be the period beginning on the date hereof and ending
at the earliest of:
(i) the date that the holders of the 8% Convertible Preferred Stock
(sold pursuant to a private placement memorandum dated August 17,
1997) as an entire group can publicly sell their shares; or
(ii) 7 months following the date of the Prospectus relating to the
public offering of the Securities.
The "Locked-Up Shares" shall include any securities convertible into or
exchangeable for the Locked-Up Shares, or any interest in such securities or
rights, owned directly by the undersigned or with respect to which the
undersigned has the power of disposition, at any time prior to the effective
date of the Registration Statement.
<PAGE>
EBI Securities Corporation
March 12, 1999
Page 2
The "Restricted Securities" shall be any of the Company's common stock (the
"Common Stock"), or any options or warrants to purchase any Common Stock, or any
securities convertible into or exchangeable for Common Stock, or any interest in
such securities or rights, owned directly by the undersigned or with respect to
which the undersigned has the power of disposition, in any such case whether now
owned or hereafter acquired at any time prior to the effective date of the
Registration Statement, except any subsequently acquired Restricted Securities
that are otherwise subject to lock-up restrictions shall be subject to such
restrictions.
Notwithstanding anything in the foregoing paragraph to the contrary, the
undersigned may sell, transfer, or otherwise dispose of any Locked-Up Shares in
the following manner:
(i) as a bona fide gift or gifts, provided that the undersigned
provides prior written notice of such gift or gifts to the
Representative and the donee or donees thereof agree to be bound by
the restrictions set forth herein; or
(ii) with the prior written consent of the Representative.
In addition, 25% of the Locked-Up Shares shall be released from the restrictions
of this agreement in each of the 4th, 5th, 6th, and 7th months of the Lock-Up
Period following the date of the Prospectus relating to the public offering of
the Securities, provided any sale or other transfer of such Locked-Up Shares
prior to the end of the Lock-Up Period is executed through the Representative.
The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of any of the Restricted Securities held by the undersigned except in
compliance with the foregoing restrictions. The Representative may in its sole
discretion without notice, release all or any portion of the securities subject
to this Lock-Up Agreement or any similar agreement executed by any other
security holder, and if the Representative releases any securities of any other
security holder, securities of the undersigned shall not be entitled to release
from this Lock-Up Agreement.
Notwithstanding the above, if the Representative releases any shares of the
Common Stock from this Agreement or any similar agreement, the number of
undersigned's locked-up shares that shall be released shall be the percentage
determined by dividing the released shares by the total number of shares locked-
up immediately prior to the release. The number of shares released shall be
rounded to the closest even number. For example, assume:
4,500,000 shares are locked-up;
Shareholder X is the owner of 35,555 shares of Common Stock; and
the Representative agrees to releases 450,000 shares.
<PAGE>
EBI Securities Corporation
March 12, 1999
Page 3
Ten percent (10%) of the total amount of shares and options are being released
(450,000 released divided by 4,500,000 outstanding immediately prior to the
release). As a result, ten percent (10%) or 3,555.5 of Shareholder X's 35,555
shares will be released. Since 3,555.5 is not an even number, the amount of
Shareholder X's released shares will be rounded to 3,555 shares.
In the event that the undersigned owns no Common Stock of the Company at
the date hereof or prior to the Effective Date, but has the right to acquire
Common Stock of the Company pursuant to options or warrants, and if the
undersigned exercises such options or warrants prior to the expiration of the
Lock-Up Period commencing on the Effective Date, she agrees that the Common
Stock purchased on such exercise of options or warrants will be subject to the
terms of this Lock-Up Agreement for the remaining portion of such Lock-Up
Period. In addition, the undersigned agrees that she will not sell, pledge,
margin, hypothecate or otherwise dispose of such Common Stock pursuant to the
exemption afforded by Rule 701 under the Securities Act of 1933, as amended,
during such Lock-Up Period without the prior written consent of the
Representative.
The undersigned further agrees that she shall not enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock owned by the undersigned at
the date hereof, or that the undersigned obtains ownership of during the Lock-Up
Period (regardless of whether any of the transactions are to be settled by the
delivery of Common Stock, other securities, cash or otherwise), for the Lock-Up
Period without the prior written consent of EBI Securities Corporation.
The undersigned further agrees that all of the rights, authority and
preemptive provisions granted to the Representative pursuant to this Lock-Up
Agreement may be transferred by the Representative to any other NASD member firm
that participates in the proposed public offering of the Company's securities.
The undersigned understands that the Company and the Representative will
undertake the public offering in reliance upon this Lock-Up Agreement.
Very truly yours,
------------------------------------
Karin L. Jorgensen
<PAGE>
LOCK-UP AGREEMENT
-----------------
March 12, 1999
EBI Securities Corporation
6300 S. Syracuse Way, Suite 400
Englewood, Colorado 80111
Ladies and Gentlemen:
The undersigned understands that EBI Securities Corporation (the
"Representative") proposes to enter into an Underwriting Agreement with
Netivation.com, Inc., a Delaware corporation (the "Company"), providing for the
public offering of shares of common stock of the Company (the "Securities")
pursuant to a Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission.
In consideration of the agreement by the Representative to offer and sell
the Securities pursuant to the public offering, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees that he will not, directly or indirectly, sell, offer to
sell, contract to sell, grant any option for the sale of, grant any security
interest in, pledge, margin, hypothecate, or otherwise sell or dispose of any
Restricted Securities during the Lock-Up Period.
The "Lock-Up Period" shall be the period beginning on the date hereof and ending
at the earliest of:
(i) the date that the holders of the 8% Convertible Preferred Stock
(sold pursuant to a private placement memorandum dated August 17,
1997) as an entire group can publicly sell their shares; or
(ii) 12 months following the date of the Prospectus relating to the
public offering of the Securities.
The "Restricted Securities" shall be any of the Company's common stock (the
"Common Stock"), or any options or warrants to purchase any Common Stock, or any
securities convertible into or exchangeable for Common Stock, or any interest in
such securities or rights, owned directly by the undersigned or with respect to
which the undersigned has the power of disposition, in any such case whether now
owned or hereafter acquired at any time prior to the effective date of the
Registration Statement.
Notwithstanding anything in the foregoing paragraph to the contrary, the
undersigned may sell, transfer, or otherwise dispose of any Restricted
Securities in the following manner:
<PAGE>
EBI Securities Corporation
March 12, 1999
Page 2
(i) as a bona fide gift or gifts, provided that the undersigned
provides prior written notice of such gift or gifts to the
Representative and the donee or donees thereof agree to be bound by
the restrictions set forth herein; or
(ii) with the prior written consent of the Representative.
In addition, 2,500 shares of the Common Stock shall be released from the
restrictions of this agreement in each of the 4th, 5th, 6th, and 7th months of
the Lock-Up Period following the date of the Prospectus relating to the public
offering of the Securities, provided any sale or other transfer of such
Restricted Securities prior to the end of the Lock-Up Period is executed through
the Representative. If the Company shall at any time subdivide its outstanding
shares of Common Stock by recapitalization, reclassification or split-up
thereof, or if the Company shall declare a stock dividend or distribute shares
of Common Stock to its stockholders, the number of shares of Common Stock
subject to this release immediately prior to such subdivision shall be
proportionately increased, and if the Company shall at any time combine the
outstanding shares of Common Stock by recapitalization, reclassification or
combination thereof, the number of shares of Common Stock subject to this
release immediately prior to such combination shall be proportionately
decreased. Any such adjustment shall be effective at the close of business on
the effective date of such subdivision or combination or if any adjustment is
the result of a stock dividend or distribution then the effective date for such
adjustment based thereon shall be the record date therefor.
The undersigned also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent and registrar against the
transfer of any of the Restricted Securities held by the undersigned except in
compliance with the foregoing restrictions. The Representative may in its sole
discretion without notice, release all or any portion of the securities subject
to this Lock-Up Agreement or any similar agreement executed by any other
security holder, and if the Representative releases any securities of any other
security holder, securities of the undersigned shall not be entitled to release
from this Lock-Up Agreement.
Notwithstanding the above, if the Representative releases any shares of the
Common Stock from this Agreement or any similar agreement, the number of
undersigned's locked-up shares that shall be released shall be the percentage
determined by dividing the released shares by the total number of shares locked-
up immediately prior to the release. The number of shares released shall be
rounded to the closest even number. For example, assume:
4,500,000 shares are locked-up;
Shareholder X is the owner of 35,555 shares of Common Stock; and
the Representative agrees to releases 450,000 shares.
<PAGE>
EBI Securities Corporation
March 12, 1999
Page 3
Ten percent (10%) of the total amount of shares and options are being released
(450,000 released divided by 4,500,000 outstanding immediately prior to the
release). As a result, ten percent (10%) or 3,555.5 of Shareholder X's 35,555
shares will be released. Since 3,555.5 is not an even number, the amount of
Shareholder X's released shares will be rounded to 3,555 shares.
In the event that the undersigned owns no Common Stock of the Company at
the date hereof or prior to the Effective Date, but has the right to acquire
Common Stock of the Company pursuant to options or warrants, and if the
undersigned exercises such options or warrants prior to the expiration of the
Lock-Up Period commencing on the Effective Date, she agrees that the Common
Stock purchased on such exercise of options or warrants will be subject to the
terms of this Lock-Up Agreement for the remaining portion of such Lock-Up
Period. In addition, the undersigned agrees that she will not sell, pledge,
margin, hypothecate or otherwise dispose of such Common Stock pursuant to the
exemption afforded by Rule 701 under the Securities Act of 1933, as amended,
during such Lock-Up Period without the prior written consent of the
Representative.
The undersigned further agrees that she shall not enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock owned by the undersigned at
the date hereof, or that the undersigned obtains ownership of during the Lock-Up
Period (regardless of whether any of the transactions are to be settled by the
delivery of Common Stock, other securities, cash or otherwise), for the Lock-Up
Period without the prior written consent of EBI Securities Corporation.
The undersigned further agrees that all of the rights, authority and
preemptive provisions granted to the Representative pursuant to this Lock-Up
Agreement may be transferred by the Representative to any other NASD member firm
that participates in the proposed public offering of the Company's securities.
The undersigned understands that the Company and the Representative will
undertake the public offering in reliance upon this Lock-Up Agreement.
Very truly yours,
-----------------------------------
Dan Baker
<PAGE>
LOCK-UP AGREEMENT
-----------------
March 19, 1999
EBI Securities Corporation
6300 S. Syracuse Way, Suite 400
Englewood, Colorado 80111
Ladies and Gentlemen:
The undersigned understands that EBI Securities Corporation (the
"Representative") proposes to enter into an Underwriting Agreement with
Netivation.com, Inc., a Delaware corporation (the "Company"), providing for the
public offering of shares of Common Stock of the Company (the "Securities")
pursuant to a Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission.
In consideration of the agreement by the Representative to offer and sell
the Securities pursuant to the public offering, and of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
undersigned agrees that he, she or it will not, directly or indirectly, for a
period of time (the "Lock-Up Period") ending at the earliest of:
(i) the date that the holders of the 8% Convertible Preferred Stock
(sold pursuant to a private placement memorandum dated August 17,
1998) as an entire group can publicly sell their shares; or
(ii) 12 months following the date of the Prospectus relating to the
public offering of the Securities;
sell, offer to sell, contract to sell, grant any option for the sale of, grant
any security interest in, pledge, margin, hypothecate, or otherwise sell or
dispose of any of the Common Stock, or any options or warrants to purchase any
Common Stock, or any securities convertible into or exchangeable for Common
Stock, or any interest in such securities or rights, owned directly by the
undersigned or with respect to which the undersigned has the power of
disposition, in any such case whether now owned or hereafter acquired at any
time prior to the Effective Date of the Registration Statement, other than (i)
as a bona fide gift or gifts, provided that the undersigned provides prior
written notice of such gift or gifts to the Representative and the donee or
donees thereof agree to be bound by the restrictions set forth herein or (ii)
with the prior written consent of EBI Securities Corporation. The undersigned
also agrees and consents to the entry of stop transfer instructions with the
Company's transfer agent and registrar against the transfer of any of the Common
Stock held by the undersigned except in compliance with the foregoing
restrictions. EBI Securities Corporation may in its sole discretion without
notice, release all or any portion of the securities subject to this Lock-Up
Agreement or any similar agreement executed by any other security holder, and if
EBI Securities Corporation releases any securities of any other security
<PAGE>
EBI Securities Corporation
March 19, 1999
Page 2
holder, securities of the undersigned shall not be entitled to release
from this Lock-Up Agreement.
Notwithstanding the above, in the event the Representative releases any
shares of Common Stock subject to this Lock-Up Agreement, the undersigned's
locked-up shares shall be released by the percentage determined by dividing the
released shares by the total number of shares locked-up immediately prior to the
release. The number of shares released shall be rounded to the closest even
number. For example, assume:
4,500,000 shares are locked-up;
Shareholder X is the owner of 35,555 shares of Common Stock; and
the Representative agrees to releases 450,000 shares.
Ten percent (10%) of the total amount of shares and options are being released
(450,000 released divided by 4,500,000 outstanding immediately prior to the
release). As a result, ten percent (10%) or 3,555.5 of Shareholder X's 35,555
shares will be released. Since 3,555.5 is not an even number, the amount of
Shareholder X's released shares will be rounded to 3,555 shares.
In the event that the undersigned owns no Common Stock of the Company at
the date hereof or prior to the Effective Date, but has the right to acquire
Common Stock of the Company pursuant to options or warrants, and if the
undersigned exercises such options or warrants prior to the expiration of the
Lock-Up Period commencing on the Effective Date, he, she or it agrees that the
Common Stock purchased on such exercise of options or warrants will be subject
to the terms of this Lock-Up Agreement for the remaining portion of such Lock-Up
Period which commenced on the Effective Date. In addition, the undersigned
agrees that he, she or it will not sell, pledge, margin, hypothecate or
otherwise dispose of such Common Stock pursuant to the exemption afforded by
Rule 701 under the Securities Act of 1933, as amended, during such Lock-Up
Period without the prior written consent of the Representative.
The undersigned further agrees that he, she or it shall not enter into any
swap or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock owned by the
undersigned at the date hereof, or that the undersigned obtains ownership of
during the Lock-Up Period (regardless of whether any of the transactions are to
be settled by the delivery of Common Stock, other securities, cash or
otherwise), for the Lock-Up Period without the prior written consent of EBI
Securities Corporation.
The undersigned further agrees that all of the rights, authority and
preemptive provisions granted to the Representative pursuant to this Lock-Up
Agreement may be transferred by the
<PAGE>
EI Securities Corporation
March 19, 1999
Page 3
Representative to any other NASD member firm that participates in the proposed
public offering of the Company's securities.
The undersigned understands that the Company and the Representative will
undertake the public offering in reliance upon this Lock-Up Agreement.
Very truly yours,
By:
--------------------------------------------
Print Name:
-----------------------------------
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP BY
NAME OF SUBSIDIARY NETIVATION.COM, INC.
------------------ -----------------------
<S> <C>
The Online Medical Bookstore, Inc. 100%
InterLink Services, Inc. 100%
</TABLE>
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Seattle, Washington
May 17, 1999