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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission file number 000-26337
NETIVATION.COM, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 82-0514605
(State or jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
806 West Clearwater Loop, Suite N, Post Falls, ID 83854
(208) 777-4203
(Address and telephone number of principal executive offices and
principal place of business)
Securities registered under Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 par value Nasdaq National Market
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Registrant's revenues for the fiscal year ended December 31, 1999 were $1.0
million.
Based on the stock's average bid and asked price of $6.3205 on March 27,
2000, non-affiliated market capital was approximately $57 million.
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
As of March 27, 2000, there were 10,832,883 shares of the registrant's $.01
par value common stock outstanding.
Transitional Small Business Disclosure Format: Yes [ ]; No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Netivation.com is an Internet company founded in 1997 and
incorporated in the state of Delaware. Netivation.com develops and operates
topic specific Internet communities designed to permit people who share a
common interest to access its suite of services and the resources of the
Internet in the political and medical arenas. Netivation.com's public policy
and political community, Votenet.com, includes content, products, and
services designed for candidates for political office, voters, political
organizations, political action committees and lobbyists. MEDMarket.com is a
business to business e-commerce community that provides products and services
to physicians, hospitals, and medical professionals. In addition,
MEDMarket.com is a venue used by manufacturers and distributors of medical
equipment and supplies for the promotion and distribution of their products
and services.
GENERAL.
Since its inception in 1997, Netivation.com has grown into one of
the world's top 500 e-commerce sites on the Internet, as noted in INTERACTIVE
WEEK, a weekly Internet trade journal, and develops and operates topic
specific Internet communities with foundations in web-based software
solutions.
Netivation.com's public policy and politics community, Votenet.com,
provides many tools for e-politics. Votenet.com provides content, products, and
services designed for political organizations, candidates for political office,
political action committees, lobbyists, media companies, associations, and large
corporations. Votenet.com's suite of products include:
- GOVERNET CAMPAIGN MANAGEMENT SOFTWARE, a PC-based software sold to
candidates that automates the critical aspects of a campaign
including volunteer coordination, online fundraising, FEC
reporting, and database management.
- VOTENET TODAY E-MAIL NEWS SERVICE, a free daily, political
newsletter emailed directly to subscribers that includes
top political stories, exclusive information, proprietary
content, and congressional voting summaries.
- CAPWEB ON-LINE LEGISLATIVE DIRECTORY AND GRASSROOTS MOBILIZATION
TOOLS, an Internet based product sold on an annual subscription
basis that provides associations, political action committees
(PACs), lobbyists, and companies the ability to identify
Congressional delegations, state legislators and media
contacts, as well as being able to correspond with them
immediately via e-mail, fax, or mailgram.
- ON-LINE FUNDRAISING, a campaign tool that allows candidates to
raise funds on the Internet. A percentage of each transaction is
charged as a fee.
- FECINFO CAMPAIGN DONATION INFORMATION, a powerful relational
database that tracks every federal campaign contribution over the
last ten years and is sold as an annual subscription to news
media, Internet portals, corporations, lobbyists, PACs, and
associations.
- POLICYVOICE INTERACTIVE VOICE RESPONSE SERVICES, a grassroots
lobbying tool for associations, PACs, and corporations that allows
access to legislative information from any phone, at any time.
Charges are based on a setup fee, a monthly base fee, and a usage
charge.
- POLITICALLYBLACK.COM FOR MINORITY POLITICS, an Internet site
focusing on political issues important to African Americans.
Politicallyblack.coms original content can be sold to other
Internet Communities.
Netivation.com's healthcare focused community, MEDMarket.com, is a
developer of web-based solutions that provides e-commerce, content, products,
and services for physicians, nurses, hospitals, pharmaceutical and insurance
companies, medical supply providers and others involved in the healthcare
market. MEDMarket.com's suite of products includes:
- MEDMARKET.COM LEAD PAGES, one-page websites that develop leads
for medical providers and manufacturers. There is a set-up fee, as
well as an annual subscription charge.
- DISCOUNTMEDMARKET.COM, a medical supplies and equipment e-commerce
store.
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- DISCOUNTMEDBOOKS.COM, a medical bookstore.
- PRACTIX MEDICAL OFFICE MANAGEMENT SOFTWARE WITH E-COMMERCE
LINKAGE, a web-based, physician's management system providing the
front-office, back-office, and Internet-office solution for
medical professionals sold to Application Service Providers
(ASPs). There is an annual license fee, as well as a monthly
charge per healthcare provider on the ASP network using the
system.
- MEDMARKETAUCTION.COM, a medical equipment auction site providing a
fee for each item that is sold.
Netivation.com completed its initial public offering in June 1999 and
is listed on the Nasdaq National Market under the symbol NTVN.
ACQUISITIONS.
Acquisitions play a major part in Netivation.com's growth strategy.
Netivation.com acquired seven (7) companies during 1999. All acquisitions
were accounted for by the purchase method of accounting, so they were
accounted for at their fair market values and included prospectively in the
financial statements from the respective acquisition dates. The acquired
companies represented a substantial portion of Netivation.com's growth during
the second half of 1999 as compared to the first half of 1999.
In June 1999, Netivation.com acquired both Interlink Service, Inc., and
The Online Medical Bookstore, Inc. Interlink Services was acquired for 126,429
shares of Netivation.com common stock and $50,000 and The Online Medical
Bookstore was acquired for 192,857 shares and $250,000. Interlink Services
provides website design and hosting services and The Online Medical Bookstore
sells medical books and supplies via e-commerce. Both companies became
wholly-owned subsidiaries of Netivation.com.
In October 1999, Netivation.com acquired the following companies, which
are now wholly-owned subsidiaries of Netivation.com:
- MEDMarket, Inc., a developer of Internet e-commerce websites for
medical manufacturers and suppliers for $100,000 and 100,000
shares of Netivation.com common stock.
- PoliticallyBlack.com, the leading political information center for
African Americans for $55,000 and 30,000 shares of Netivation.com
common stock.
- Raintree Communications Corporation, a provider of automated voice
and data services for grassroots lobbying for $100,000 and 150,000
shares of Netivation.com common stock, plus up to another 60,000
shares based on performance criteria.
- Public Disclosure, Inc., the provider of FECInfo a comprehensive
website of Federal Election Commission information on federal
candidates and interest groups for $190,000 and 300,000 shares of
Netivation.com common stock.
On December 15, 1999, Netivation.com acquired 100 percent of the
outstanding stock of Net.Capitol, Inc., a leading provider of Internet-based
products for public affairs and political organizations, including the AFL-CIO,
IBM, the National Association of Realtors and the United States Senate.
Netivation.com received all of the outstanding shares of Net.Capitol's capital
stock in exchange for 1,544,730 shares of Netivation.com common stock, options
to acquire 105,270 additional shares, plus payment of $410,220 to the
Net.Capitol preferred shareholders. With the completion of the acquisition,
Net.Capitol, Inc., became a wholly owned subsidiary of Netivation.com.
CLIENTS.
Netivation.com has numerous and varied clients due to its focus on the
political and healthcare communities. As such, the Company is not materially
dependent on any specific clients. The list below provides details regarding
some of Netivation.com's historical clients.
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<TABLE>
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ASSOCIATIONS MEDIA POLITICAL CAMPAIGNS
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<S> <C> <C>
Air Conditioning Contractors of America ABCNews.com Alaska Republican Party
American Insurance Association Associated Press Arkansas Democratic Party
American Society of Association Atlanta Constitution Asa Hutchinson for Congress
Executives Bloomberg LLP Delaware Democratic Party
Association for Advanced Life Bureau of National Affairs Delaware Republican Party
Underwriting Catholic Relief Services Gannett News Service Phyllis Taliaferro for Congress
National Association of REALTORS Radio & Television News Directors South Carolina Republican Party
National Rural Electric Cooperative Foundation Virginia Democratic Party
Association Washington Post Virginia Republican Party
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CORPORATE MEDICAL GROUPS POLITICAL GROUPS
- - --------- -------------- ----------------
<S> <C> <C>
BASF American College of Emergency Physicians Campaign Reform Project
Decision Strategies/Fairfax American College of Physicians/American National Conference of Black
International American Gastroenterological Association Mayors
Edison Electric Institute American Hospital Association Preston Gates Ellis & Rouvelas
ITT Hartford Insurance Group American Medical Association Senior Coalition
Microsoft Corporation American Psychological Association The Cassidy Companies
Northwestern Mutual Life Insurance College of American Pathologists The Retired Enlisted Association
Triad Communications Health Insurance Association of America US Chamber of Commerce
US Senate
Vietnam Veterans of America
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REVENUE SOURCES.
Due to the fast paced and ever changing environment of the Internet,
Netivation.com believes it is imperative to have multiple sources of revenue.
Netivation.com is currently positioned to capitalize on several revenue sources
such as the following:
- INTERNET BASED SOFTWARE APPLICATIONS have been a source of
revenue in our Votenet.com division and are expected to be a
future source of revenue in our MedMarket.com division.
- E-COMMERCE SALES have been and will continue to be a primary
source of revenue.
- ON-LINE FUNDRAISING FEES may become a source of revenue in
2000 and are expected to be a source of revenue in the future.
- LEAD PAGE SALES TO PROFESSIONALS, SUPPLIERS AND MANUFACTURERS
have been and will continue to be a source of revenue.
- CONTENT SUBSCRIPTIONS have been and should continue to be a
source of revenue.
- ADVERTISING AND SPONSORSHIP SALES have been and are expected
to be a source of revenue in the future.
- INTERNET CONSULTING SERVICES have been and may continue to be
a source of revenue.
BRANDING.
Differentiation through branding is critical in the Internet industry.
Much like revenue, it is important to have multiple avenues working
simultaneously to create brand recognition. Netivation.com is utilizing several
branding techniques to enhance its brand recognition including the following:
- Domain Name Recognition with brands such as MEDMarket.com and
Votenet.com
- Portal Partnerships with multiple portals like MSN, Yahoo!, and
MyWay.com
- Daily newsletter subscriptions
- Direct marketing through print media and mailers
- Sponsoring industry conferences
- On-line advertising
- Exchanging links with other Internet sites
- Media and Press Releases
FUTURE COMMUNITIES.
Netivation.com believes that the business strategies and resources
developed for Netivation.com's political and healthcare communities can be used
in additional communities. Significant portions of Netivation.com's
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technology can be applied to the development of new communities. Netivation.com
will consider developing additional communities when it identifies appropriate
new market opportunities and concludes that Netivation.com has sufficient
resources to achieve market leadership in a prospective community.
TECHNOLOGY.
Netivation.com's strategy is to apply existing technologies in new
ways to deliver content, products and services to individuals who access
Netivation.com's Internet communities. Netivation.com has developed and
implemented a broad array of products and services for Netivation.com's
communities by using a combination of its own proprietary technologies as well
as technologies and content purchased or licensed from third parties.
Netivation.com maintains all of its Internet servers at Exodus
Communications Inc.'s facilities in Seattle, Washington and outside Washington
D.C. 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. By utilizing two locations with Exodus,
Netivation.com is able to provide backup services to help prevent short-term or
long-term failures.
EMPLOYEES.
As of December 31, 1999, Netivation.com had 131 employees. Of those
employees, approximately 51 were in marketing and sales, 8 were in senior
management, 17 were in development and 55 were in operations and administration.
Of Netivation.com's 131 total employees, all are full-time. By the end of 2000,
Netivation.com anticipates employing approximately 275 people with the greatest
increases in employees in sales, technology, and operations positions.
As Netivation.com continues to grow and introduce more products and
services, it expects to hire additional personnel. Netivation.com's future
success will depend, in part, on its ability to continue to attract, retain
and motivate highly qualified personnel. Netivation.com believes that its
relations with its employees are satisfactory. Netivation.com is not a party
to any collective bargaining agreements and Netivation.com has never
experienced any work stoppage. The Company believes it has management
personnel and processes in place to effectively manage the risks associated
with a quickly growing headcount. "See Part III, Item 9, Directors, Executive
Officers, Promoters and Control Persons and Compliance with Section 16(a) of
the Exchange Act" for details on executive officers.
PATENTS AND TRADEMARKS.
Netivation.com owns no patents on its technology or products.
Netivation.com has federally registered the following trademarks: "GOVERNET"
(Reg. No. 2,255,611) and "VOTENET" (Reg. No. 2,294,773). Netivation.com has
applied for federal registration of each of the following trademarks:
"NETIVATION.COM," "VOTENET," "VOTENET.COM," "VOTENET (AND DESIGN),"
"CAPITOLWATCH," "MEDINEX" and "MEDINEX.COM." Under common law, these trademarks
have an unlimited duration. But, if Netivation.com receives the federal
registration for these trademarks, the trademark will be effective for ten (10)
years and may be renewed every ten (10) years indefinitely. In addition,
Netivation.com has received a federal copyright registration for its "GOVERNET"
software.
Netivation.com may not be successful in obtaining federal registration
of its trademarks. Netivation.com has also been asked to cease and desist its
use of the "CAPITOLWATCH" mark by CapitolWatch, a nonprofit organization.
Netivation.com's federal trademark application for "CapitolWatch" in
International Class 42 has been refused by the examining attorney on the basis
that the mark, when used on or in connection with the identified services, so
resembles a registered mark held by another party as to be likely to cause
confusion, to cause mistake, or to deceive. Netivation.com has also been asked
to cease and desist its use of the "Netivation" mark by NetOvations Creative
Internet Services. Netivation.com has responded to NetOvation Creative
Internet Services that Netivation.com does not believe that there is any
likelihood of confusion because of the differences in appearances and
connotation of the marks. Additionally, the federal trademark applications
for "VOTENET" and "VOTENET.COM" in Classes 38 and 42, and "VOTENET (AND
DESIGN)" in classes 35, 38, and 42, have been refused by the examining
attorney on the basis that use of the mark, when used on or in connection with
the identified services, so resembles a mark held by another party as to be
likely to cause confusion, to cause mistake, or to deceive. As a result of
these activities, Netivation.com is reviewing whether to appeal such actions
or to develop and apply for different trademarks and change its brand names.
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As a result of the acquisition of seven companies in 1999,
Netivation.com has obtained rights to the following tradenames, trademarks, and
domain names: "MEDMarket," "medmarket.com," "medmarket.net,"
"medmarketnetwork.com," "medicom.com," "webdestinations.com," "rainfo.com,"
"rainfo.org,""politicallyblack.com," "Raintree Communications Corporation,"
"Policy Voice," the Raintree logo, "publicdisclosure.org,"
"joycecommission.org," "fecinfo.com," "fecinfo.org," "tray.com,"
"Netcapitol.com," "CapWeb," "Cabweb.net," "CapWeb Custom," "Stardot.com,"
"VoxPop," "Voxpop.com," "The Message Center," "SpinMaster," "Pro & ConText,"
"The Jefferson Project," "Emagine," "Bonzo," and "Net.Capitol Services,"
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.
Barriers to entry on the Internet are minimal, and competitors can launch new
websites or new products and services at a relatively low cost. As a result,
Netivation.com expects that competition in the Internet industry will continue
to intensify.
Netivation.com competes, directly and indirectly, for members,
consumers, subscribers, content and service providers, advertisers, e-commerce
partners and acquisition candidates with the following categories of companies:
- On-line services or websites targeted to the political and
healthcare markets;
- 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 there are key factors to developing successful
Internet communities. The primary factors in creating competitive Internet
communities 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 to consider in developing a competitive Internet community include
ease-of-use, quality of site and information, and reliability of the
communities' services and products. Netivation.com also believes 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.
Netivation.com currently offers many of the same individual services,
products and combinations of the services and products as offered by other
Internet providers:
- Netivation.com's e-mail delivery service competes against
other e-mail and `'push'` technology providers;
- Netivation.com's search engine competes against other website
directories and search engine providers;
- Netivation.com's free website based e-mail products compete
against products offered by other website based e-mail
providers;
- Netivation.com's website design and hosting services compete
against numerous other companies providing such capabilities;
and
- Netivation.com's online fundraising system competes against
traditional campaign fund raising methods, such as direct
mail, fundraising events and personal solicitation.
Although Netivation.com faces a broad range of competition from a
variety of Internet service and product providers, Netivation.com believes that
it can compete more effectively by targeting specific communities and offering
greater depth of products, information and services than its competitors. For
example, management believes that competitors for Netivation.com's MEDMarket.com
community such as the websites provided by Healtheon/WebMD and Neoforma do not
bring the physicians office together with the healthcare community as
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effectively as Netivation.com. Netivation.com's MEDMarket.com community offers
advanced search engine capabilities and consulting services to physician's
offices for website development. By assisting the physician's office with
website development and increasing physicians' access to advanced medical search
engines, Netivation.com believes its MEDMarket.com site can more effectively
link physician's offices with the rest of the healthcare industry.
With respect to the Votenet community, Netivation.com faces
competition from news services and organizations such as ABC News and other
online services specializing in politics, such as Grassroots.com, C-Span.org
and Roll Call. However, Netivation.com is not aware of any competitor that
offers all of the services and products of Votenet. For example,
Netivation.com offers website development services, e-mail accounts, and
real-time congressional voting information to politicians and other
politically active persons. Netivation.com believes that the robust nature of
the products and service offerings through Votenet.com positions
Netivation.com to compete in its 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
using Excel and Microsoft Access or standard personal computer based business
accounting packages. Netivation.com's Governet software program enables campaign
managers to use Internet based technologies to track various aspects of a
candidates campaign. Netivation.com's challenge will be to convince campaigns to
switch to Votenet's Governet software program from the more traditional manual
and semi-manual methods of campaign management.
Similarly, with respect to MEDMarket'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, as well as single or limited payer functions. These systems include
those offered by Medisoft, KIP Medical Office Software, Techsoft Medical Systems
and CCA Medical Practice Software. Most of these systems are based on desktop PC
applications offering limited access to information managed by the system. Only
users directly networked to the system and running the software can access or
update information on these systems. Netivation.com believes that its
Internet-based physician's office management software, Practix, offers the
convenience of remote access without special equipment or software, other than a
PC and a standard web browser. Since the systems software application components
and `'backbone'` are managed on Netivation.com's servers remotely,
Netivation.com believes that Practix 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 the Practix Internet-based solution.
Many of Netivation.com's competitors have greater brand recognition and
greater financial support, marketing plans and other resources. Netivation.com's
competitors may develop products and services that are superior to
Netivation.com's or that achieve greater market acceptance. These factors may
place Netivation.com at a disadvantage in responding to its competitors' pricing
strategies, technological advances, advertising, sponsorship and e-commerce
efforts and other initiatives. As result, Netivation.com may not compete
successfully against its current or future competitors. Netivation.com's
inability to successfully respond to competitive pressures could have a material
adverse effect on Netivation.com's business, financial condition, operating
results, and cash flows.
GOVERNMENTAL REGULATION AND LEGAL UNCERTAINTIES.
Netivation.com is currently subject to various laws and regulations
relating to its business. But there are few laws or regulations currently
directly applicable to the Internet and Netivation.com's current and expected
activities on the Internet. However, new laws and regulations relating to the
following areas may be adopted because of the Internet's popularity and growth:
- online content;
- user privacy;
- taxation;
- access charges;
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- copyrights;
- characteristics and quality of products and services; and
- consumer protection.
Such government regulation may impose additional burdens on
Netivation.com's business. These regulations may impede the growth in Internet
use and thereby decrease the demand for Netivation.com's products and services
or otherwise have a material adverse effect on Netivation.com's business,
operations and financial condition.
Additionally, U.S. and foreign laws relating to e-commerce or Internet
communications are becoming more prevalent. These laws have recently been
enacted and there is uncertainty in the Internet community regarding their
impact on the marketplace. Any new legislation or regulation regarding the
Internet, or the application of existing laws and regulations to the Internet,
could materially adversely affect Netivation.com. If Netivation.com were alleged
to violate federal, state or foreign civil or criminal laws, even if these
claims could be successfully defended, Netivation.com could be materially
adversely affected.
Several telecommunications carriers are supporting regulation of the
Internet by the Federal Communications Commission ("FCC") in the same manner
that the FCC regulates other telecommunications services. These carriers have
alleged that the growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure, resulting in interruptions in phone
service. Local telephone carriers such as Pacific Bell, a subsidiary of SBC
Communications Inc., have petitioned the FCC to regulate Internet service
providers in a manner similar to long-distance telephone carriers and to impose
access fees on Internet service providers. Any such regulations could
substantially increase the costs of communicating on the Internet. This could
slow the growth in Internet use and thereby decrease the demand for
Netivation.com's products and services or otherwise have a material adverse
effect on Netivation.com's 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. There have recently been numerous proposals under
consideration by federal, state, local and other organizations regarding changes
to the existing campaign regulations, including proposals addressing Internet
fundraising. Since Netivation.com expects to provide fundraising services to
political campaigns and candidates, Netivation.com's activities, as well as the
use of Netivation.com's products and services, may be governed by federal and
state campaign finance laws and regulations. As these policies continue to
develop, it is possible that Netivation.com may be exposed to future regulation.
Any such regulation may increase Netivation.com's cost of doing business, cause
Netivation.com to modify its fundraising services, decrease the demand for
Netivation.com's fundraising services or otherwise have a material adverse
effect on Netivation.com's business, results of operations and financial
condition.
Given that laws and government regulations are complex, vary widely
from state to state, and are frequently changed, Netivation.com's products and
services may not be legal or practical in all jurisdictions. For example,
Netivation.com may not be able to ensure that its products and services keep
pace with these frequently changing regulations. Netivation.com could be subject
to liability under Federal Election Commission regulations if it were found to
have participated in a prohibited campaign fund raising effort. Such liability
may place Netivation.com's activities under increased regulation, increase
Netivation.com's cost of doing business, decrease the use of the Internet for
campaign or fundraising efforts and thereby decrease the demand for
Netivation.com's products and services or otherwise have a material adverse
effect on Netivation.com's business, its results of operations and its financial
condition.
HISTORY OF INCORPORATION.
Netivation.com, formerly named Nelloro Corporation, was a Nevada
corporation formed in 1993. Nelloro owned interests in mineral properties from
September 1993 until 1996, near Nelson, Nevada. No mineral extraction or
processing of the mining claims occurred, and, in 1996, Nelloro abandoned the
claims and did not conduct any other business operations. Netivation.com began
its current operations as a Nevada corporation in September 1997 after acquiring
the technology developed by Netivation.com's existing management team in
consideration for 2,500,000 shares of common stock of Nelloro. On May 14, 1999,
Netivation.com merged with and into
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Netivation.com Merger, Inc., a Delaware corporation, leaving Netivation.com
Merger, Inc. as the surviving corporation. On June 28, 1999, Netivation.com
Merger, Inc. filed a restated certificate of incorporation in which it renamed
the corporation Netivation.com, Inc.
RESEARCH AND DEVELOPMENT.
Our research and development expenses consist principally of
technical engineering personnel costs, equipment depreciation, consulting and
supplies. Product development expenses were $171,000 in 1998 and increased to
$1.1 million in 1999. Costs related to research, design and product
development have been charged to research and development expense as
incurred. We believe that a significant level of research and development
expenses is required to remain competitive. Accordingly, management expects
research and development expenses should continue to increase in 2000 due to
growth in technical staff required to develop and enhance our products and
services.
DISTRIBUTION
Netivation.com distributes its products and services through the
development and maintenance of applications via the Internet, on-site consulting
and development, e-commerce, and through acting as a transaction manager between
customer and distributor.
Netivation.com offers a variety of Internet based products and services
that are customized, hosted and maintained by Netivation.com. Netivation.com
maintains multiple e-commerce sites that market products to the consumer.
Netivation.com ships these products utilizing a third party distributor. In
addition, Netivation.com manages auction transactions between customer and
supplier and receives a fee from the maintenance of this transaction site.
PREVIOUSLY ANNOUNCED PRODUCTS
Netivation.com is officially launching the enhanced Application
Service Provider (ASP) based physician office management solution, Practix,
at the Internet World trade show on April 5 - 7, 2000. Practix is a web based
management system that provides a front-office, back-office, and
internet-office solution for medical professionals. Although the product is
officially being rolled out at the Internet World trade show, it is currently
being marketed to the medical community. Practix was originally introduced as
MedinexPro in August 1999.
ITEM 2. DESCRIPTION OF PROPERTY
FACILITIES.
Netivation.com relocated to its current headquarters at 806 West
Clearwater Loop, Suite N, Post Falls, Idaho, in 1999, where it leases
approximately 16,500 square feet. Additionally, Netivation.com leases
approximately 9800 square feet of office space at 11th and G Streets, Suite 1100
and subleases 3,800 square feet at 1100 New York Avenue, in Washington, D.C. In
addition, the Company maintains one month-to-month lease at 6878 Fleetwood Road,
McLean, Virginia for approximately 1,100 square feet. The lease for each of
these locations is paid current and the properties are in good working
condition.
INVESTMENT POLICIES.
Netivation.com has developed some general investment policy guidelines,
but did not develop a formal policy during the 1999 fiscal year. However,
Netivation.com is considering the adoption of a formal policy during the 2000
fiscal year in which Netivation.com would limit the amount of assets to be
invested in any type of investment to ten percent (10%). The investment policy
guidelines may be changed by the board of directors ("Board of Directors") and
do not require stockholder vote. Netivation.com is focusing its investments
primarily for income, though it has made an investment in MoneyZone.com,
formerly known as EBONLINE, for possible capital gain. The Company purchased
175,000 shares of MoneyZone.com for $3.00 per share. As of December 31, 1999,
MoneyZone.com was trading at $5.25 per share. At this time, Netivation.com, does
not invest in real estate, real estate mortgages or the securities of parties
engaged in real estate activities.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS.
On October 25, 1999, a legal proceeding was filed against
Netivation.com by Lawrence L. and Nancy D. Burch, husband and wife. Lawrence L.
Burch ("Burch") was Netivation.com's former Chief Financial Officer and
Treasurer. The complaint was filed with the First Judicial District of the State
of Idaho in and for the County of Kootenai.
Netivation.com and Burch entered into an employment agreement effective
February 25, 1999, by which Burch accepted employment as Netivation.com's Chief
Financial Officer. On October 6, 1999, Netivation.com terminated Burch's
employment for what it believes to have been good cause. The Burches filed the
lawsuit against Netivation.com alleging breach of contract, among other things,
and sought monetary damages in an unspecified amount in excess of the district
court's $10,000 jurisdictional minimum, as well as their court costs and
attorney's fees.
On December 27, 1999, the Burches and Netivation.com signed a
Settlement Agreement and Release, the terms of which are immaterial in nature.
There is no further action required in this matter.
Netivation.com is not aware of any other outstanding or pending
litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Netivation.com stockholders were not asked to vote on any matters
during the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Netivation.com's Common Stock is registered on the Nasdaq National
Market System. The table below shows the high and low sales prices per share of
the Common Stock since Netivation's Initial Public Offering on June 22, 1999:
Netivation.com Common Stock
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Quarter Ended June 30, 1999 10.1875 7.5000
Quarter Ended September 30, 1999 12.9375 4.0625
Quarter Ended December 31, 1999 9.00000 4.3125
</TABLE>
As of December 31, 1999, Netivation.com had approximately 288 holders
of record for 9,197,555 shares of issued and outstanding common stock.
Netivation.com has paid $209,000 in dividends to preferred stock
shareholders. Netivation.com does not expect to pay dividends in the
foreseeable future. Netivation.com intends to use future earnings for
reinvestment in its business. The Board of Directors will determine whether
any future cash dividends will be paid and payment of any dividends will be
dependent on Netivation.com's financial condition, results of operations,
capital requirements and other such factors as the Board of Directors deems
relevant.
Since January 1, 1996, Netivation.com has issued and sold securities
that were not registered under the Securities Act of 1933 ("Securities Act") as
follows:
10
<PAGE>
1. During the period, Netivation.com authorized the grant of stock
options to employees, consultants, directors and officers of Netivation.com 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 ............................. 86,750 $ 2.50
March 1999 ............................... 15,000 $ 1.25
March 1999 ............................... 25,000 $ 2.50
------- ---------
Total = 478,875
=======
</TABLE>
2. During the period, Netivation.com sold to employees, consultants,
directors and affiliates of Netivation.com an aggregate of 505,000 shares of
Common Stock pursuant to restricted stock purchase agreements.
3. On September 27, 1997, Netivation.com issued an aggregate of
2,015,000 shares to two accredited investors in consideration for the transfer
of technology to Netivation.com. No value was assigned to the technology as it
had no cost basis and the common stock was deemed to have minimal value.
4. On October 24, 1997 Netivation.com issued 150,000 shares of its
Common Stock at a cash price of $.70 per share to one accredited investor.
5. On February 23, 1998, Netivation.com issued 105,000 shares of its
Common Stock at a cash price of $1.20 per share to six accredited investors.
6. In March and July 1998, Netivation.com issued an aggregate of
150,000 shares of its Common Stock to one accredited investor in consideration
of its entering into a bridge loan with Netivation.com.
7. Commencing in November 1998 and ending in January 1999,
Netivation.com 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.
8. Upon completion of Netivation.com's initial public offering,
Netivation.com sold warrants to purchase 250,000 shares of common stock at an
exercise price of $16.50 per share to the underwriters involved in the
initial public offering. The total price of the warrants was $25.00.
The sales and issuance of securities in the transactions described in
paragraphs (1) and (2) 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.
The sales and issuances of securities in the transactions described in
paragraphs (3) through (8) above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) thereof and/or Regulation D
promulgated under the Securities Act. The purchasers in each case represented
their intention to acquire the securities for investment only and not with a
view to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. All recipients either received
adequate information about the Company or had access, through employment or
other relationships, to such information.
No underwriters were used in connection with these sales and issuances.
11
<PAGE>
After Netivation.com, Inc.'s initial public offering on June 22, 1999,
Netivation.com, Inc. had a total of 8,660,070 shares of outstanding stock. Of
these shares, 2,500,000 shares were freely tradeable on the public market
without restriction under the Securities Act, except for any shares held by
"affiliates" of Netivation.com.
During 1999 Netivation.com sold 2,549,286 shares of common stock
without registering the stock under the Exchange Act. Netivation.com sold the
unregistered shares to each of the companies listed below under the terms of
separate Agreements and Plans of Merger dated between June 22, 1999 and December
15, 1999. Under these Agreements and Plans of Merger Netivation.com purchased
all of the issued and outstanding stock of these companies and these companies
became wholly-owned subsidiaries of Netivation.com:
<TABLE>
<CAPTION>
TYPE OF NUMBER OF EXEMPTION
NAME OF COMPANY SECURITIES SHARES GIVEN DATE RELIED ON
- - --------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Interlink Services, Inc. Common Stock 126,429 June 22, 1999 Section 4(2)
The Online Medical Common Stock 192,857 June 22, 1999 Section 4(2)
Bookstore, LLC
MEDMarket, Inc. Common Stock 100,000 October 18, 1999 Section 4(2)
Politicallyblack.com Common Stock 30,000 October 19, 1999 Section 4(2)
Raintree Communications Common Stock 150,000, plus up to October 21, 1999 Section 4(2)
Corporation another 60,000 based on Section 4(6)
performance criteria; Rule 506
see Exhibit 2.3
Public Disclosure, Inc. Common Stock 300,000 October 22, 1999 Section 4(2)
Section 4(6)
Rule 506
Net.Capitol, Inc. Common Stock 1,544,730, plus options December 15, 1999 Section 3(a)(10)
to acquire 105,270 Rule 506
additional shares; see
Exhibit 2.5
</TABLE>
Each selling stockholder was given the opportunity to review and
discuss Netivation.com's business with the directors, officers, and
management of Netivation.com. Each selling stockholder represented their
intention to acquire the securities for investment only and not with a view
to the distribution thereof. Appropriate legends are affixed to the stock
certificates issued in such transactions. No underwriters were used in
relation to these transactions.
On June 22, 1999, Netivation.com's Registration Statement on Form
SB-2 covering the offering of 2,500,000 shares of Netivation.com's Common
Stock, Commission file number 333-74569 was declared effective. The offering
commenced on June 23, 1999, and terminated upon the sale of all 2,500,000
shares of Netivation.com common stock. The offering was managed by EBI
Securities Corporation and Millennium Financial Group, Inc. The total price
to the public for the shares offered and sold by Netivation.com was
$25,000,000. The amount of expenses incurred by Netivation.com in connection
with the offering is as follows:
<TABLE>
<S> <C>
Underwriting discounts and commissions $ 2,625,000
Finders fees 136,000
Expenses paid to or for the Underwriter 1,431,000
-------------
Total expenses $ 4,192,000
</TABLE>
All of the foregoing expenses were direct or indirect payments to
persons other than (i) directors, officers or their associates; (ii) persons
owning ten percent (10%) or more of Netivation.com's common stock; or (iii)
affiliates of Netivation.com.
12
<PAGE>
The net proceeds of the offering to Netivation.com (after deducting the
Underwriter's discounts and commissions and offering expenses) was $20,808,000.
From the settlement date, the net proceeds have been used in the following
manner, in the following reasonably estimated amounts:
- Investments in debt instruments of the United States Government
and its agencies and investments in marketable equity
securities: 15,500,000; and investments in other
securities: $500,000
- Acquisition of other businesses: $855,000
- Loan to Oron Strauss, Votenet General Manager: $133,000
- Working Capital: $3,820,000
ITEM 6. MANAGEMENT'S PLAN OF OPERATION
GENERAL.
Netivation.com is an Internet company incorporated in the State of
Delaware. Its strategy is to build significant revenues by developing leading
Internet communities for large, targeted markets. Netivation.com commenced
current operations in September 1997 and began generating revenues on the
sale of advertising and sponsorships in January 1999.
Acquisitions play a major part in Netivation.com's growth strategy.
Netivation.com acquired seven (7) companies during 1999. All acquisitions
were accounted for by the purchase method of accounting, so they were
accounted for at their fair market values and included prospectively in the
financial statements from the respective acquisition dates. The acquired
companies represented a substantial portion of Netivation.com's growth during
the second half of 1999 as compared to the first half of 1999.
In June 1999, Netivation.com acquired both Interlink Services, Inc.,
and The Online Medical Bookstore, Inc. Interlink Services was acquired for
126,429 shares of Netivation.com common stock and $50,000 and The Online
Medical Bookstore was acquired for 192,857 shares and $250,000. Interlink
Services provides website design and hosting services and The Online Medical
Bookstore sells medical books and supplies via e-commerce. Both companies
became wholly-owned subsidiaries of Netivation.com.
In October 1999, Netivation.com acquired the following companies,
which are now wholly-owned subsidiaries of Netivation.com:
- MEDMarket, Inc., a developer of Internet e-commerce
websites for medical manufacturers and suppliers for
$100,000 and 100,000 shares of Netivation.com common stock.
- PoliticallyBlack.com, the leading political information
center for African Americans for $55,000 and 30,000 shares
of Netivation.com common stock.
- Raintree Communications Corporation, a provider of
automated voice and data services for grassroots lobbying
for $100,000 and 150,000 shares of Netivation.com common
stock, plus up to another 60,000 shares based on
performance criteria.
- Public Disclosure, Inc., the provider of FECInfo, a
comprehensive website of Federal Election Commission
information on federal candidates and interest groups for
$190,000 and 300,000 shares of Netivation.com common stock.
On December 15, 1999, Netivation.com acquired 100 percent of the
outstanding stock of Net.Capitol, Inc., a leading provider of Internet-based
products for public affairs and political organizations, including the
AFL-CIO, IBM, the National Association of Realtors and the United States
Senate. Netivation.com received all of the outstanding shares of
Net.Capitol's capital stock in exchange for 1,544,730 shares of
Netivation.com common stock, options to acquire 105,270 additional shares,
plus payment of $410,220 to the Net.Capitol preferred shareholders. With the
completion of the acquisition, Net.Capitol, Inc. became a wholly-owned
subsidiary of Netivation.com.
Revenues are generated from e-commerce merchandise sales, website
development and hosting, Internet access, software licenses and advertising.
Sales of products directly to customers through e-commerce are
recognized when shipped. In these transactions the Company acts as
merchant-of-record. Accordingly, the Company records as revenue the full
sales price of the product sold and records the full cost of the product to
the Company as cost of revenues, upon shipment of the product.
Software licensing costs and website development revenues are
generally recognized when all elements essential to the functionality of the
software or the website have been delivered. Where the Company has
significant continuing involvement with the licensee, revenues are deferred
and recognized over the term of the agreement. Hosting contracts typically
have a term of one year, with fees charged on a monthly basis.
Advertising consists of the sale of impressions on one or more of
the Company's network of websites for cash or barter. Advertising revenues
are recognized ratably over the term of the applicable agreement.
Internet access is billed on a monthly basis and is earned as
billed. Hosting contracts typically have a term of one year, with fees
charged on a monthly basis.
Deferred revenue consists primarily of prepaid licensing and hosting
fees that are being amortized over their contract life.
REVENUES.
In 1999, the Company generated revenues of $1.0 million. The Company
did not recognize any revenues from its inception through December 31, 1998.
Revenues expanded significantly the second half over the first half of 1999,
with over 87% of the year's annual revenues occurring in the second half.
Most of the revenue growth was the result of companies acquired during the
year. The Company ended 1999 with $0.6 million in deferred revenues. We
expect that some of our revenues will be seasonal. We may experience
seasonality in its advertising, membership traffic, and some e-commerce
revenues. We also expect that business usage of the Internet, and of our
products and services, may typically decline during the summer and year-end
vacation and holiday periods.
COST OF REVENUE.
Cost of revenue primarily consists of the cost of books and medical
supplies sold over the Internet as well as some of the payroll costs for
technology employees. In 1999, cost of revenue and payroll costs for services
provided represented sixty-nine percent (69%) of revenues.
GROSS MARGINS.
Gross margins dollars were $0.3 million or thirty-one percent (31%)
of revenues. The Company offers discounts on certain items as promotional
opportunities. These promotions lower gross margin percentages on the specific
items offered, but are intended to attract more customers.
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.
In 1999, operating expenses totaled $9.0 million, compared with $2.1
million in 1998. Product development expenses grew from $0.2 million in 1998
to $1.1 million in 1999. Sales and marketing expenditures increased in 1999
to $2.3 million compared to $0.6 million in 1998. General and administrative
expenses grew from $0.8 million in 1998 to $3.3 million in 1999. Amortization
expenses due to acquisitions were $1.1 million in 1999 which compares to no
amortization in 1998. In 1999, stock compensation was $1.2 million in
relation to $0.6 million in 1998. Operating expenses grew mostly from a
growth in head count, as well as increasing expenditures for advertising,
marketing programs, and professional services fees. The increase in operating
expenses primarily reflects our transition to the stage of marketing and
offering our services. For example, the number of employees increased from 29
in December 1998 to 131 as of December 31, 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.
LOSS FROM OPERATIONS.
The Company's loss from operations in 1999 was $8.7 million, compared
with $2.1 million in 1998. The Company has, and will continue to incur
substantial costs to create, introduce, and enhance its products and services,
to develop content, to build brand awareness, and to grow its business.
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 did not 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 did not have a material impact on the Company's
financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." It
requires the recognition of all derivatives as either assets or liabilities
and the measurement of those instruments at fair value. The required adoption
period is effective for the issuance of Netivation's March 31, 2001 quarterly
financial statements. The implementation of SFAS No. 133 is not expected to
have a material impact on Netivation's financial position or results of
operations. SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133"
issued in August 1999, postpones for one year the mandatory effective date
for adoption of SFAS No. 133 to January 1, 2001.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," to provide guidance on the recognition, presentation and disclosure
of revenues in financial statements. The Company believes its revenue
recognition practices are in conformity with the guidelines prescribed in SAB
No. 101.
TOTAL INTEREST AND OTHER INCOME.
Interest and other income net of expense for 1999 totaled $0.3
million, compared with interest expense of $0.2 million in 1998. The change
was primarily due to the use of proceeds from the Company's June 1999 initial
public offering that were invested in United States Government debt
securities.
INCOME TAXES.
We have not paid income taxes as we have lost money since inception.
As of December 31, 1999, we had net operating loss, or "NOL,"
carryforwards of approximately $2.6 million that expire between 2012 and
2019. In accordance with the Internal Revenue Code of 1986, as amended,
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.
13
<PAGE>
NET LOSS AND LOSS PER SHARE.
The Company's net loss applicable to common shareholders in 1999 was
$8.6 million, compared with $2.3 million in 1998. The loss per basic and diluted
share was $1.35 in 1999 versus $0.69 in 1998. Management expects continuing
losses for the foreseeable future and there is no assurance that profitability
will be achieved.
YEAR 2000.
No material costs were incurred and operations were not materially
impacted by the Year 2000 issue.
LIQUIDITY AND CAPITAL RESOURCES.
On June 22, 1999, Netivation.com completed its initial public offering
of 2,500,000 shares of common stock, resulting in net proceeds of $20,808,000.
As of December 31, 1999, Netivation.com had cash and cash equivalents totaling
$15.5 million, compared to $1.9 million as of December 31, 1998.
Since its June 1999 IPO, Netivation.com acquired seven companies that
enhance and extend the range of the Company's products and services. The Company
paid total consideration of 2,549,286 shares of Netivation.com common stock and
$1,105,220 cash to acquire the outstanding stock of these companies.
In 1999, cash used in operating activities was $6.6 million. Cash used
in operating activities consisted mostly of funding the Company's net operating
losses.
Capital expenditures for 1999, consisting primarily of the seven
acquisitions and the purchase of additional computer equipment, were $1.2
million.
For 1999, cash provided by financing activities of $21.4 million was
primarily due to Netivation.com's private placement and initial public offering,
which raised net proceeds of $20.8 million.
Netivation.com estimates that its current cash balance will be
sufficient to fund its operations, working capital, capital expenditures, and
business growth through the year 2000. At its current stage of business
development, Netivation.com's quarterly revenues and results of operations may
be materially affected by, among other factors, development and introduction of
products, time to market, market acceptance, demand for Netivation.com's
products, the effects of competition, and general economic conditions. As a
result, there can be no assurance that Netivation.com will be sufficiently
funded beyond 2000. At this time, Netivation.com has no debt or established
lines of credit.
Subsequent to December 31, 1999, the Company has entered into
multiple marketing agreements whereby the Company will work with Internet
content providers to provide political content and public affairs services.
These contracts require the payment of approximately $3,400,000 during the
year 2000, plus warrants to purchase shares of the Company's stock.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Netivation.com, Inc.:
We have audited the accompanying consolidated balance sheets of
Netivation.com, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 1998 and 1999, and the related consolidated statements of operations,
stockholders' equity and cash flows for the period ended December 31, 1997 and
for each of the years in the two year period ended December 31, 1999. 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. and Subsidiaries as of December 31, 1998 and 1999, and the results of
their operations and their cash flows for the period ended December 31, 1997
and for each of the years in the two year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
s / Arthur Andersen LLP
Seattle, WA
March 21, 2000
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
NETIVATION.COM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
As of December 31,
=======================
1998 1999
-----------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,907 $15,504
Short term investments 880 -
Subscriptions receivable 1,183 -
Accounts receivable, net of allowance
of $172 in 1999 - 295
Prepaids and other 35 388
---------- ---------
Total current assets 4,005 16,187
Equipment and furniture, net 94 815
Investments 918
Goodwill, net - 5,116
Intangible assets, net - 10,225
Other assets - 182
---------- ---------
Total assets $4,099 $33,443
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $172 $ 1,293
Accrued compensation 163 163
Other accrued expenses 28 738
Convertible note to stockholder, net 501 -
Advances from stockholders 95 -
Deferred revenue - 619
---------- ---------
Total current liabilities 959 2,813
---------- ---------
Mandatorily redeemable common stock option 391 -
Other long-term liabilities 24 75
---------- ---------
415 75
---------- ---------
Stockholders' equity
8% Convertible preferred stock, $.01 par value
3,500,000 shares authorized 2,325,000 and no
shares issued and
outstanding, respectively, preference in liquidation
of $3,938 at December 31, 1998 3,317
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 authorized,
3,473,270 and 10,890,056 shares issues and
outstanding 628 41,187
Accumulated other comprehensive income 393
Accumulated deficit (2,403) (11,025)
---------- ---------
Total stockholders' equity 2,725 30,555
---------- ---------
Total liabilities and stockholders' equity $4,099 $33,443
========== =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
15
<PAGE>
NETIVATION.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year ended December 31,
=================================
1997 1998 1999
---------------------------------
<S> <C> <C> <C>
Revenues:
Electronic commerce merchandise sales $ 548
Website development, consulting and hosting - - 450
--------- --------- ---------
- - 998
--------- --------- ---------
Cost of revenues:
Electronic commerce merchandise sales 567
Website development, consulting and hosting - - 117
--------- --------- ---------
- - 684
--------- --------- ---------
Gross margin - - 314
--------- --------- ---------
Operating expenses
General and administrative $ 43 $ 837 3,351
Sales and marketing 18 551 2,274
Research and development 171 1,054
Amortization of intangible assets 1,068
Stock-based compensation 586 1,232
--------- --------- ---------
61 2,145 8,979
--------- --------- ---------
Loss from operations (61) (2,145) (8,665)
--------- --------- ---------
Interest (expense) income, net - (183) 252
--------- --------- ---------
Loss before income taxes (61) (2,328) (8,413)
Provision for income taxes - - -
--------- --------- ---------
Net loss (61) (2,328) (8,413)
Preferred stock dividends earned - (14) (209)
--------- --------- ---------
Net loss available to common stock $ (61) $ (2,342) $ (8,622)
========= ========= =========
Historical basic and diluted loss per share (0.02) (0.69) (1.35)
========= ========= =========
Historical weighted average shares
outstanding used to compute loss per share 3,168,270 3,417,377 6,385,080
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
16
<PAGE>
NETIVATION.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK AND
8% CONVERTIBLE ADDITIONAL PAID-
PREFERRED STOCK IN CAPITAL ACCUMULATED
------------------ SUBSCRIPTIONS ---------------- OTHER
NUMBER OF RECEIVABLE FOR NUMBER OF ACCUMULATED COMPREHENSIVE
SHARES AMOUNT PREFERRED STOCK SHARES AMOUNT DEFICIT INCOME TOTAL
---------- ------ --------------- --------- ------ ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares in
September 1999 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)
---------- ------ ------------- ---------- ------ ----------- ------------- ----------
Balance at December 31, 1999 -- -- -- 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 options at $.10
per share -- -- -- -- 180 -- 180
Grant in August 1998 of 12,000
common stock options 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 dividend -- -- -- -- -- (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 1998 of 8%
convertible preferred stock
at $2.50 per share, net of
issuance costs of $116 750,000 1,582 $(1,183) -- -- -- 399
Issuance in January 1999 of
restricted stock as
compensation for directors -- -- -- 30,000 19 -- 19
Grant of stock options -- -- -- -- 1,249 -- 1,249
Preferred stock converted to
common stock on initial
public offering (2,325,000) (4,899) -- 2,325,000 4,899 -- --
Issuance of common stock on
initial public offering -- -- -- 2,500,000 23,250 -- 23,250
Issuance of shares
in satisfaction of services
rendered -- -- -- 12,500 31 -- 31
Preferred stock dividend -- -- -- -- -- (209) (209)
Issuance of stock for businesses
acquired 2,549,268 11,111 11,111
Unrealized gain on marketable
equity securities 393 393
Net loss -- -- -- -- -- (8,413) (8,413)
---------- ------ ------------- ---------- ------ ----------- ------------- ----------
Balances at December 31, 1999 -- -- -- 10,890,038 41,187 $(11,025) 393 $ 30,555
---------- ------ ------------- ---------- ------ ----------- ------------- ----------
---------- ------ ------------- ---------- ------ ----------- ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NETIVATION.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Year ended December 31,
=============================================
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (61) $ (2,328) $ (8,413)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation -- 17 86
Amortization of intangible assets -- -- 1,068
Expense associated with issuance of stock options -- 586 1,232
Imputed interest on advances from stockholders -- 22 --
Amortization of Debt Discount -- 131 --
Changes in assets and liabilities, net of amounts acquired:
Accounts receivable -- -- (56)
Prepaids/Other -- (35) (568)
Long-Term Receivables -- -- (133)
Deposits 13 -- (49)
Accounts payable -- 159 (198)
Other Current Liabilities -- 177 (2)
Deferred Revenues -- -- 474
-------- -------- --------
Net cash used by operating activities (48) (1,271) (6,559)
-------- -------- --------
Cash flows from investing activities:
Purchase of equipment and furniture (10) (77) (540)
Investment in MoneyZone -- -- (525)
Purchase of short-term investments -- (880) 0
Proceeds from short-term investments -- -- 880
Acquisition cost of Businesses, net of cash acquired -- -- (1,033)
-------- -------- --------
Net cash flows from investing activities (10) (957) (1,218)
-------- -------- --------
Cash flows from financing activities:
Proceeds from Britannia Holdings Loan -- 550 --
Repayment of Britannia Holdings Loan -- -- (550)
Equipment Loans and Leases -- -- --
Issuance of common stock for cash 105 126 25,000
Cost of common stock issuance -- -- (4,192)
Proceeds from sale of 8% preferred stock -- 3,938 1,582
Proceeds from advances from shareholders -- 189 --
Preferred Stock offering costs -- (621) --
Repay advances from shareholders -- (94) (95)
Repurchase preferred shares -- -- (113)
Payment of Interest on Convertible Note -- -- (49)
Payment of Preferred Dividends -- -- (209)
-------- -------- --------
Net cash provided by financing activities 105 4,088 21,374
-------- -------- --------
Net increase in cash and equivalents 47 1,860 13,597
Cash and cash equivalents at beginning of period -- 47 1,907
-------- -------- --------
Cash and cash equivalents at end of period $ 47 $ 1,907 $ 15,504
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
17
<PAGE>
NETIVATION.COM, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
(Dollars in thousands, except per share data)
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, which has its headquarters in Post Falls, Idaho, 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 develops, designs and markets software and websites
focused on the political and medical communities. These communities, known
as vertical portals, are for individuals, groups and businesses sharing a
common interest.
The Company emerged from the development stage during 1999. 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.
On June 23, 1999, the Company closed its initial public offering
(IPO) of 2,500,000 shares of common stock at $10.00 per share, for net
proceeds of $23.2 million. At closing, all of the Company's issued and
outstanding shares of convertible preferred stock were converted into
2,325,000 shares of common stock. As discussed in Note 3, Netivation
completed
18
<PAGE>
the acquisition of Interlink Services, Inc. and The Online Medical Bookstore,
Inc. simultaneous with the effectiveness of the IPO.
NOTE 2 --SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION.
The Company's consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts have been eliminated in consolidation.
STOCK SPLIT AND REINCORPORATION.
On May 17, 1999, the Company effected a one-for-two reverse stock
split of its common and preferred stock and reincorporated 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.
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.
INVESTMENTS.
Investments consist of equity securities of publicly held companies.
The Company classifies investments as available for sale under Statement of
Financial Accounting Standards No. 115. Investments are carried at fair
market value, with unrealized holding gains and losses reported as a separate
component of stockholders' equity. Fair market value is based on quoted
market prices. The Company's short-term investments consist solely of
investments in the common stock of publicly-traded companies and are recorded
at fair market value. Unrealized holding gains and losses, net of tax effect,
are reported as a separate component of other comprehensive income until
realized. Realized gains and losses from the sale of available-for-sale
securities are determined on a specific identification basis. Dividend and
interest income is recognized as earned. Investments have been classified as
non-current assets in the accompanying financial statements due to
management's current intent to hold such investments.
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.
GOODWILL AND OTHER INTANGIBLE ASSETS.
Intangible assets consist primarily of acquired technology, assembled
workforce, customer base and goodwill related to acquisitions accounted for
under the purchase method of accounting. Amortization of these purchased
intangibles is provided on the straight-line basis over the respective useful
lives of the assets, primarily three years. The Company identifies and records
impairment losses on intangible and other assets when events and circumstances
indicate that such assets might be impaired. The Company considers factors such
as significant changes in the regulatory or business climate and projected
future cash flows from the respective asset. As of December 31, 1999,
intangible assets consisted of the following:
<TABLE>
<CAPTION>
<S> <C>
Acquired technology $4,955
Assembled workforce 3,299
Customer base 2,439
Goodwill 5,716
--------
Less: Accumulated
Amortization 1,068
--------
$15,341
========
</TABLE>
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents,
short-term investments, accounts receivable and accounts payable. Fair values
of cash and cash equivalents and short-term investments approximate cost due
to the short period of time to maturity. The fair values of financial
instruments that are short-term and/or that have little or no market risk are
considered to have a fair value equal to book value. Assets and liabilities
that are included in this category are accounts receivable and accounts
payable.
The Company performs initial and ongoing evaluations of its
customers' financial position, and generally extends credit on open account,
requiring collateral as deemed necessary. The Company maintains allowances
for potential credit losses.
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.
REVENUE RECOGNITION.
Revenues are generated from e-commerce merchandise sales, website
development and hosting, internet access, software licenses and advertising.
Sales of products directly to customers through e-commerce are
recognized when shipped. In these transactions the Company acts as
merchant-of-record. Accordingly, the Company records as revenue the full
sales price of the product sold and records the full cost of the product to
the Company as cost of revenues, upon shipment of the product.
Software licensing costs and website development revenues are generally
recognized when all elements essential to the functionality of the software or
the website have been delivered. Where the Company has significant continuing
involvement with the licensee, revenues are deferred and recognized over the
term of the agreement. Hosting contracts typically have a term of one year, with
fees charged on a monthly basis.
Internet access is billed on a monthly basis and is earned as
billed. Hosting contracts typically have a term of one year, with fees
charged or a monthly basis.
Advertising consists of the sale of impressions on one or more of
the Company's network of websites for cash or barter. Advertising revenues
are recognized ratably over the term of the applicable agreement.
Deferred revenue consists primarily of prepaid licensing and hosting
fees that are being amortized over their contract life.
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.
ADVERTISING COSTS.
The cost of advertising is expensed as incurred. During the periods
ending December 31, 1997, 1998 and 1999, the Company incurred advertising
expense of $0, $50, and $364, respectively.
RESEARCH AND DEVELOPMENT.
Research and development costs are expensed as incurred and consist
primarily of salaries, supplies and contract services.
SOFTWARE DEVELOPMENT COSTS
Under the criteria set forth in Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed," capitalization of software development costs
begins upon the establishment of technological feasibility of the product,
which the Company has defined as the completion of beta testing of a working
product. The establishment of technological feasibility and the ongoing
assessment of the recoverability of these costs require considerable judgment
by management with respect to certain external factors, including, but not
limited to, anticipated future gross product revenue estimated economic life
and changes in software and hardware technology. Amounts that could have been
capitalized under this statement after consideration of the above factors
were immaterial and, therefore, no software development costs have been
capitalized by the Company to date.
STATEMENTS OF COMPREHENSIVE LOSS
There were no reclassification adjustments as defined in SFAS 130 "Reporting
Comprehensive Income" or income tax provision related to the unrealized gain
on investment during the year ended December 1, 1999.
19
<PAGE>
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.
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 did not 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 did not have a material impact on the Company's
financial position or results of operations.
In June 1998, the Fiancial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." It
requires the recognition of all derivatives as either asets or liabilities
and the measurement of those instruments at fair value. The requried adoption
period is effective for the issuance of Netivation's March 31, 2001 quarterly
financial statements. The implementation of SFAS No. 133 is not expected to
have a matereial impact on Netivation's financial position or results of
operations. SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133"
issued in August 1999, postpones for one year the mandatory effective date
for adoption of SFAS No. 133 to January 1, 2001.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," to provide guidance on the recognition, presentation and disclosure
of revenues in financial statements. The Company believes its revenue
recognition practices are in conformity with the guidelines prescribed in SAB
No. 101.
NOTE 3 - ACQUISITIONS
On June 22, 1999, simultaneous with the IPO, the Company acquired
Interlink Services, Inc., a website design and hosting services company and
The Online Medical Bookstore, Inc., (collectively referred to as the
"Companies") a discount medical book and medical supply e-commerce company.
Netivation paid aggregate cash consideration for the two acquisitions of $300
and 319,286 shares of its common stock. The acquisition of the Companies has
been accounted for using the purchase method of accounting. The excess
purchase price of approximately $3.6 million, was allocated to goodwill, and
is being amortized over a three-year life.
In October 1999, the Company acquired MEDMarket, Inc. (MEDMarket),
politicallyblack.com, Inc. (politicallyblack) and Raintree Communications
Corporation (Raintree). MEDMarket develops Internet e-commerce websites for
medical manufacturers and supplier companies. Politicallyblack is an Internet
website focusing on political issues important to African Americans. Raintree
developed an automated voice response and data service for grassroots
lobbying. The Company paid aggregate consideration of $255 and issued
280,000 unregistered shares of the Company's common stock for a total
purchase price of $1,710. The acquisitions were accounted for using the
purchase method of accounting. Of the excess purchase price of approximately
$1,760, $359 of was allocated to acquired technology, $252 was allocated to
assembled workforce, $115 was allocated to customer base and $1,034 was
allocated to goodwill, all of which are being amortized over a three-year
life.
21
<PAGE>
In October 1999, the Company acquired Public Disclosure, Inc.
(Public Disclosure). Public Disclosure developed FECInfo, a relational
database that takes every federal campaign contribution over the last ten
years and is sold as an annual subscription. Netivation paid aggregate
consideration of $190 and 300,000 unregistered shares of the Company's common
stock for a total purchase price of $1,337. The acquisition was accounted for
using the purchase method of accounting. Of the excess purchase price of
approximately $1,333, $800 was allocated to acquired technology, $200 was
allocated each to assembled workforce and customer base and $133 was
allocated to goodwill, all of which are both being amortized over a
three-year life.
In December 1999, the Company acquired NetCapitol, Inc.,
(NetCapitol). NetCapitol develops and hosts websites for special interest
groups to effect grass roots lobbying efforts for national, state and local
political issues. Netivation paid consideration of $410 and 1,544,730
unregistered shares of the Company's common stock for a total purchase price
of $8,909. The acquisition was accounted for using the purchase method of
accounting. Of the excess purchase price of approximately $9,491, $3,797 was
allocated to acquired technology, $2,847 was allocated each to assembled
workforce, $1,898 was allocated to customer base and $949 was allocated to
goodwill, all of which are both being amortized over a three-year life.
In connection with the acquisitions, net assets acquired were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 57
Accounts receivable 33
Property and equipment 131
Other assets 32
Liabilities (873)
----------
$ (620)
==========
</TABLE>
UNAUDITED PRO FORMA COMBINED RESULTS
The following summarizes the unaudited pro forma results of the
Company's operations for the years ended December 31, 1998 and 1999 assuming
all of the business combinations occurred as of January 1, 1998. The pro
forma results are presented for the purposes of additional analysis only and
do not purport to present the results of operations that would have occurred
for the periods presented or that may occur in the future.
<TABLE>
<CAPTION>
Years ended:
December 31, 1998 December 31, 1999
----------------- -----------------
<S> <C> <C>
Revenues................................................ $ 1,495 $ 2,132
Net loss before taxes................................... (2,427) (9,151)
Net loss per share...................................... (0.38) (1.43)
</TABLE>
NOTE 4--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
$7.6 million at December 31, 1999 which expire between 2012 and 2019. The
significant components of the deferred tax asset at December 31, 1998 and 1999,
were as follows:
<TABLE>
<CAPTION>
1998 1999
----- -------
<S> <C> <C>
Net operating loss carryforward $ 609 $ 2,580
Stock compensation.. 199 618
Other -- 216
----- -------
Deferred tax asset. 808 3414
Deferred tax asset valuation allowance (808) (3414)
----- -------
$ -- $ --
===== =======
</TABLE>
The valuation allowance on deferred tax assets increased by $787 and
$2,606 during 1998 and 1999, 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.
22
<PAGE>
NOTE 5--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 and $49 for the
periods ended December 31, 1998 and 1999, respectively.
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.
NOTE 6--STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK.
In June 1999, the Company's IPO became effective and all issued and
outstanding shares of preferred stock converted into shares of common stock on a
1:1 basis.
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 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
23
<PAGE>
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 December 31, 1998 financial statements net of
offering costs. In January 1999, the Company received net proceeds of
approximately $450 related to the sale of 206,052 additional 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. In March 1999, the Company
amended and restated this plan as the 1999 Equity Incentive Plan (the "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
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, 1999 have an average remaining contractual life of
nine (9) years. At December 31, 1999, exercise prices ranged from $1.25 to
$10.00 per share.
The Company also has a non-qualified stock plan (the "Non-Qualified
Plan") for the benefit of employees and consultants. The Company has 1,000,000
shares authorized under the Non-Qualified Plan. As of December 31, 1999, the
Company issued 105,270 shares and there are 894,730 shares remaining.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------
1998 1999
- - ----------------------------------------------------------------------------------------
OPTIONS WEIGHTED OPTIONS WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
PRICE PRICE
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period -- 274,500 $ .66
- - ----------------------------------------------------------------------------------------
Granted 274,500 $.66 653,225 $6.21
- - ----------------------------------------------------------------------------------------
Exercised 1,250 $1.25
- - ----------------------------------------------------------------------------------------
Canceled 23,750 $1.78
- - ----------------------------------------------------------------------------------------
Outstanding at end of period 274,500 $.66 902,725 $4.75
- - ----------------------------------------------------------------------------------------
Exercisable at the end of the period 274,500 $.66 415,956 $2.64
- - ----------------------------------------------------------------------------------------
</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 has 53,525 shares
remaining in the Plan available for future grant as of December 31, 1999.
There were 415,956 stock options exercisable at December 31, 1999 including
those issued outside of the Plan. The following table summarizes information
about all stock options, including those issued outside of the Plan,
outstanding at December 31, 1999:
24
<PAGE>
<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 3.8 .10 75,000 .10
1.25 143,375 9.0 1.25 40,375 1.25
2.50 161,750 7.7 2.50 88,081 2.50
5.38 48,850 9.9 5.38 0 --
6.00 40,000 9.9 6.00 0 --
10.00 310,000 9.5 10.00 87,500 10.00
</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,
1998 1999
- - ------------------------------------------------------------------------------
<S> <C> <C>
Net Loss:
- - ------------------------------------------------------------------------------
As reported $(2,342) $(8,622)
- - ------------------------------------------------------------------------------
Pro forma $(2,342) $(9,131)
- - ------------------------------------------------------------------------------
Basic and diluted loss per share
- - ------------------------------------------------------------------------------
As reported $ (.69) $ (1.35)
- - ------------------------------------------------------------------------------
Pro forma $ (.69) $ (1.43)
- - ------------------------------------------------------------------------------
</TABLE>
The weighted average grant date fair value of options granted in
1999 and 1998 was $1.93 and $3.19. The fair value of each options estimated
using the Black-Scholes option pricing model that takes into account: (1) the
fair value stock price at the grant date, (2) the exercise price, (3)
estimated life of three years, (4) no dividends, (5) risk-free interest rates
of 5.5% and (6) volatility of 110%. The initial impact on pro forma net loss
may not be representative of compensation expense in future years when the
effect of the amortization of multiple awards would be reflected in results
of operations.
STOCK OPTIONS ISSUED OUTSIDE OF THE PLAN.
In June 1998, the Company issued an option to purchase 125,000 shares
(option shares) of common stock at a price of three cents ($.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 a measurement date was not known at December 31, 1998, the Company
recorded stock compensation expense and a long-term liability of $391 in the
accompanying 1998 financial statements. The compensation expense is 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. The measurement date
became known upon the effectiveness of the Company's IPO and, accordingly,
compensation expense of $1,232 has been recorded in the 1999 statement of
operations.
25
<PAGE>
In August 1998, the Company issued an option to purchase 75,000 shares
of common stock at a price of ten cents ($.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 of Directors adopted the 1999 Employee Stock
Purchase Plan ("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 of Directors'
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
of Directors 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 of Directors has currently
authorized an offering commencing on December 10, 1999, of the Company's common
stock and ending December 9, 2000, with sequential 12-month offerings
thereafter.
The Company issued 30,000 shares of restricted stock to three
non-employee directors in exchange for services performed during 1999. The
shares of restricted stock are fully vested as the non-employee directors
continued to serve the Company as of December 31, 1999.
STOCK WARRANTS.
In connection with the Company's initial public offering, the Company
agreed to issue warrants to purchase 250,000 shares of common stock at $16.50
per share. The warrants expire in 2004.
RESERVED FOR FUTURE ISSUANCE.
The following common shares have been reserved for future issuance as
of December 31, 1999:
<TABLE>
<S> <C>
Employee stock options.......................... 902,725
Warrants........................................ 250,000
---------
1,152,725
=========
</TABLE>
NOTE 7--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, if the officers had received their 1997 salary, it would
have increased loss per share by $.01 for the period ended December 31, 1997.
(Also see Note 4.)
During 1999, the Company loaned an employee and the former principal
shareholder of an acquired entity $133 pursuant to the business combination. The
loan accrues interest at 6.25% per annum, with 23 equal payments and a final
balloon payment of $108.
26
<PAGE>
NOTE 8--COMMITMENTS
INTERNET ACCESS.
During 1999, the Company entered into an agreement with a third
party for the provision of internet access and services. This agreement
expires annually. Under the terms of this agreement, the Company is
obligated to pay a total of $3.3 per month.
LEASES.
The Company has entered into noncancelable operating lease
agreements involving equipment and facilities through the year 2000. Rent
expense totaled $0, $16 and $80 for the years ended December 31, 1997, 1998
and 1999, respectively.
Future minimum payments under the operating leases, as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
- - ------------
<S> <C>
2000........................................... $440
2001........................................... 406
2002........................................... 406
2003........................................... 406
2004........................................... 330
Thereafter..................................... 19
------
$2,007
</TABLE>
NOTE 9: SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the second quarter of 1999. SFAS No.
131 established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available, evaluated regularly by
the chief operating decision makers, or a decision making group, in deciding how
to allocate resources and in assessing performance. The Company's chief
operating decision making group is comprised of the chief executive officer and
various executive vice presidents and general managers of the Company. The
Company has identified two distinct reportable segments: political line of
business and medical line of business. While the decision making group evaluates
results in a number of different ways, the line of business management structure
is the primary basis for which it assesses financial performance and allocates
resources. The accounting policies of the line of business operating segments
are the same as those described in the summary of significant accounting
policies.
The following table represents the Company's segment information for
the year ended December 31, 1999:
<TABLE>
<CAPTION>
December 31,
1999
-----------------
<S> <C>
Revenue from Divisions:
MEDMarket.com, Medical Division $717
Votenet.com, Public Policy and Politics Division 281
-----------------
998
Cost of Revenues:
MEDMarket.com, Medical Division $622
Votenet.com, Public Policy and Politics Division 62
-----------------
684
Gross Margin:
MEDMarket.com, Medical Division 95
Votenet.com, Public Policy and Politics Division 219
-----------------
$314
Profit Reconciliation:
Gross Profit for reportable segments 314
Operating Expenses (8,979)
Non Operating Expenses, net 252
-----------------
Net Loss ($8,413)
</TABLE>
The Company does not track assets by operating segments.
Consequently, it is not practicable to show assets by operationing segments.
NOTE 10 SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the Company has entered into
multiple marketing agreements whereby the Company will work with Internet
content providers to provide political content and public affairs services.
These contracts require the payment of approximately $3,400 during the
year 2000, plus 50,000 warrants to purchase shares of the Company's stock.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Netivation.com did not change accountants within the last two fiscal
years, nor were there any reportable disagreements with its independent public
accountants on any matter of accounting principles or practices, financial
statement disclosures, or auditing scope or procedure.
27
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
EXECUTIVE OFFICERS AND DIRECTORS
The following table describes certain information about
Netivation.com's executive officers ("Executive Officers") and directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Anthony J. Paquin 41 Chairman of Board of Directors, President and Chief
Executive Officer
Gary S. Paquin 48 Chief Marketing Officer, Secretary and Director
James B. Arnold 33 Chief Financial Officer
Michael R. Paquin 53 MEDMarket.com General Manager
Oron Strauss 27 Votenet General Manager
Kelly M. McCarthy 30 Vice President of Mergers and Acquisitions
Donna L. Weaver 56 Director
T. A. (Drew) Wahlin 52 Director
Douglas K. Carnahan 58 Director
</TABLE>
DESCRIPTION OF DIRECTORS
Netivation.com's Board of Directors is divided into three classes of
directors. Each director serves a staggered three-year term which expires at an
annual meeting of stockholders. Each director is to serve on the Board of
Directors until his or her term expires and until a successor is elected and has
qualified, or until a director's earlier death, resignation, or removal.
The current classes of directors are as follows:
o Class I Directors: Gary S. Paquin and T. A. (Drew) Wahlin. The
term of office for the Class I Directors expires as of the
2000 annual meeting.
o Class II Director: Douglas K. Carnahan. The term of office for
the Class II Director expires as of the 2001 annual meeting.
o Class III Directors: Anthony J. Paquin and Donna L. Weaver.
The term of office for the Class III Directors expires as of
the 2002 annual meeting.
28
<PAGE>
CLASSES OF DIRECTORS
CLASS I -- DIRECTORS
GARY S. PAQUIN - Mr. Paquin (48) has served as Netivation.com's Chief
Marketing Officer since January 1999, as Netivation.com's Secretary
since August 1998, and as a director of Netivation.com since September
1997. From August 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.
(NYSECCA), a software, support and integration services company, and
held various management and marketing positions with International
Business Machines Inc. (NYSECIBM). Mr. Paquin serves on the local
United Way board of directors and served as chairman of the 1998 fund
drive. Mr. Paquin is the brother of Anthony J. Paquin, Netivation.com's
President and Chief Executive Officer, David C. Paquin,
Netivation.com's Vice President of Human Resources, Michael R. Paquin,
Netivation.com's MEDMarket.com General Manager, and brother-in-law to
Kelly M. McCarthy, Netivation.com's Vice President of Mergers and
Acquisitions.
T. A. (DREW) WAHLIN - Mr. Wahlin (52) has served as a member of
Netivation.com's Board of Directors since August 1998. Mr. Wahlin has
served as the chairman of Netivation.com's audit committee and as a
member of the compensation committee since March 1999. 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.
CLASS II -- DIRECTOR:
DOUGLAS K. CARNAHAN - Mr. Carnahan (58) has served as a member of
Netivation.com's Board of Directors since 1998. Mr. Carnahan has served
as the chairman of Netivation.com's compensation committee and as a
member of the audit committee since March 1999. 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.
CLASS III -- DIRECTORS:
ANTHONY J. PAQUIN - Mr. Paquin (41) 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 founded and is the president of the Idaho
Technology Association. Mr. Paquin serves on the board of directors of
MoneyZone.com, formerly known as EBONLINE. Mr. Paquin is the husband of
Kelly M. McCarthy, Netivation.com's Vice President of Mergers and
Acquisitions, and the brother of Gary S. Paquin, Netivation.com's Chief
Marketing Officer and Secretary, David C. Paquin, Netivation.com's Vice
President of Human Resources, and Michael R. Paquin, Netivation.com's
MEDMarket.com General Manager.
29
<PAGE>
DONNA L. WEAVER - Ms. Weaver (56) has served as a member of
Netivation.com's Board of Directors since August 1998. Ms. Weaver has
also served as a member of Netivation.com's audit and compensation
committees since March 1999. In 1985, Ms. Weaver founded Weaver, Field
& London, Inc., an investor relations and corporate communications
firm, and has served as its chairman since the firm's inception. Ms.
Weaver currently serves as a director of Ross Stores Inc.
(NasdaqCROST), a retail store chain, Crown Vantage Inc. (NasdaqCCVAN),
a producer of paper products, and Hancock Fabrics Inc. (NYSECHKF), 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.
DESCRIPTION OF EXECUTIVE OFFICERS AND KEY EMPLOYEES
Below are descriptions for each of the Executive Officers and key
employees.
JAMES B. ARNOLD (33) joined Netivation.com in October 1999 as its Chief
Financial Officer. Previously, he served as the Chief Financial Officer of
Imagination Software, Inc. in Silver Spring, Maryland. Prior to his
employment at Imagination Software, he was Chief Financial Officer for AT&T
Solutions, based in Chantilly, Virginia. From January to November of 1996,
Mr. Arnold was Director of Corporate Financial Planning and Analysis at AT&T
Solutions in Washington, D.C. From August 1994 to January 1996, he served as
Business and Financial Director at AT&T Solutions. Prior to his employment at
AT&T, Mr. Arnold held various financial positions with NCR Corporation in
Dayton, Ohio and Rockville, Maryland. Mr. Arnold holds two bachelor's degrees
in finance and accounting from Miami University and a master's degree in
finance from The Johns Hopkins University.
DAVID C. PAQUIN (44) joined Netivation.com in June 1998 as a General Manager and
currently serves as Netivation's Vice President of Human Resources. From March
1999 through August 1999 Mr. Paquin served as part of Netivation.com's executive
officers and served as the Chief Operating Officer for Netivation.com. 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. Mr. Paquin is the brother of Anthony J. Paquin, Netivation.com's
President and Chief Executive Officer, Gary S. Paquin, Netivation.com's Chief
Marketing Officer and Secretary, Michael R. Paquin, Netivation.com's
MEDMarket.com General Manager, and brother-in-law to Kelly M. McCarthy,
Netivation.com's Vice President of Mergers and Acquisitions.
MICHAEL R. PAQUIN (53) is MEDMarket.com General Manager. Mr. Paquin has 15
years of senior management-level experience with Ingersoll Naxos and Western
Atlas, Inc., both in Illinois, and with General Motors, Buick Motor Division,
in Flint, Michigan. His experience includes international strategic and
tactical planning, foreign trade and investment negotiation, sales management
and service, and workforce management.
ORON STRAUSS (27) has served as Netivation.com's Votenet General Manager
since December 1999. Prior to that, he was Chief Executive Officer and a
Director of Net.Capitol from October 1996 to December 1999 and President of
Net.Capitol from January 1998 to December of 1999. Oron graduated from
Dartmouth College in 1995, where he graduated cum laude and majored in
History and Government. He was Editor-in-Chief of The Dartmouth Review from
1993 to 1994 and served on the Board of Directors of the Hanover Review, Inc.
from 1993 to 1995.
KELLY M. MCCARTHY (30) recently joined Netivation.com as Vice President of
Mergers and Acquisitions. She is an investment and corporate financial
specialist with experience in diverse areas of investment banking, including
initial public offerings, secondary offerings, private placement funding, and
mergers and acquisitions. Ms. McCarthy was previously employed at EBI Securities
Corp. in Denver, Colorado as syndicate manager and in 1996 was promoted to
executive vice president of investment banking. Prior to 1993, she worked as an
investment specialist in EBI Securities Corp.'s Spokane, Washington branch. Ms.
McCarthy is the wife of Anthony J. Paquin, Netivation.com's President and Chief
Executive Officer and the sister-in-law to Gary S. Paquin, Netivation's Chief
Marketing Officer and Secretary, David C. Paquin, Netivation's Vice President of
Human Resources, and Michael R. Paquin, Netivation.com's MEDMarket.com General
Manager.
30
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Section 16(a) of the Securities Exchange Act of 1934 requires
Netivation.com's executive officers, directors, and persons owning more than 10%
of a registered class of Netivation.com's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Executive officers, directors, and greater than 10% stockholders are
required by SEC regulations to furnish Netivation.com with copies of all Section
16(a) forms they file. Based solely on its review of such forms and written
representations from certain reporting persons that they have complied with the
relevant filing requirements, Netivation.com believes that all filing
requirements applicable to its executive officers, directors, and greater than
10% stockholders were complied with as of December 31, 1999, with the exception
of a Form 3 Initial Statement of Beneficial Ownership for James B. Arnold which
was filed one day late and two Form 5 annual statement of beneficial
ownership, one for Donna L. Weaver and one for Oron Strauss.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
This table details certain summary information concerning compensation paid
to or accrued by Netivation.com on behalf of Netivation.com's chief executive
officer and each of Netivation.com's other executive officers, as of the end of
the last fiscal year ("Named Executive Officers") and for the fiscal years ended
December 31, 1997, December 31, 1998, and December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
---------------
Annual Compensation Awards(3)
- - -----------------------------------------------------------------------------------------------------------------
Other Annual Securities All Other
Name and Principal Year Salary ($) Bonus ($)(1) Compensation(2) Underlying Compensation ($)
Position Options (#)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Paquin, 1999 $150,000 $50,000 ---- 62,500 $ 1,309(4)
Chairman of the Board 1998 $100,600 ---- ---- ---- $ 432(4)
and President, Chief 1997 N/A N/A N/A N/A N/A
Executive Officer
- - -----------------------------------------------------------------------------------------------------------------
Michael R. Paquin, 1999 $ 41,666(5) --- ---- ---- $18,000(6)
MEDMarket.com General 1998 N/A N/A N/A N/A N/A
Manager 1997 N/A N/A N/A N/A N/A
- - -----------------------------------------------------------------------------------------------------------------
Gary S. Paquin, 1999 $125,000 $50,000 ---- 43,750 $ 1,309(4)
Chief Marketing Officer 1998 $100,200 ---- ---- ---- $ 817(4)
and Secretary 1997 N/A N/A N/A N/A N/A
- - -----------------------------------------------------------------------------------------------------------------
James B. Arnold, 1999 $ 28,125(5) ---- ---- 40,000 $45,185(6)
Chief Financial Officer 1998 N/A ---- ---- N/A N/A
1997 N/A N/A N/A N/A N/A
- - -----------------------------------------------------------------------------------------------------------------
Kelly M. McCarthy, 1999 $ 41,666(5) ---- 16,180(7) $90,518(5)
Vice President of 1998 N/A N/A N/A N/A N/A
Mergers and Acquisitions 1997 N/A N/A N/A N/A N/A
- - -----------------------------------------------------------------------------------------------------------------
Oron Strauss, 1999 $ 5,208(5) $20,000(8) ---- ---- ----
Votenet General 1998 N/A ---- ---- ---- ----
Manager 1997 N/A ---- ---- ---- ----
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
See footnotes below and on next page.
31
<PAGE>
(1) For the fiscal year ended December 31, 1999, Netivation.com did not have a
formal bonus plan. The Board of Directors and The Compensation Committee
determined the size of the bonus for the Chief Executive Officer and for
The Chief Marketing Officer.
(2) Consists of gains on the exercise of options equal to the difference
between the exercise price and the market price on the exercise date. No
options were exercised by the Named Executive Officers during the 1999
fiscal year. Certain incidental personal benefits that are furnished to
Netivation.com's executive officers may result from expenses incurred in
attracting and retaining qualified personnel. For fiscal year 1999,
Netivation.com did not provide any incidental benefits to any of the
Named Executive Officers not otherwise noted on the Summary Compensation
Table.
(3) Netivation.com has no stock appreciation rights (SARs). The awards consist
of stock options granted under the 1999 Equity Incentive Plan. Options vest
at a rate of 1/3 per year over a period of three years beginning on
December 31, 1999, unless pursuant to the terms of the stock option grants,
the vesting schedule is accelerated.
(4) Netivation.com pays the premiums for a combined life-insurance policy on
Anthony J. Paquin and Gary S. Paquin of which Netivation.com is the
beneficiary. The total annual premium is $2,168.04 or $1,309.02 each for
these Named Executive Officers.
(5) Several Named Executive Officers joined Netivation.com during the 1999
fiscal year. Michael R. Paquin joined Netivation.com in August 1999 as the
MEDMarket.com General Manager. Mr. Paquin's salary represents his earnings
from August 1, 1999 through December 31, 1999.
James B. Arnold joined Netivation.com in October 1999 as the Chief
Financial Officer. Mr. Arnold's salary represents his earnings from October
1999 through December 31, 1999.
Kelly M. McCarthy joined Netivation.com in August 1999 as the Vice
President of Mergers and Acquisitions. Ms. McCarthy's salary represents her
earnings and her commission from August 1999 through December 31, 1999.
Oron Strauss became President and Chief Executive Officer of Net.Capitol,
Inc., a Delaware corporation and wholly-owned subsidiary of Netivation.com
on December 15, 1999. He currently serves as Votenet General Manager.
Votenet is a division of Netivation.com. Mr. Strauss' salary represents
his earnings from December 15, 1999 through December 31, 1999.
Netivation.com signed employment agreements with Mr. Arnold and Mr.
Strauss. See the section entitled "Executive Employment Agreements"
for details.
(6) Netivation.com paid the relocation expenses for Mr. Paquin and Mr. Arnold
for their moves from Chicago and Virginia, respectively.
(7) Ms. McCarthy received a Warrant Agreement to purchase 16,180 shares of
Netivation.com common stock as part of her compensation in assisting with
Netivation.com's initial public offering when she worked at EBI Securities
Corp.
(8) Mr. Strauss' bonus was negotiated as part of the acquisition of
Net.Capitol, Inc.
STOCK OPTION GRANTS IN THE LAST FISCAL YEAR
In 1999, the Board of Directors granted stock options under
Netivation.com's 1999 Equity Incentive Plan ("Equity Incentive Plan"). For
1999, Netivation.com reserved 750,000 shares of common stock to issue as
stock awards to directors, executive officers, and employees. The number of
shares of common stock available under the Equity Incentive Plan is adjusted
annually on January 1 based on 15% of the aggregate of (i) the total shares
of common stock outstanding and (ii) the number of shares of stock
Netivation.com is obligated to issue under specific contracts, as of such
date.
Netivation.com also has a non-qualified stock plan (the
"Non-Qualified Plan") for the benefit of employees and consultants.
Netivation.com has 1,000,000 shares authorized under the Non-Qualified Plan.
As of December 31, 1999, Netivation.com issued 105,270 shares and there are
894,730 shares remaining under the Non-Qualified Plan.
The Equity Incentive Plan and the Non-Qualified Plan are
administered by the Compensation Committee. The Compensation Committee makes
recommendations to the Board of Directors as to who receives options or other
stock awards, the number of shares in each option or award, when the options
may be exercised, and the exercise price of the option. The table below
details
32
<PAGE>
information about the stock options granted during 1999 to the Named Executive
Officers under the Equity Incentive Plan and the Non-Qualified Plan.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
- - ----------------------------------------------------------------------------------------------------
Number of Securities % of Total Options
Underlying Granted to Employees Exercise Price Expiration
Name Options Granted in Fiscal Year(4) ($/SH)(5) DATE
---- --------------- ----------------- --------- ----
<S> <C> <C> <C> <C>
Anthony J. Paquin 25,000(1) 3.65% $2.50 12/31/08
37,500(2) 5.47% $1.25 12/31/08
Michael R. Paquin --- - 0 - --- ---
Gary S. Paquin 25,000(1) 3.65% $2.50 12/31/08
18,750(2) 2.73% $1.25 12/31/08
James B. Arnold 40,000(3) 5.84% $6.00 12/01/09
Kelly M. McCarthy --- - 0 - --- ---
Oron Strauss --- - 0 - --- ---
- - ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Options vest at a rate of 1/3 a year over a period of three (3) years
beginning on December 31, 1999, unless the vesting schedule is accelerated
according to the terms of the stock option grant. In the event of a change
of control, as defined in the 1999 Equity Incentive Plan, all outstanding
options become exercisable immediately. Options expire three (3) months
after an optionee's employment with Netivation.com is terminated for any
reason, unless the termination results from optionee's permanent
disability, or death.
In the case of an optionee's disability, a vested option does not expire
until one (1) year after optionee's disability. In the case of an
optionee's death, a vested option does not expire until eighteen (18)
months after an optionee's death. Options expire ten (10) years from the
grant date. Options cease vesting upon termination of employment for any
reason. As of December 31, 1999, one-third (1/3) of the options granted
to executive officers and employees in the last fiscal year vested and are
fully exercisable.
(2) Options under the Equity Inventive Plan consist of regular stock options
and bonus stock options which vest in full on December 31, 2003, with
accelerated vesting on December 31, 1999, if certain revenue goals were
met. Of the Named Executive Officers, Mr. Anthony Paquin holds 25,000
regular options and 12,500 bonus options and Mr. Gary Paquin holds
12,500 regular options and 6,250 bonus options. As of December 31, 1999,
50% of the regular options vested as Netivation.com's revenue was
between $500,000 and $999,000. As of December 31, 1999, none of the bonus
options vested.
(3) Under the Equity Incentive Plan one-third of Mr. Arnold's shares vest
annually beginning on October 11, 2000 and continuing each year
thereafter, based on continued service to the Company. In the event
Netivation.com is acquired, all of Mr. Arnold's shares vest immediately.
(4) During the 1999 fiscal year, 85 of Netivation.com's 131 employees were
granted options under the 1999 Equity Incentive Plan. During the 1999
fiscal year, the total number of shares granted to Named Executive
Officers was: 146,250 shares from the 1999 Equity Incentive Plan. During
the 1999 fiscal year, the total number of shares granted to
Netiviation.com employees was 579,475 shares from under the Equity
Incentive Plan. During the 1999 fiscal year, the total number of shares
granted under the Non-Qualified Plan was 105,270 shares, for a total of
684,745 shares granted from both plans granted to Netiviation.com
employees or employees of the subsidiaries. None of the named executive
officers received options under the Non-Qualified Plan.
(5) Represents the exercise price of Netivation.com's common stock as
determined by the Board of Directors under the Equity Incentive Plan.
AGGREGATED STOCK OPTIONS
The table below provides information concerning aggregated unexercised
stock options held as of the 1999 fiscal year-end and the stock options
exercised during the 1999 fiscal year by the Named Executive Officers under
the Equity Incentive Plan.
33
<PAGE>
AGGREGATED OPTIONS/EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
December 31, 1999(1) December 31, 1999(1), (2)
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Anthony J. Paquin - - 20,833 41,667 $83,332.25 -0-
Michael R. Paquin - - - - - -
Gary S. Paquin - - 14,583 29,167 $55,207.25 -0-
James B. Arnold - - - 0 - 40,000 - 0 - -0-
Kelly M. McCarthy - - - - - -
Oron Strauss - - - - - -
</TABLE>
(1) The table includes regular options and bonus options vested under
Netivation.com's 1999 Equity Incentive Plan as of December 31, 1999.
(2) The values in these columns are the aggregate amount by which the market
price per share at closing of $5.75 on December 31, 1999, exceeded the
exercise price for each of the options.
DIRECTOR COMPENSATION
FEES PAID FOR SERVICES. In 1999, Netivation.com paid its non-employee
directors a $150 fee for their services at each Board of Directors meeting they
attended and a per diem fee to reimburse their travel and lodging expenses.
In November 1999, the Compensation Committee agreed to increase
non-employee director's compensation to $1,000 for each Board of Directors
meeting attended, $500 for each committee meeting attended and $500 for each
telephonic Board of Directors or telephonic committee meeting the
non-employee director attended. The non-employee directors will continue to
receive reimbursement for travel and lodging expenses based on each
director's location.
STOCK RECEIVED FOR SERVICES FOR 1999. In January 1999, each
non-employee director received a stock grant and a stock option grant under
the 1999 Equity Incentive Plan. The stock grant was for 10,000 shares of
Netivation.com common stock which became fully vested on December 31, 1999.
The option grant was for 2,500 shares of Netivation.com common stock of which
1/3 vested on December 31, 1999.
In February 22, 2000, the Compensation Committee agreed that each
non-employee director receive a 10,000 share stock option grant for their
efforts in assisting Netivation.com with its IPO. The exercise price for
these shares was $6.31, the fair market value of the stock, as of January 3,
2000. These stock options are fully vested.
EMPLOYMENT AGREEMENTS
EXECUTIVE EMPLOYMENT AGREEMENTS. In 1999, Netivation.com signed
employment agreements with several of its executive officers. These employment
agreements were with Anthony J. Paquin, Gary S. Paquin, David C. Paquin, James
B. Arnold, and Oron Strauss. Additionally, Netivation.com has key-man life
insurance policies in the amount of $1,000,000 each on Mr. Anthony J. Paquin
and Mr. Gary S. Paquin.
34
<PAGE>
In January 1999, Netivation.com signed an employment agreement with
Anthony J. Paquin as Netivation.com's President and Chief Executive Officer. Mr.
Paquin's employment agreement expires on December 31, 2001. During 1999, Mr.
Paquin received an annual base salary of $150,000 plus stock options. In
addition, due to Mr. Paquin's efforts during 1999, the Compensation Committee
decided to grant Mr. Paquin a bonus of $50,000. In November 1999, the
Compensation Committee also agreed to increase Mr. Paquin's annual base salary
to $225,000.
In January 1999, Netivation.com signed an employment agreement with
Gary S. Paquin, which expires on December 31, 2001. During 1999, Mr. Gary
Paquin received an annual base salary of $125,000 plus stock options. In
November 1999, the Compensation Committee agreed to give Mr. Paquin a bonus
of $50,000 for his services during 1999.
In January 1999, Netivation.com also signed an employment agreement
with David C. Paquin, Chief Operations Officer, with a base salary of $80,000
plus stock options. Mr. Paquin resigned from this position and as an
executive officer in September 1999 to become Netivation.com's Vice President
of Human Resources. The terms of Mr. Paquin's employment agreement remained
the same.
On September 23, 1999, Netivation.com signed an employment agreement
with James B. Arnold as Netivation's Chief Financial Officer. Mr. Arnold's
employment agreement expires October 11, 2002. In 1999, Mr. Arnold received an
annual base salary of $112,500 plus stock options. In November 1999, the
Compensation Committee adjusted Mr. Arnold's base compensation to $140,000 and
decided he will be eligible to receive a bonus in subsequent years.
On December 15, 1999, Netivation.com signed an employment agreement
with Oron Strauss as the President and Chief Executive Officer of Net.Capitol.
Mr. Strauss's employment agreement expires December 14, 2002. Subsequently, Mr.
Strauss's job title has been changed to Votenet General Manager.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This table details the amount of Netivation.com's common stock owned as of
March 27, 2000, by each person who is known by Netivation.com to beneficially
own more than 5% of Netivation.com's common stock. The table also shows
information concerning beneficial ownership by all directors, each executive
officer named in the Summary Compensation Table, and by all directors and
executive officers as a group.
35
<PAGE>
BENEFICIAL OWNERSHIP TABLE
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
TITLE OF CLASS: COMMON STOCK
- - --------------------------------------------------------------------------------------------------------------------
Amount &
Name and Address Nature of Percent
of Beneficial Owner Beneficial Owner(1) of Class(2)
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BENEFICIAL OWNERS:
Gary S. Paquin, (3),(5) Chief Marketing Officer and Secretary 992,733 9.16%
806 Clearwater Loop, Suite N
Post Falls, Idaho 83854
Oron Strauss, (3),(5) Votenet General Manager 729,620 6.74%
666 11th Street N.W.
Washington, D.C. 20001
DIRECTORS, EXECUTIVE OFFICERS AND MANAGEMENT: (4)
Anthony J. Paquin, (3),(6) Chairman of the Board of Directors,
President and Chief Executive Officer 512,408 4.73%
James B. Arnold, (3) Chief Financial Officer 2,000 *
David C. Paquin, (3),(7) Vice President of Human Resources 256,875 2.37%
Michael R. Paquin, (3) MEDMarket.com General Manager 2,000 *
Kelly M. McCarthy, (3),(8) Vice President of Mergers and Acquisitions 16,180 *
Donna L. Weaver, (3),(4),(9) Director 248,333 2.29%
T.A. (Drew) Wahlin, (3),(4),(10) Director 83,333 *
Douglas K. Carnahan, (3),(4) Director 20,833 *
All directors, executive officers and management as a group 2,864,315 25.29%
(10 persons): (11),(12)
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
- - --------------------
* Represents holding of less than 1%
1 For purposes of this table, shares are considered to be "beneficially"
owned if the person holds them either directly or indirectly.
"Beneficially" owned includes the shares a person has the right to
acquire within 60 days of December 31, 1999. Unless otherwise indicated
in the footnotes to this table and subject to the community property
laws where applicable, each of the stockholders named in this table has
sole voting and investment power regarding the shares beneficially owned
by the shareholder.
2 The percentage of stock ownership is based on 10,832,883 outstanding
shares of Netivation.com common stock, adjusted as required by the rules
promulgated by the SEC.
3 Includes the shares which certain Netivation.com executive officers,
directors and management have the right to acquire pursuant to outstanding
options as of the date of this table. The shares which these executive
officers and directors are eligible to acquire are as follows: Mr. Anthony
Paquin 20,833; Mr. Gary Paquin 14,583; Mr. Arnold -0-; Mr. David Paquin
6,875; Mr. Michael R. Paquin -0-; Mr. Strauss 23,333; Ms. McCarthy -0-;
Ms. Weaver 10,833; Mr. Wahlin 10,833; and Mr. Carnahan 10,833; all directors
and executive officers as a group 159,998. Netivation.com's executive
officers, directors, and management will not receive and options within 60
days after the date of this table.
4 Includes the shares granted to Netivation.com's non-employee directors for
1999 compensation and for which there are no restrictions, as follows: Ms.
Weaver 10,000, Mr. Wahlin 10,000; and Mr. Carnahan 10,000.
36
<PAGE>
5 Gary S. Paquin and Oron Strauss are considered executive officers. Mr.
Paquin serves as the Chief Marketing Officer and Secretary of
Netivation.com and owns 978,150 shares individually. Mr. Strauss serves as
Votenet General Manager and owns 706,287 shares individually.
6 Mr. Anthony Paquin owns 491,575 shares individually.
7 Mr. David Paquin owns 250,000 shares individually.
8 Ms. McCarthy holds warrants to purchase 16,180 shares of Netivation.com
common stock.
9 Ms. Weaver holds 227,500 shares jointly with her husband, C.R. Weaver, in
a family trust.
10 Idaho Consulting International, a sole proprietorship owned by Mr. Wahlin,
holds an option to purchase 62,500 shares of Netivation.com common stock
at an exercise price of $.03 per share.
11 Includes shares described in the notes above.
12 Netivation.com is not aware of any transaction or arrangements which would
result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 31, 1998, Anthony J. Paquin and Gary S. Paquin loaned
Netivation.com $88,300 and $88,800 through unsecured promissory notes which did
not bear interest. In January 1999, Netivation.com paid the notes in full.
In September, 1999, Netivation.com invested $525,000 in MoneyZone.com,
formerly known as EBONLINE, an Internet company. Mr. Anthony Paquin serves as a
director on MoneyZone.com's Board of Directors but does not receive compensation
for his services.
In December, 1999, Netivation.com made a personal loan to Oron Strauss
for $132,774.00. The interest rate on this loan is 6.25% and the loan is to be
paid over the next two (2) years.
Until August 31, 1999, Kelly McCarthy served as the Vice President of
Corporate Finance for EBI Securities Corporation ("EBI"). EBI was the
underwriter of Netivation.com's initial public offering which became effective
June 22, 1999. Ms. McCarthy also is an NASD member for Series 7 and Series 24
securities.
Netivation.com believes these transactions were obtained with terms
similar to those agreements Netivation.com could have obtained through third
parties.
INDEMNIFICATION OF EXECUTIVE OFFICERS AND DIRECTORS
Netivation.com's Bylaws provide that Netivation.com will indemnify
its directors and Executive Officers and may indemnify its other officers,
employees, and other agents to the fullest extent not prohibited by law.
Netivation.com believes that indemnification under its Bylaws covers at least
negligence by indemnified parties, and requires Netivation.com to advance
litigation expenses in the case of shareholder derivative actions or other
actions against an undertaking by the indemnified party to repay such
advances if it is ultimately determined that the indemnified party is not
entitled to indemnification. Netivation.com is also empowered under its
Bylaws to enter into indemnification contracts with its directors and
officers and to purchase insurance on behalf of any person whom it is
required or permitted to indemnify. In accordance with this provision,
Netivation.com has entered into indemnity agreements with its directors and
officers. Netivation.com also has in effect directors and officers liability
insurance coverage.
37
<PAGE>
Netivation.com's Certificate of Incorporation provides that, under
Delaware law, its directors will not be liable for monetary damages for breach
of the directors' fiduciary duty of care to Netivation.com and its stockholders.
This provision in the Certificate of Incorporation does not eliminate the 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 Netivation.com, for acts or omissions not
in good faith or involving intentional misconduct, for knowing violations of
law, for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under Delaware law. The provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
Currently, there is no pending litigation or proceeding involving a
director, Executive Officer, employee, or other Netivation.com agent where
indemnification is sought. Netivation.com is not aware of any threatened
litigation that may result in indemnification claims by any director, Executive
Officer, employee, or other agent.
Any future transactions between Netivation.com and its Executive
Officers, directors, and affiliates will be on terms no less favorable to
Netivation.com than can be obtained from unaffiliated third parties, and any
material transactions with such persons will be approved by a majority of
Netivation.com's disinterested directors.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed as Exhibits to this Form 10-KSB:
2.1 Agreement and Plan of Merger and Reorganization, dated as of
September 17, 1999, among Netivation.com, Inc., Netivation.com
Merger Two Corp., MEDMarket, Inc., and MEDMarket's selling
shareholders; incorporated by reference to Exhibit 2.1 to the
Registrant's form 8-K filed November 10, 1999 (Commission File
No. 000-26337).
2.2 Agreement and Plan of Merger, dated as of October 12, 1999,
among Netivation.com, Inc., Netivation.com Merger Six Corp.,
Politicallyblack.com, Inc. and the Selling Stockholders of
Politicallyblack.com, Inc.; incorporated by reference to
Exhibit 2.2 to the Registrant's form 8-K filed November 10,
1999 (Commission File No. 000-26337).
2.3 Agreement and Plan of Merger, dated as of October 19, 1999,
among Netivation.com, Inc., Netivation.com Merger Four Corp.,
Raintree Communications Corporation and the Selling
Stockholders of Raintree Communications Corporation;
incorporated by reference to Exhibit 2.3 to the Registrant's
form 8-K filed November 10, 1999 (Commission File No.
000-26337).
2.4 Agreement and Plan of Merger, dated as of October 22, 1999,
among Netivation.com, Inc., Netivation.com Merger Five Corp.,
Public Disclosure, Inc., and the Selling Stockholders of
Public Disclosure, Inc.; incorporated by reference to Exhibit
2.4 to the Registrant's form 8-K filed November 10, 1999
(Commission File No. 000-26337).
2.5 Agreement and Plan of Merger, dated as of November 17, 1999,
among Netivation.com, Inc., Netivation.com Merger Corp.,
Net.Capitol, Inc. and the Representing Stockholders of
Net.Capitol, Inc.; incorporated by reference to Exhibit 2.0 to
the Registrant's Form 8-K filed December 29, 1999 (Commission
File No. 000-26337).
3.(i)1 Articles of Incorporation of the Registrant, as amended, as
filed with the Secretary of State of the State of Nevada;
incorporated by reference to Exhibit 3.(i)1 to the
Registrant's Form SB-2 Registration Statement filed March 17,
1999, as amended May 18, 1999, June 14, 1999, and June 16,
1999 (Commission File No. 000-26337).
38
<PAGE>
3.(i)2 Certificate of Incorporation of the Registrant, as filed with
the Secretary of State of the State of Delaware; incorporated
by reference to Exhibit 3.(i)2 to the Registrant's Form SB-2
Registration Statement filed March 17, 1999, as amended May
18, 1999, June 14, 1999, and June 16, 1999 (Commission File
No. 000-26337).
3.(i)3 Form of Restated Certificate of Incorporation of the
Registrant, effective upon the closing of Registrant's initial
public offering; incorporated by reference to Exhibit 3.(i)3
to the Registrant's Form SB-2 Registration Statement filed
March 17, 1999, as amended May 18, 1999, June 14, 1999, and
June 16, 1999 (Commission File No. 000-26337).
3.(ii)1 Nevada Bylaws of the Registrant; incorporated by reference to
Exhibit 3.(ii)1 to the Registrant's Form SB-2 Registration
Statement filed March 17, 1999, as amended May 18, 1999, June
14, 1999, and June 16, 1999 (Commission File No. 000-26337).
3.(ii)2 Delaware Bylaws of the Registrant; incorporated by reference
to Exhibit 3.(ii)2 to the Registrant's Form SB-2 Registration
Statement filed March 17, 1999, as amended May 18, 1999, June
14, 1999, and June 16, 1999 (Commission File No. 000-26337).
3.(ii)3 Form of Restated Bylaws of the Registrant, effective upon the
closing of Registrant's initial public offering; incorporated
by reference to Exhibit 3.(ii)3 to the Registrant's Form SB-2
Registration Statement filed March 17, 1999, as amended May
18, 1999, June 14, 1999, and June 16, 1999 (Commission File
No. 000-26337).
10.1 Employment Agreement for James B. Arnold
10.2 Employment Agreement for Oron Strauss
10.3 Lease Agreement for location at 11th and G Streets, Suite 1100
in Washington, D.C.
10.4 Non-Qualified Stock Plan
21.1 List of Subsidiaries of Registrant
23.1 Consent of Arthur Andersen
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
Registrant's form 8-K filed November 10, 1999, as amended (Commission File No.
000-26337):
- Agreement and Plan of Merger and Reorganization, dated as of
September 17, 1999, among Netivation.com, Inc., Netivation.com
Merger Two Corp., MEDMarket, Inc., and MEDMarket's selling
shareholders;
- Agreement and Plan of Merger, dated as of October 12, 1999,
among Netivation.com, Inc., Netivation.com Merger Six Corp.,
Politicallyblack.com, Inc. and the Selling Stockholders of
Politicallyblack.com, Inc.;
- Agreement and Plan of Merger, dated as of October 19, 1999,
among Netivation.com, Inc., Netivation.com Merger Four Corp.,
Raintree Communications Corporation and the Selling
Stockholders of Raintree Communications Corporation;
39
<PAGE>
- Agreement and Plan of Merger, dated as of October 22, 1999,
among Netivation.com, Inc., Netivation.com Merger Five Corp.,
Public Disclosure, Inc., and the Selling Stockholders of
Public Disclosure, Inc.
Registrant's Form 8-K filed December 29, 1999, as amended (Commission File No.
000-26337):
- Agreement and Plan of Merger, dated as of November 17, 1999,
among Netivation.com, Inc., Netivation.com Merger Corp.,
Net.Capitol, Inc. and the Representing Stockholders of
Net.Capitol, Inc.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NETIVATION.COM, INC.
REGISTRANT
By: /s/ Anthony J. Paquin
- - ---------------------------------
Anthony J. Paquin, President, Chief Executive
Officer, and Chairman of the Board of Directors
Date: March 29, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C>
By: /s/ Anthony J. Paquin By: /s/ Douglas K. Carnahan
- - ----------------------------------------- -------------------------------------
Anthony J. Paquin, President, Douglas K. Carnahan, Director
Chief Executive Officer, and Date: March 29, 2000
Chairman of the Board of Directors
Date: March 29, 2000
40
<PAGE>
By: /s/ James B. Arnold By: /s/ T. A. (Drew) Wahlin
- - ----------------------------------------- ----------------------------------------------------
James B. Arnold, Chief Financial Officer T. A. (Drew) Wahlin, Director
Date: March 29, 2000 Date: March 29, 2000
By: /s/ Gary S. Paquin By: /s/ Donna L. Weaver
- - ----------------------------------------- ----------------------------------------------------
Gary S. Paquin, Chief Marketing Officer, Donna L. Weaver, Director
Secretary, and Director Date: March 29, 2000
Date: March 29, 2000
By: /s/ James L. Sloan
- - -----------------------------------------
James L. Sloan, Controller
Date: March 29, 2000
</TABLE>
41
<PAGE>
Netivation.com, Inc.
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
ACCOUNTS RECEIVABLE ALLOWANCE FOR DOUBTFUL ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance at Charged to costs Balance at
Description beginning of period and expenses(1) Deductions end of period
----------- ------------------- ---------------- ---------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999....... - $ $ $ $
=================== ================ ========== =============
Year ended December 31, 1998....... - -
=================== ================ ========== =============
Year ended December 31, 1997...... - - $ 172 - $ - $172
=================== ================ ========== =============
- - ----------------------------
(1) Includes $153 acquired in Net Capital acquisition.
</TABLE>
42
<PAGE>
EXHIBIT 10.1
EMPLOYMENT, CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
(JAMES B ARNOLD)
This Employment, Confidentiality and Noncompetition Agreement
("Agreement") is made and entered into effective this 23rd day of September,
1999, by and between NETIVATION.COM, INC., a Delaware corporation ("Employer")
and JAMES ARNOLD ("Employee").
In consideration of their mutual promises and covenants
contained herein, the receipt and legal sufficiency of which consideration is
hereby acknowledged, the parties hereby agree as follows:
1. EMPLOYMENT. Employer shall employ Employee and
Employee shall work for Employer in the employment position described in
Exhibit A hereto, which is hereby incorporated herein and made a part of this
Agreement. In this position, Employee shall perform all assigned duties,
comply with all employment policies, and willingly obey all rules,
regulations and special instructions that now exist or that may hereafter be
established by Employer from time to time. Employee shall render such
services and perform such duties at such places or in such areas or
territories as Employer shall direct. Employee warrants that all information
provided by Employee in applying for employment is true and correct.
2. STANDARD OF PERFORMANCE. Employee accepts
employment with Employer on the terms and conditions herein set forth.
Employee recognizes that Employee owes to Employer duties of loyalty,
fidelity and obedience in all matters pertaining to such employment. Employee
agrees to serve Employer diligently and faithfully, to perform all duties to
the best of Employee's ability, and to devote Employee's full time and best
efforts to the conduct of Employer's business.
3. COMPENSATION. In consideration for the services of
Employee rendered to Employer pursuant to the terms of this Agreement, and
subject to the full performance of Employee's obligations hereunder, Employer
shall pay Employee according to the provisions of the Employer's compensation
plan described in Exhibit A hereto. Employee shall receive no compensation or
benefits, including but not limited to paid holidays, paid vacation and paid
health insurance, that is not set forth in Exhibit A hereto. Employee
understands that the compensation plan is subject to modification by the
Employer at any time.
4. TERM OF EMPLOYMENT. Employee's term of employment
under this Agreement shall commence on the 11th day of October, 1999, and
shall continue thereafter until the 11th day of October 2002, unless prior
thereto (a) within ninety (90) days from the effective date hereof either
Employer or Employee terminates this Agreement with or without cause and for
any reason whatsoever, (b) Employer, for good cause, terminates Employer's
employment of Employee, or (c) Employer and Employee mutually agree to the
termination of Employee's employment, in a writing signed by both of them.
5. CONFIDENTIAL INFORMATION.
A. DEFINITION OF CONFIDENTIAL INFORMATION.
Employer is in the business of designing, creating, perfecting, marketing,
distributing, selling and servicing computer software, and has built up an
established and extensive trade and reputation in the industry. Employer has
developed and continues to develop commercially valuable technical and
non-technical information ("Confidential Information") that is proprietary
and confidential and/or constitutes Employer's "trade secrets" within the
meaning of the Idaho Trade Secrets Act, Idaho Code Sections 48-801 -- 48-807.
Such Confidential Information, which is vital to the success of Employer's
business, includes, but is not necessarily limited to: programs, computer
programs, system documentation, data compilations, manuals, methods,
techniques, processes, patented and/or unpatented technology, research,
know-how, development, designs, devices, inventions, the identities of
customers, prospective customers, suppliers and prospective suppliers,
contracts with suppliers and customers, sales proposals, methods of sales,
marketing research and data, pricing policies, cost information, financial
information, business plans, specialized requests of Employer's customers,
and other materials and documents developed by Employer. Confidential
Information also includes special hardware, product hardware, related
software and related documentation, either owned by Employer
<PAGE>
or in Employer's possession under an agreement of nondisclosure. Through
Employee's employment, Employee may become acquainted with or contribute to
the Employer's Confidential Information through inventions, discoveries,
improvements, software development, and/or in other ways.
B. EMPLOYEE ACCESS TO CONFIDENTIAL
INFORMATION. Employee agrees: (a) to access only such Confidential
Information as is necessary to perform Employee's job function; (b) to allow
access to Confidential Information under Employee's control to only those of
Employee's co-employees whose job functions for Employer necessitate access
to such Confidential Information; and (c) to allow such co-employees to
access only such Confidential Information under Employee's control as is
necessary to the co-employee's performance of his/her job functions for
Employer.
C. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
Employee shall not, at any time, either during or subsequent to employment,
directly or indirectly, appropriate, disclose or divulge any Confidential
Information to any person not then employed by Employer, unless authorized or
directed by Employer. If Employer authorizes or directs Employee to disclose
Confidential Information to any such third party, Employee must ensure that a
signed confidentiality agreement is or has been obtained from the third party
to whom Confidential Information is being disclosed and that all Confidential
Information so disclosed is clearly marked "Confidential."
D. RETURN OF CONFIDENTIAL AND OTHER
INFORMATION. All Confidential Information provided to Employee, and all
documents and things prepared by Employee in the course of Employee's
employment, including but not necessarily limited to correspondence,
drawings, blueprints, manuals, letters, notes, lists, notebooks, reports,
flow-charts, computer programs, proposals, DayTimers, planners, calendars,
schedules, discs, data tapes, financial plans and information, business
plans, and other documents and records, whether in hard copy, magnetic media
or otherwise, and any and all copies thereof, are the exclusive property of
Employer and shall be returned immediately to Employer upon termination of
employment or upon Employer's request at any time.
E. OWNERSHIP OF CONFIDENTIAL INFORMATION.
Employee hereby grants to Employer, and Employer hereby accepts, the entire
right, title, and interest of Employee in and to any of the Confidential
Information created or developed by Employee, or that may be created or
developed by Employee during the term of the employment under this Agreement,
including, but not limited to, all patents, copyrights, trade secrets, and
other proprietary rights in or based on the Confidential Information. If the
Confidential Information or any portion thereof is copyrightable, it shall be
deemed to be a "work made for hire," as such term is defined in the copyright
laws of the United States. Employee shall cooperate with Employer or its
designees and execute assignments, oaths, declarations, and other documents
prepared by Employer, to effect the foregoing or to perfect or enforce any
proprietary rights resulting from or related to this agreement. Such
cooperation and execution shall be at no additional compensation to Employee;
provided, however, Employer shall reimburse Employee for reasonable
out-of-pocket expenses incurred at the specific request of Employer.
6. NONCOMPETITION OBLIGATIONS. Employee will not
during the term of his/her employment with Employer, and for a period of
eighteen (18) months immediately following termination of such employment for
any reason, Employee will not offer for sale, or solicit the sale of products
or services similar to those sold by Employer, in or within the geographic
area in which Employee was assigned and/or worked for Employer, either for
him/herself or on behalf of any other person, firm, partnership, or
corporation.
7. CUSTOMER NON-SOLICITATION. Employee will not,
during the term of employment hereunder and for eighteen (18) months
following termination of such employment for any reason, solicit, divert,
take away, or attempt to solicit, divert or take away, any of Employer's
customers or the business or patronage of any such customers, either for
him/herself or on behalf of any other person, firm, partnership or
corporation.
8. CO-EMPLOYEE NON-SOLICITATION. Employee will not,
during the term of employment hereunder and for eighteen (18) months
following termination of such employment for any reason, solicit, recruit or
hire any other employee of Employer, either for him/herself or on behalf of
any other person, firm, partnership or corporation.
<PAGE>
9. ENFORCEMENT.
A. REASONABLENESS OF RESTRICTIONS. Employee
acknowledges that compliance with this Agreement is reasonable and necessary
to protect Employer's legitimate business interests, including but not
limited to the Employer's goodwill.
B. IRREPARABLE HARM. Employee acknowledges
that a breach of Employee's obligations under this Agreement will result in
great, irreparable and continuing harm and damage to Employer for which there
is no adequate remedy at law.
C. INJUNCTIVE RELIEF. Employee agrees that in
the event Employee breaches this Agreement, Employer shall be entitled to
seek, from any court of competent jurisdiction, preliminary and permanent
injunctive relief to enforce the terms of this Agreement, in addition to any
and all monetary damages allowed by law, against Employee.
D. EXTENSION OF COVENANTS. In the event
Employee violates any one or more of the covenants contained in sections 6
through 8 of this Agreement, Employee agrees that the running of the term of
each such covenant so violated shall be tolled during (a) the period(s) of
any such violation by Employee and (b) the pendency of any litigation
(including appeals) concerning any such violation by Employee.
E. JUDICIAL MODIFICATION. The parties have
attempted to limit the Employee's right to compete only to the extent
necessary to protect Employer from unfair business practices and/or unfair
competition. The parties recognize, however, that reasonable people may
differ in making such a determination. Consequently, the parties hereby agree
that, if the scope or enforceability of the restrictive covenant is in any
way disputed at any time, a court or other trier of fact may modify and
enforce the covenant to the extent that it believes to be reasonable under
the circumstances existing at that time.
F. ATTORNEY FEES. In the event it becomes
necessary for Employer to institute a suit at law or in equity for the
purposes of enforcing any of the provisions of this Agreement, Employer shall
be entitled to recover Employer's reasonable attorney's fees, plus court
costs and expenses, from Employee.
G. WITHHOLDING FROM FINAL PAYCHECK. Employee
expressly authorizes Employer to withhold and deduct from Employee's final
wages any amounts owed by Employee to Employer at the time of the termination
of employment, including but not limited to, any draw deficiencies,
reimbursement for unearned commissions, and the value of unreturned or
damaged company property. Employee further expressly agrees to repay to
Employer any additional sums owed by Employee to Employer (above that which
can be withheld) immediately upon termination of Employee's employment.
Employee agrees that this paragraph waives and supersedes any and all
federal, state and/or local laws to the contrary.
10. INDEMNITY. Employee warrants and represents that
he/she has not violated, is not violating, and will not violate any of the
terms or conditions of any prior employment agreement, restrictive covenant,
or other agreement entered into by him/her while in the employment of any
other employer; that he/she has not given and will not give to Employer at
any time any customer list, trade secret, or any other item of confidential
information, obtained or received while in the employment of such other
employer; that his/her employment with Employer is not restricted or limited
in any way by any such employment agreement or restrictive covenant or by
operation of any state, federal or local regulation, statute or other law of
any kind, name or nature, including but not limited to trade secret laws and
immigration laws; and that Employee is in all respects duly qualified and
eligible to work for Employer. In the event any legal or administrative
action is commenced against the Employee, Employer or both, arising out of
Employee's former employment by another employer or Employee's illegal action
or violation of one or more of the warranties and representations set forth
in this section, Employee agrees to indemnify Employer for all damages, costs
and expenses, including reasonable attorney fees, which Employer may have to
pay in connection with such legal or administrative action.
<PAGE>
11. MISCELLANEOUS.
A. SURVIVAL. Employee understands that this
Agreement shall be effective when signed and that the terms of this Agreement
shall remain in full force and effect not only during the continuation of
his/her employment, but also after the termination of employment for any
reason by Employer or Employee.
B. WAIVER. Failure of the Employer to
exercise or otherwise act with respect to any of its rights under this
Agreement shall not be construed as a waiver of such breach, nor prevent the
Employer from thereafter enforcing strict compliance with any and all terms
of this Agreement.
C. SEVERABILITY. If any part of this Agreement
shall be adjudicated to be invalid or unenforceable, as to duration,
territory or otherwise, then such part shall be deemed deleted from the
Agreement or amended, as the case may be, in order to render the remainder of
the Agreement valid and enforceable.
D. AGREEMENT BINDING. This Agreement shall be
binding upon and inure to the benefit of Employer, Employer's successors and
assigns, Employee and Employee's heirs, executors, administrators and legal
representatives.
E. GOVERNING LAW. This Agreement is made and
entered into in the State of Idaho and concerns employment situated in said
state. This Agreement shall be interpreted and construed in accordance with
the laws of the State of Idaho.
F. TITLES AND CAPTIONS. All section and
paragraph titles and captions contained in this Agreement are for convenience
only and shall not be deemed part of the context nor affect the construction
or interpretation of this Agreement.
G. ENTIRE AGREEMENT. This Agreement contains
all the understandings and agreements between the parties concerning matters
set forth in this Agreement. The terms of this Agreement supersede any and
all prior statements, representations and agreements by or between Employer
and Employee, or either of them, concerning the matters set forth in this
Agreement. Employee acknowledges that no person who is an agent or employee
of Employer may orally or by conduct modify, delete, vary, or contradict the
terms or conditions of this Agreement or this paragraph. This Agreement may
be modified only by a written agreement signed by both parties.
IN WITNESS WHEREOF, the parties have set their hands as of the
date first above written, and Employee acknowledges that he/she has read and
understands the entire contents of this Agreement and that he/she has received a
copy of this Agreement.
EMPLOYER: NETIVATION.COM, INC.
By: ______________________________ DATE: __________________________
Title: ___________________________
EMPLOYEE: ________________________ DATE: __________________________
James Arnold
<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
EFFECTIVE OCTOBER 11TH, 1999
<TABLE>
<S> <C>
Employee's Job Title: Chief Financial Officer and Treasurer of Netivation.com, Inc.
Base Salary: $112,500 annually for the term of this Agreement, payable at the same
frequency as Employer's other employees.
In the event Netivation.com is acquired and you are released for other than
cause, your salary will continue for 6 months.
Stock Option: Employer shall grant to Employee an option to acquire up to 40,000 shares of
Employer's common stock pursuant to and subject to the terms of the
Non-qualified Stock Option and Restricted Stock Plan. The options shall be
exercisable at the option price of $6.00 per share. The options shall be
subject to lock-ups and restrictions required by the IPO underwriter. The
options shall vest as follows:
CONTINUOUS EMPLOYMENT
FROM SIGNING AGREEMENT PORTION EXERCISABLE
October 11, 2000 1/3
October 11, 2001 1/3
October 11, 2002 1/3
In the event Netivation.com is acquired, your stock options will vest
immediately.
Benefits: Employee shall participate in employee benefit programs, such as paid
vacation, life insurance, medical, disability and other similar plans
that now or during the term of this Agreement are made generally
available to executives of Employer of comparable position. Employer
will pay for Medical and Dental Insurance premiums for employee, spouse
and children.
Expenses: Employer will reimburse Employee for reasonable expenses for entertainment,
travel, phone, day-to-day expenses and similar items that he incurs on behalf
of Employer.
</TABLE>
EMPLOYER: NETIVATION.COM, INC.
By: ______________________________ DATE: _____________________________
Title: ___________________________
EMPLOYEE: ________________________ DATE: ______________________________
James Arnold
<PAGE>
EXHIBIT 10.2
EMPLOYMENT, CONFIDENTIALITY AND NONCOMPETITION AGREEMENT
(ORON STRAUSS)
This Employment, Confidentiality and Noncompetition Agreement
(this "Agreement") is made and entered into as of this 15 day of December, 1999,
by and between NET.CAPITOL, INC., a Delaware corporation ("Employer"), and ORON
STRAUSS ("Employee").
In consideration of the mutual promises and covenants
contained in this Agreement, the receipt and legal sufficiency of which
consideration are hereby acknowledged, the parties hereby agree as follows:
1. EMPLOYMENT. Employer shall employ Employee and
Employee shall work for Employer in the employment position described in
EXHIBIT 1 attached, which is by this reference incorporated into and made a
part of this Agreement. In this position, Employee shall perform all assigned
duties, comply with all employment policies, and obey all rules, regulations
and special instructions that now exist or that may in the future be
established by Employer from time to time. Employee shall render such
services and perform such duties at such places or in such areas or
territories as Employer shall direct. Employee warrants that all information
provided by Employee in applying for employment is true and correct.
2. EMPLOYEE PERFORMANCE. Employee accepts employment
with Employer on the terms and conditions provided in this Agreement.
Employee recognizes that Employee owes to Employer duties of loyalty,
fidelity and obedience in all matters pertaining to such employment. Employee
shall serve Employer diligently and faithfully, shall timely perform all
duties to the best of Employee's ability and in compliance with Employer's
reasonable standards of performance, and shall devote Employee's full time
and best efforts to the conduct of Employer's business. Employee may pursue
charitable, civic and political interests so long as such activities are not
inconsistent with this Agreement. Employee must receive prior approval of
Netivation's Executive Committee prior to accepting an advisory role (as a
board member or otherwise) with another company.
3. COMPENSATION. In consideration for the services of
Employee rendered to Employer pursuant to the terms of this Agreement, and
subject to the full performance of Employee's obligations hereunder, Employer
shall pay Employee according to the provisions of Employer's compensation
plan described in EXHIBIT 1. Employee shall receive no compensation or
benefits, including but not limited to paid holidays, paid vacation and paid
health insurance, that are not set forth in EXHIBIT 1. Employee understands
that the compensation plan is subject to modification by Employer at any
time; provided, however, Employer shall not decrease Employee's base salary
during the term of employment under this Agreement except for any decrease
that is consistent with any across-the-board adjustment by Employer of its
executive officers' salaries.
4. TERM OF EMPLOYMENT. Employee's term of employment
under this Agreement shall commence on December 15,1999, and shall continue
until December 14, 2002, unless prior to that date (a) Employer, for "Cause"
(as defined below), terminates Employer's employment of Employee, or (b)
Employer and Employee mutually agree to the termination of Employee's
employment, in a writing signed by both of them in accordance with paragraph
11(G) of this Agreement. During the term of this Agreement, Employer may
terminate the employment of Employee for "Cause" by giving Employee specific
written notice of the cause for such termination. For the purposes of this
Agreement, "Cause" shall include but not be limited to (i) Employee's
disregard of lawful instructions of Employer that are consistent with
Employee's position and duties set forth herein; (ii) Employee's failure to
perform Employee's duties in compliance with Employer's reasonable standards
of performance; (iii) Employee's willful actions which do or are likely to
result in material damage or embarrassment to Employer, Employer's
reputation, or Employer's other legitimate business interests; (iv)
Employee's abuse or illegal use of alcohol or other drugs or controlled
substances; (v) Employee's material breach of any of the terms or conditions
of this Agreement; (vi) the conviction of Employee of a felony; or (vii)
Employee's theft, embezzlement or misappropriation of funds from Employer. In
addition, Employee's resignation shall be deemed a termination for Cause.
Upon Employer giving Employee notice of termination pursuant to Subsection
(i), (ii), (iii), (iv), or (v) above, Employee shall have thirty (30) days to
cure the deficiency. If Employee does not cure the deficiency within
<PAGE>
said thirty (30) day period, then Employee's termination shall take effect at
the end of such period. A termination pursuant to Subsection (vi), (vii), or
for any other Cause shall take effect immediately upon the giving of notice.
5. CONFIDENTIAL INFORMATION.
A. DEFINITION OF CONFIDENTIAL INFORMATION.
Employer is in the business of designing, creating, perfecting, marketing,
distributing, selling and servicing computer software and Internet-based
products and services, and Employer has built up an established and extensive
trade and reputation in the industry. Employer has developed and continues to
develop commercially valuable technical and non-technical information
("Confidential Information") that is proprietary and confidential and/or
constitutes Employer's "trade secrets" within the meaning of the Idaho Trade
Secrets Act, Idaho Code Sections 48-801B48-807. Such Confidential
Information, which is vital to the success of Employer's business, includes,
but is not necessarily limited to: programs, computer programs, system
documentation, data compilations, manuals, methods, techniques, processes,
patented and/or unpatented technology, research, know-how, development,
designs, devices, inventions, the identities of customers, prospective
customers, suppliers and prospective suppliers, contracts with suppliers and
customers, sales proposals, methods of sales, marketing research and data,
pricing policies, cost information, financial information, business plans,
specialized requests of Employer's customers, and other materials and
documents developed by Employer. Confidential Information also includes
special hardware, product hardware, related software and related
documentation, either owned by Employer or in Employer's possession under an
agreement of nondisclosure. Through Employee's employment, Employee may
become acquainted with or contribute to Employer's Confidential Information
through inventions, discoveries, improvements, software development, and/or
in other ways.
B. EMPLOYEE ACCESS TO CONFIDENTIAL
INFORMATION. Employee shall: (a) access only such Confidential Information as
is reasonably necessary to perform Employee's job functions; and (b) allow
access to Confidential Information under Employee's control to only those of
Employee's co-employees whose job functions for Employer reasonably
necessitate access to such Confidential Information.
C. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
Employee shall not, at any time, either during or subsequent to employment,
directly or indirectly, appropriate, disclose or divulge any Confidential
Information to any person not then employed by Employer, unless authorized or
directed to do so by Employer. If Employer authorizes or directs Employee to
disclose Confidential Information to any third party, Employee must ensure
that a signed confidentiality agreement for the benefit of Employer is or has
been obtained from the third party to whom Confidential Information is being
disclosed and that all Confidential Information so disclosed is clearly
marked "Confidential."
D. RETURN OF CONFIDENTIAL AND OTHER
INFORMATION. All Confidential Information provided to Employee, and all
documents and things prepared by Employee in the course of Employee's
employment, including but not necessarily limited to correspondence,
drawings, blueprints, manuals, letters, notes, lists, notebooks, reports,
flow-charts, computer programs, proposals, DayTimers, planners, calendars,
schedules, discs, data tapes, financial plans and information, business
plans, and other documents and records, whether in hard copy, magnetic media
or otherwise, and any and all copies thereof, are the exclusive property of
Employer and shall be returned immediately to Employer upon termination of
employment or upon Employer's request at any time.
E. OWNERSHIP OF CONFIDENTIAL INFORMATION.
Employee hereby grants to Employer, and Employer hereby accepts, the entire
right, title, and interest of Employee in and to any of the Confidential
Information created or developed by Employee, or that may be created or
developed by Employee during the term of Employee's employment by Employer
(whether created or developed within or outside the course and scope of
Employee's employment by Employer), including, but not limited to, all
patents, copyrights, trade secrets, and other proprietary rights in or based
on the Confidential Information. If the Confidential Information or any
portion thereof is copyrightable, it shall be deemed to be a "work made for
hire," as such term is defined in the copyright laws of the United States.
Employee shall cooperate with Employer or its designees and execute
assignments, oaths, declarations, and other documents prepared by Employer,
to effect the terms of this Section 5E or to perfect or enforce any
proprietary rights resulting from or related to this Agreement. Such
cooperation and execution shall be at no additional compensation to Employee;
provided, however, Employer shall reimburse Employee for reasonable
<PAGE>
out-of-pocket expenses incurred at the specific request of Employer.
6. NONCOMPETITION OBLIGATIONS. During the term of
Employee's employment with Employer, and for a period of twelve (12) months
immediately following termination of such employment for any reason, Employee
will not, directly or indirectly, at any place in the world, engage or become
interested (as owner, stockholder, partner, director, officer, member,
creditor, consultant, or employee) in any business in competition with any
portion of the business conducted by Employer at any time during Employee's
employment with Employer. Employee acknowledges that Employer is doing
business throughout the world, that Employee is reasonably expected to have
contact with Employer's customers throughout the world during the term of
Employee's employment with Employer, and that the worldwide geographic scope
of this covenant is reasonably necessary to protect Employer's legitimate
business interests.
7. CUSTOMER NON-SOLICITATION. Employee will not,
during the term of employment with Employer and for twelve (12) months
following termination of such employment for any reason, solicit, divert,
take away, or attempt to solicit, divert or take away, any of Employer's
customers or the business or patronage of any such customers, either for
him/herself or on behalf of any other person, partnership, corporation or
other entity, unless agreed to in writing by Employee and Employer.
8. CO-EMPLOYEE NON-SOLICITATION. Employee will not,
during the term of employment with Employer and for twelve (12) months
following termination of such employment for any reason, solicit, recruit or
hire any other employee of Employer, either for him/herself or on behalf of
any other person, partnership, corporation or other entity, unless agreed to
in writing by Employee and Employer.
9. ENFORCEMENT.
A. REASONABLENESS OF RESTRICTIONS. Employee
acknowledges that compliance with this Agreement is reasonable and necessary
to protect Employer's legitimate business interests, including but not
limited to Employer's goodwill.
B. IRREPARABLE HARM. Employee acknowledges
that a breach of Employee's obligations under this Agreement will result in
great, irreparable and continuing harm and damage to Employer for which there
is no adequate remedy at law.
C. INJUNCTIVE RELIEF. Employee agrees that in
the event Employee breaches this Agreement, Employer shall be entitled to
seek, from any court of competent jurisdiction, preliminary and permanent
injunctive relief to enforce the terms of this Agreement, in addition to any
and all monetary damages allowed by law, against Employee.
D. EXTENSION OF COVENANTS. In the event
Employee violates any one or more of the covenants contained in sections 6
through 8 of this Agreement, Employee agrees that the running of the term of
each covenant so violated shall be tolled during the period(s) of any such
violation and the pendency of any litigation arising out of any such
violation.
E. JUDICIAL MODIFICATION. The parties have
attempted to limit Employee's right to compete only to the extent necessary
to protect Employer from unfair business practices and/or unfair competition.
The parties recognize, however, that reasonable people may differ in making
such a determination. Consequently, the parties hereby agree that, if the
scope or enforceability of the restrictive covenant is in any way disputed at
any time, a court or other trier of fact may modify and enforce the covenant
to the extent that it believes to be reasonable under the circumstances
existing at that time.
F. ATTORNEY FEES. In the event it becomes
necessary for either party to this Agreement to institute a suit at law or in
equity for the purposes of enforcing any of the provisions of this Agreement,
the prevailing party shall be entitled to recover said party's reasonable
attorney's fees, plus court costs and expenses, from the nonprevailing party.
<PAGE>
G. WITHHOLDING FROM FINAL PAYCHECK. Employee
expressly authorizes Employer to withhold and deduct from Employee's final
wages any amounts owed by Employee to Employer at the time of the termination
of employment, including but not limited to, any draw deficiencies,
reimbursement for unearned commissions, and the value of unreturned or
damaged Employer property. Employee further expressly agrees to repay to
Employer any additional sums owed by Employee to Employer (above that which
can be withheld) immediately upon termination of Employee's employment.
Employee agrees that this paragraph waives and supersedes any and all
federal, state and local laws to the contrary, to the full extent allowed by
law.
10. INDEMNITY. Employee warrants and represents that
Employee has not violated, is not violating, and will not violate any of the
terms or conditions of any prior employment agreement, restrictive covenant,
or other agreement entered into by Employee while in the employment of any
other employer; that Employee has not given and will not give to Employer at
any time any customer list, trade secret, or any other item of confidential
information, obtained or received while in the employment of any other
employer; that Employee's employment with Employer is not restricted or
limited in any way by any such employment agreement or restrictive covenant
or by operation of any state, federal or local regulation, statute or other
law of any kind, name or nature, including but not limited to trade secret
laws and immigration laws; and that Employee is in all respects duly
qualified and eligible to work for Employer. In the event any legal or
administrative action is commenced against Employee, Employer or both,
arising out of Employee's former employment by another employer or Employee's
illegal action or violation of one or more of the warranties or
representations set forth in this section, Employee agrees to indemnify
Employer for all damages, costs and expenses, including reasonable attorney
fees, which Employer may have to pay in connection with such legal or
administrative action.
11. MISCELLANEOUS.
A. SURVIVAL. Employee understands that this
Agreement shall be effective as of the date first written above and that the
terms of this Agreement shall remain in full force and effect not only during
the continuation of Employee's employment, but also after the termination of
employment for any reason by Employer or Employee.
B. WAIVER. Failure of Employer to exercise or
otherwise act with respect to any of its rights under this Agreement shall
not be construed as a waiver of any breach, nor prevent Employer from
thereafter enforcing strict compliance with any and all terms of this
Agreement.
C. SEVERABILITY. If any part of this Agreement
shall be adjudicated to be invalid or unenforceable, as to duration,
territory or otherwise, then such part shall be deemed deleted from this
Agreement or amended, as the case may be, in order to render the remainder of
this Agreement valid and enforceable.
D. AGREEMENT BINDING. This Agreement shall be
binding upon and inure to the benefit of Employer, Employer's successors and
assigns, Employee and Employee's heirs, executors, administrators and legal
representatives.
E. GOVERNING LAW. This Agreement is made and
entered into in the State of Idaho, where Employer has its principal place of
business, and concerns employment situated in said state. This Agreement
shall be interpreted and construed in accordance with the laws of the State
of Idaho.
F. TITLES AND CAPTIONS. All section and
paragraph titles and captions contained in this Agreement are for convenience
only and shall not be deemed part of the context nor affect the construction
or interpretation of this Agreement.
G. ENTIRE AGREEMENT. This Agreement contains
all the understandings and agreements between the parties concerning matters
set forth in this Agreement. The terms of this Agreement supersede any and
all prior statements, representations and agreements by or between Employer
and Employee, or either of them, concerning the matters set forth in this
Agreement. Employee acknowledges that no person who is an agent or employee
of Employer may orally or by conduct modify, delete, vary, or contradict the
terms or
<PAGE>
conditions of this Agreement or this paragraph. This Agreement may be
modified only by a written agreement signed by both parties.
EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE HAS READ AND UNDERSTANDS
THE ENTIRE CONTENTS OF THIS AGREEMENT AND THAT EMPLOYEE HAS RECEIVED A COPY OF
THIS AGREEMENT.
EMPLOYER:
NET.CAPITOL, INC.
By ___________________________________
Anthony J. Paquin, Director
EMPLOYEE:
______________________________________
Oron Strauss
<PAGE>
EXHIBIT 1 TO EMPLOYMENT, CONFIDENTIALITY
AND NONCOMPETITION AGREEMENT
DATED DECEMBER 15, 1999
<TABLE>
<S> <C>
Employee's Job Title: CEO, President of Net.Capitol, Inc.
Base Salary: $125,000 annually for the term of this Agreement, payable at the same
frequency as Employer's other employees.
Stock Options: In January 2000, Employer shall cause its parent, Netivation.com, Inc.
("Netivation") to grant to Employee an option to acquire up to 40,000 shares
of Netivation's common stock pursuant to and subject to the terms of
Netivation's 1999 Equity Incentive Plan. The options shall be exercisable at
the fair market value of Netivation's common stock price as listed on the
Nasdaq National Market at the end of trading on the Closing Date of the Merger
(capitalized terms not otherwise defined in this Employment Agreement shall
have the meaning ascribed to them in the Merger Agreement to which Employer is
a party dated November 17, 1999). The options shall be subject to lock-ups
and restrictions required by the IPO underwriter. The options shall vest as
follows:
CONTINUOUS EMPLOYMENT
FROM SIGNING AGREEMENT PORTION EXERCISABLE
---------------------- -------------------
January 31, 2000 1/3
December 31, 2000 1/3
December 31, 2001 1/3
Additional Stock Options: In January 2000, Employer shall cause Netivation
to grant to Employee additional options to acquire shares of Netivation's
common stock pursuant to and subject to the terms of Netivation's 1999
Equity Incentive Plan. The options shall be exercisable at the fair market
value of Netivation's common stock price as listed on the Nasdaq National
Market at the end of trading on the Closing Date of the Merger. The options
shall be subject to lock-ups and restrictions required by the IPO
underwriter. The options shall vest as follows:
AMOUNT 100% VESTMENT DATE
------ ------------------
20,000 regular incentive shares 12/31/03**
10,000 bonus incentive shares 12/31/03**
** Vesting accelerates to 01/31/00 as follows:
1999 GROSS REVENUE REGULAR OPTIONS BONUS OPTIONS
------------------ --------------- -------------
greater than $1,500,000 100% 100%
greater than $1,250,000 100% 50%
greater than $1,000,000 100% 0%
greater than $500,000 50% 0%
Employee acknowledges that the grant of options to Employee is not an
employment agreement and does not create any obligation to continue
Employee's employment beyond the terms stated in this Employment,
Confidentiality and Noncompetition Agreement.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Benefits: Employee shall participate in employee benefit programs, such as paid
vacation,life insurance, medical, disability and ther similar plans
that now or during the term of this Agreement are made generally
available to executives of Employer of comparable position.
Expenses: Employer will reimburse Employee for reasonable expenses for entertainment,
travel, phone, day-to-day expenses and similar items that he incurs on behalf
of Employer.
</TABLE>
EMPLOYER:
NET.CAPITOL, INC.
By __________________________________
Anthony J. Paquin, Director
EMPLOYEE:
_____________________________________
Oron Strauss
<PAGE>
EXHIBIT 10.3
LEASE AGREEMENT
666 Eleventh Street Associates
"Landlord"
and
Netivation.com, Inc.
"Tenant"
666 11TH STREET, N. W.
Washington, D.C.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH PAGE
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BASIC LEASE PROVISIONS..........................................................................................iii
1. THE PREMISES..............................................................................................1
2. TERM......................................................................................................1
3. RENT......................................................................................................2
(a) Base Rent...........................................................................................2
(b) Increase in Base Rent...............................................................................2
(c) Increase in Real Estate Taxes.......................................................................2
(d) Increase in Operating Expenses......................................................................3
(e) Payment of Increases in Real Estate Taxes and Operating Expenses....................................4
(f) Partial Year........................................................................................4
(g) Examination.........................................................................................4
(h) Survival............................................................................................4
(i) Demand; Time........................................................................................5
4. USE OF PREMISES...........................................................................................5
5. ASSIGNMENT AND SUBLETTING.................................................................................5
6. MAINTENANCE BY TENANT.....................................................................................6
7. TENANT ALTERATIONS........................................................................................6
8. SIGNS; FURNISHINGS........................................................................................7
(a) Signs...............................................................................................7
(b) Furnishings.........................................................................................7
9. TENANT'S EQUIPMENT........................................................................................7
10. INSPECTION................................................................................................8
11. INSURANCE; INDEMNITY......................................................................................8
(a) Property Insurance..................................................................................8
(b) Waiver of Subrogation...............................................................................8
(c) Insurance Rating....................................................................................8
(d) Liability Insurance.................................................................................8
(e) Indemnity...........................................................................................8
12. SERVICES AND UTILITIES....................................................................................9
13. LIABILITY OF LANDLORD.....................................................................................9
(a) No Liability........................................................................................9
(b) Limitation of Liability.............................................................................9
(c) Force Majeure......................................................................................10
14. RULES AND REGULATIONS....................................................................................10
</TABLE>
i
<PAGE>
<TABLE>
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15. DAMAGE; CONDEMNATION.....................................................................................10
(a) Damage to the Premises.............................................................................10
(b) Condemnation.......................................................................................10
16. DEFAULT OF TENANT........................................................................................11
(a) Events of Default..................................................................................11
(b) Waiver.............................................................................................11
(c) Right of Landlord to Cure Tenant's Default.........................................................12
(d) Late Payment.......................................................................................12
(e) Lien on Personal Property..........................................................................12
17. SUBORDINATION............................................................................................12
18. LENDER REQUIREMENTS......................................................................................13
19. FINANCIAL INFORMATION....................................................................................13
20. POSSESSION; HOLDING OVER.................................................................................13
(a) Possession.........................................................................................13
(b) Holding Over.......................................................................................13
21. INTENTIONALLY OMITTED....................................................................................14
22. COVENANTS OF LANDLORD....................................................................................14
(a) Quiet Enjoyment....................................................................................14
(b) Reservation........................................................................................14
23. HAZARDOUS MATERIAL; INDEMNITY............................................................................14
24. MISCELLANEOUS............................................................................................15
(a) No Representation by Landlord......................................................................15
(b) No Partnership.....................................................................................15
(c) Brokers............................................................................................15
(d) Estoppel Certificate...............................................................................15
(e) Waiver of Jury Trial...............................................................................15
(f) Notices............................................................................................15
(g) Invalidity of Particular Provisions................................................................16
(h) Gender and Number..................................................................................16
(i) Benefit and Burden.................................................................................16
(j) Entire Agreement...................................................................................16
(k) Authority..........................................................................................16
(l) Transfer of Landlord's Interest....................................................................16
(m) Intentionally Omitted..............................................................................16
(n) Attorney's Fees....................................................................................16
(o) Surrender..........................................................................................16
(p) Time of the Essence................................................................................16
(q) Governing Law......................................................................................17
(r) Examination of Lease...............................................................................17
25. Automobile Parking.......................................................................................17
(A) Parking Areas......................................................................................17
(B) Tenant's Parking Contracts.........................................................................17
(C) Termination of Parking Rights......................................................................17
26. Expansion Space..........................................................................................17
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
27. Right of Offering.......................................................................................18
28. Satellite................................................................................................18
29. Cancellation by Tenant...................................................................................19
</TABLE>
EXHIBITS
EXHIBIT A: The Premises
EXHIBIT B: Landlord's Work in the Premises
EXHIBIT C: Rules and Regulations
BASIC LEASE PROVISIONS
----------------------
of the
OFFICE LEASE FOR 666 11TH STREET, N.W.
between
666 Eleventh Street Associates, as Landlord,
and Netivation.com, Inc., as Tenant.
The following basic terms of the Lease (the "Basic Lease Provisions") between
Landlord and Tenant are an integral part of and are hereby incorporated by
reference into the Lease:
A. The "Building": 666 11th Street, N.W. Washington, D.C., 20001
B. The "Premises": (1) The Suite Numbers of the Premises and the
floor of the Building in which the Premises are located are as
follows:
Suite Number 1100, Eleventh (11th) Floor.
(2) The space within the Premises is further
described in the Lease, including the floor plan attached hereto
as Exhibit A and made a part hereof, and consisting of the
following approximate number of rentable square feet: 9,185
consisting of the entire eleventh floor.
C. The "Term": The Term of this Lease shall be Five (5) years and
Zero (0) months, beginning November 15, 1999 or upon the date
of Substantial Completion of the tenant improvements in the
Premises, whichever shall last occur, (the "Commencement Date")
and ending on the last day of the sixtieth (60th) full calendar
month thereafter, (the "Expiration Date").
D. The "Base Rent": (1) Annual Base Rent: $225,032.52
(2) Monthly Installments of Base Rent:
$18,752.71
E. Tenant's "Proportionate Share"
of: (1) Real Estate Taxes: 9.185%
(2) Operating Expenses: 9.185%
F. The security
deposit: $18,752.71
G. Broker(s): Tenant's Broker is Julien J. Studley, Inc.
iii
<PAGE>
H. Addresses for
Notice and
Payments: (1) Landlord:
666 11th Street Associates
666 11th Street, N.W.
Suite 650
Washington, DC 20001
(2) Tenant:
Netivation.com, Inc.
Attn: ________________
666 11th Street, N.W.
Suite 1100
Washington D.C. 20001
(3) Checks Payable to:
666 11th Street Associates
Mail Payments to:
Eleventh Street Associates
666 11th Street, NW
Suite 650
Washington, DC 20001
I. Base Real Estate
Taxes: Base Year 2000
J. Base Operating
Expenses: Base Year 2000
K. Land: The land upon which the Building is
located which is known for assessment and
taxation purposes as Lot _______ in Square
_________.
APPROVED BY LANDLORD: APPROVED BY TENANT:
- - --------------------- ------------------
666 11th Street Associates Netivation.com, Inc.
By: By:
------------------------------- ---------------------------
iv
<PAGE>
OFFICE LEASE
THIS AGREEMENT OF LEASE (this "Lease") is made this___________ day of
September, 1999, by and between 666 11TH STREET ASSOCIATES, ("Landlord") and
Netivation.com, Inc. ("Tenant").
WHEREAS Landlord is the owner of the Building identified in Item A of
the Basic Lease Provisions.
NOW, THEREFORE, the parties hereto, intending legally to be bound,
hereby covenant and agree as set forth below.
1. THE PREMISES.
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
for the term and upon the terms, conditions, covenants and agreements
hereinafter provided, the Premises. The Premises consist of space which: (i) is
located on the floor or floors of the Building as is specified in Item B(1) of
the Basic Lease Provisions, (ii) is located in one or more areas or parts of
each such floor, and (iii) is bounded by the proposed or existing demising walls
therefor, the approximate locations of such demising walls and space being
marked in color or crosshatched and shown on the diagram(s) of the floor plan
for each such floor, such diagram(s) being attached to this Lease as Exhibit A.
The Premises is to be known and called by the Suite Number or Numbers specified
in Item B(1) of the Basic Lease Provisions. The approximate number of rentable
square feet contained in the Premises, as determined by Landlord in accordance
with the 1989 Washington Board of Realtors Method of Measurement, for
identification purposes only, is specified in Item B(2) of the Basic Lease
Provisions (the "Rentable Area"). The lease of the Premises includes the right,
together with other tenants of the Building and members of the public, to use
the common public areas of the Building, but includes no other rights not
specifically set forth herein. Landlord and Tenant shall in due diligence and in
good faith agree on mutually acceptable alterations, decorations, additions, or
improvements to the Premises, which, upon agreement by both the Landlord and
Tenant shall be attached hereto as Exhibit B and thereby become a part hereof.
Landlord shall finish the Premises as set forth in Exhibit B attached hereto and
made a part hereof. It is understood and agreed that Landlord will not make, and
is under no obligation to make, any alterations, decorations, additions or
improvements in or to the Premises, structural or otherwise, except as set forth
in Exhibit B. Landlord agrees to deliver possession of the Premises to Tenant
and Tenant agrees to accept the same from Landlord, upon written notice from
Landlord to Tenant, that Landlord's work in the Premises described in Exhibit B
has been substantially completed. This Lease shall not become effective pursuant
to the terms hereof unless and until Landlord and Tenant have agreed upon
Exhibit B.
2. TERM.
(A) The Term of this Lease shall be for the period of years
and months as specified in Item C of the Basic Lease Provisions. If, pursuant to
Paragraph 20(a) of this Lease, the Term begins on a date other than the
Commencement Date, then Landlord shall advise Tenant in writing of such date and
thereafter the revised Commencement Date shall be such date and the revised
Expiration Date shall be such date which is specified in such written notice and
is that same number of days after the revised Commencement Date as it was after
the original Commencement Date. If, on or prior to the Commencement Date,
Landlord fails to deliver possession of the Premises for any cause or reason
beyond the reasonable control of Landlord, then the Term shall not commence on
the Commencement Date, but shall commence on the date fixed by Landlord in the
notice to Tenant, which notice shall state the revised Commencement Date and the
revised Expiration Date of the Term hereof. Neither the validity of this Lease
nor the obligations of Tenant under this Lease shall be affected by such failure
to deliver possession, and Tenant shall have no claim against Landlord because
of Landlord's failure to deliver possession of the Premises on the date
originally fixed therefor.
(B) Provided Tenant is not in default hereunder, then and only
in such event, Tenant shall have the right and option, by giving notice as set
forth below, to extend and renew the term of this Lease for one (1) additional
term of five (5) years (hereinafter the "Option to Renew") beginning on the day
immediately following expiration of the initial term hereof (the "Renewal Term")
and upon the same terms and conditions of the original term of this Lease
[excluding basic annual rent which shall be at 95% of the prevailing market rate
for comparable space in effect as of the commencement of the Renewal Term, as
determined by the parties in good faith taking into
<PAGE>
consideration additional rent to be paid by Tenant during the Renewal Term
and tenant concessions being given to similar tenants in similarly situated
office buildings]. If Tenant desires to exercise the Option to Renew, Tenant
shall give Landlord written notice thereof at least nine (9) months prior to
the commencement of the Renewal Term. In the event of any earlier termination
of this Lease, or if Tenant shall fail to timely exercise the aforesaid
Option to Renew then and in such event, all rights of Tenant to the Renewal
Term shall be of no further force or effect. The Base Annual Rent for the
Renewal Term shall be agreed upon by the parties no later than eight (8)
months prior to the expiration of the initial term. In the event the parties
are unable to agree upon the Base Annual Rent for the renewal term, within
the time period provided hereinabove, the prevailing market rate shall be
determined by a board of three (3) licensed real estate brokers, one of whom
shall be named by Landlord, one by Tenant, and the third selected by the two
(2) brokers selected by the Landlord and the Tenant. All of said brokers
shall be licensed real estate brokers in the District of Columbia
specializing in commercial leasing in the Central Business District of the
District of Columbia having not less than ten (10) years experience and
recognized as ethical and reputable within their industry. The parties agree
to select their respective designated brokers within ten (10) days after
written request from the other party. The third broker shall be selected
within fifteen (15) days after both of the first two (2) brokers have been
selected. Within fifteen (15) days after the third broker has been selected
all of the brokers shall meet to attempt to agree upon the prevailing market
rate. If they are unable to reach agreement, each broker, shall within said
fifteen (15) day period, submit in writing the prevailing market rate it
deems appropriate and the prevailing market rate shall be the amount which is
the mean between the two (2) closest amounts determined by two (2) of the
brokers. Each of the parties shall pay for the costs of the services of the
broker selected by it and the costs of the third broker shall be divided
equally between the Landlord and Tenant. It is understood and agreed by the
parties that the determination of the brokers shall be final and binding upon
the parties. The parties shall execute an addendum to the Lease to recognize
the rent so determined and to confirm the extended term and the terms and
conditions of said extended term.
3. RENT.
Tenant shall pay as rent for the Premises the following amounts (each
of which shall be considered rent and all of which are, unless the context
requires otherwise, collectively referred to herein as "rent"):
(a) BASE RENT. The annual sum as specified in Item D(1) of the
Basic Lease Provisions, payable in equal monthly installments, in advance, as
specified in Item D(2) of the Basic Lease Provisions, the first payment to be
made upon signing of this Lease by Tenant (which amount shall be prorated in
accordance with Section 20), and the second and subsequent monthly payments to
be made on the first day of each and every calendar month (beginning with the
second month) during the Term. The aforesaid payments of rent are to be sent as
specified in Item H(3) of the Basic Lease Provisions or at such other place as
Landlord may from time to time direct in writing to Tenant.
Landlord and Tenant agree that the monthly installments of Base Rent
will be allocated, for purposes of Section 467 of the Internal Revenue Code, in
the same manner as they are payable under this Lease.
(b) INCREASE IN BASE RENT. On the (1st) anniversary of the
"Commencement Date" and each anniversary of such date thereafter Tenant shall
be required to pay a 4% annual increase in Base Rent.
(c) INCREASE IN REAL ESTATE TAXES.
(1) The TERM "Real Estate Taxes" shall mean the total
amount of all taxes and assessments, general and special, ordinary and
extraordinary, foreseen and unforeseen, now or hereafter assessed, levied or
imposed upon the Building and the Land; together with any tax in the nature
of a real estate tax, an ad valorem tax on rent or any tax on income if
imposed in lieu of real estate taxes and assessments; and any taxes and
assessments which may hereafter be substituted for real estate taxes together
with all reasonable costs and expenses paid or incurred by Landlord in
contesting the validity or amount thereof, which reasonable costs and
expenses shall be duly evidenced by the Landlord. In the event that the
method currently used by the District of Columbia taxing authority for the
computation of the assessed market value of the Building and/or the Land is
discontinued or revised, the determination of the increase in Real Estate
Taxes shall thereafter be made according to a format and procedure which most
nearly approximates the method currently in use. In the event that any
business tax, rental tax or other
<PAGE>
taxes which are now or hereafter levied upon (i) Tenant's use or occupancy of
the Premises, (ii) Tenant's leasehold improvements, (iii) Tenant's business at
the Premises, or (iv) Landlord by virtue of Tenant's occupancy of the Premises,
are enacted, changed or altered so that any of such taxes are levied against
Landlord, or in the event that the mode of collection of such taxes is changed
so that Landlord is responsible for collection or payment of such taxes, any and
all such taxes shall be a part of the increase in Real Estate Taxes and Tenant
shall pay its Proportionate Share of the full amount of all such taxes to
Landlord. Real Estate Taxes which are being contested by Landlord shall
nevertheless be included for purposes of the computation of the liability of
Tenant under this Paragraph provided, however, that in the event that Tenant
shall have paid any amount of additional rent pursuant to Paragraph 3(c) and
Landlord shall thereafter receive a refund of any portion of the Real Estate
Taxes on which such payment was based, Landlord shall pay to Tenant its
Proportionate Share of such refund. Landlord shall have no obligation to
contest, object or litigate the levying or imposition of the Real Estate Taxes
and may settle, compromise, consent to, waive, or otherwise determine in its
discretion the Real Estate Taxes without consent or approval of Tenant.
(2) Tenant shall pay to Landlord its Proportionate Share
of Real Estate Tax Increases as specified in Item E(1) of the Basic Lease
Provisions (being the stipulated proportion which the Rentable Area of the
Premises bears to the total rentable area of the Building) of the increases
(including special assessments, if any, and any other taxes now or hereafter
imposed which are in the nature of or in substitution for Real Estate Taxes)
levied on the Building and the Land on which the Building is situated, that
exceed the "Base Real Estate Taxes". For purposes hereof, the Base Real
Estate Taxes are as stipulated in Item I of the Basic Lease Provisions.
(d) INCREASE IN OPERATING EXPENSES.
(1) The term "Operating Expenses" shall mean all expenses,
costs and disbursements (but not replacement of capital investment items or
specific costs billed to and paid by specific tenants) of every kind and nature
which Landlord shall pay or become obligated to pay because of or in connection
with the ownership, management, maintenance, repair and operation of the
Building (which costs and expenses shall be duly evidenced by the Landlord),
including but not limited to, the following:
(i) Cost of wages and salaries of all employees
engaged in the operation and maintenance of the Building, including taxes,
insurance and benefits.
(ii) Cost of all supplies and materials used in
operation, maintenance and repair of the Building.
(iii) Cost of all utilities (including surcharges)
including but not limited to water, sewer, electricity, heating, lighting, air
conditioning and ventilating for the Building, but excluding electricity
separately paid for by individual tenants.
(iv) Cost of all maintenance and service agreements
for the Building and the equipment used therein, including but not limited to,
access control and energy management services, security, window cleaning,
elevator maintenance and janitorial service.
(v) Cost of insurance relating to the Building,
including but not limited to the cost of casualty and liability insurance
applicable to the Building and Landlord's personal property used in connection
therewith.
(vi) Cost of repairs and general maintenance
(excluding repairs and general maintenance paid for by the proceeds of
insurance, or by Tenant or third parties, and alterations attributable solely to
particular tenant spaces within the Building).
(vii) Cost of the property management services to the
Building.
(viii) Costs of any additional services not provided
to the Building at the Commencement Date but thereafter provided by Landlord in
the prudent management of the Building.
<PAGE>
(ix) Cost of audit and accounting services.
(x) Cost of any capital improvements made to the
Building after the Commencement Date that, in Landlord's reasonable judgement,
reduce Operating Expenses or are required under any governmental law or
regulation that was not applicable to the Building at the time it was
constructed, such cost thereof to be amortized over such reasonable period as
Landlord shall determine together with interest on the unamortized balance
accruing at the rate per annum of two percent (2%) above the "prime rate" then
in effect at The Riggs National Bank of Washington, D.C. or such higher rate as
may have been paid by Landlord on funds borrowed for the purpose of constructing
said capital improvements.
(2) Tenant shall pay to Landlord its Proportionate Share of
Operating Expense Increases (being the stipulated proportion which the Rentable
Area of the Premises bears to the total rentable office area of the Building) of
the increases, if any, that exceed the Base Operating Expenses. For purposes
hereof, the Base Operating Expenses are as stipulated in Item J of the Basic
Lease Provisions.
(e) PAYMENT OF INCREASES IN REAL ESTATE TAXES AND OPERATING
EXPENSES. For each calendar year, Landlord shall notify Tenant of Landlord's
best estimate of Tenant's Proportionate Share of Real Estate Taxes above Base
Real Estate Taxes and Tenant's Proportionate Share of Operating Expenses above
Base Operating Expenses (collectively "Tenant's Proportion") for such calendar
year and Tenant shall be obligated to pay Landlord, in addition to and along
with each monthly installment of Base Rent due during such calendar year, one
twelfth (1/12th) of such estimated amount. Tenant's payments of such estimated
amount shall be treated by Landlord as a credit against the actual amount of
Tenant's Proportion required to be paid by Tenant pursuant to Paragraph 3(c) &
(d) hereof. Notwithstanding the above, for the period between the Commencement
Date and December 31 of the year in which the Commencement Date occurred,
Tenant's Proportion shall not be estimated in advance and paid monthly but
instead shall be collected in the same manner as is set forth in the balance of
this subsection. Within approximately ninety (90) days following the end of each
calendar year, or as soon thereafter as the relevant information is available
and complete, Landlord shall determine and notify Tenant of (i) the actual
amount of Tenant's Proportion for the immediately preceding calendar year and
(ii) the difference between such actual amount of Tenant's Proportion and the
amount already paid by Tenant in respect thereof based upon Landlord's estimate
of Tenant's Proportion, such excess shall be applied against the next
installment of estimated Tenant's Proportion. If Tenant's total payments of such
estimated Tenant's Proportion are less than the actual amount of Tenant's
Proportion for such calendar year, then Tenant shall pay Landlord the difference
within thirty (30) days of Tenant's receipt of a bill therefor. Notwithstanding
the expiration of the term of this Lease, Tenant shall owe additional rent to
Landlord for those months Tenant occupied the Premises in the calendar year in
which this Lease shall expire. Any overpayment by Tenant computed in accordance
with the terms of this Lease at the end of a calendar year shall be promptly
returned to Tenant, and any underpayment shall be paid within thirty (30) days
of a bill therefor. Neither notice to Tenant of Tenant's Proportion, nor
collection by Landlord of such amount, shall be conclusive upon Landlord in the
event the amount so stated and/or paid inaccurately reflects the Operating
Expenses or Real Estate Taxes.
(f) PARTIAL YEAR. Should this Lease commence or terminate at any
time other than the last day of a calendar year, the amounts due as additional
rent pursuant to Paragraph 3(e) for the commencement or termination year only
shall be prorated by the following fraction:
DAYS UNDER LEASE
365
(g) EXAMINATION. Tenant, at its expense, shall have the right
during Landlord's business hours to examine Landlord's books and records
relating to the Operating Expenses and Real Estate Taxes of the Building for the
prior calendar year; however, such examination shall not waive Tenant's
obligation to pay such additional rent.
(h) SURVIVAL. Tenant's obligation to pay the amounts due as
additional rent pursuant to Paragraph 3(e) during the Term shall survive any
expiration or termination of this Lease by lapse of time or otherwise.
<PAGE>
(i) DEMAND; TIME. All sums payable by Tenant hereunder, including
but not limited to each of the foregoing amounts of rent, shall be paid to
Landlord without demand and without deduction, set-off or counterclaim (unless
specifically authorized in this Lease) on the first day of every month during
the Term. If Landlord or Tenant shall at any time or times accept rent or other
sums after it shall become due and payable, or accept less than the full amount
due and payable, such acceptance shall not excuse a delay upon subsequent
occasions, or constitute, or be construed as, a waiver of any or all of
Landlord's or Tenant's rights hereunder.
4 USE OF PREMISES.
(a) Tenant shall use and occupy the Premises solely for general
office purposes and only in accordance with the uses permitted under applicable
zoning and other municipal regulations. Without the prior written consent of
Landlord, the Premises shall not be used for any other purpose, or for any
purpose that will constitute a nuisance or unreasonable annoyance to Landlord or
other tenants of the Building and shall comply with all present and future laws,
ordinances, regulations, and orders of the United States of America, the
jurisdiction in which the Building is located, and any other public or
quasi-public authority having jurisdiction over the Premises. It is expressly
understood that if any law, ordinance, regulation or order requires an occupancy
permit for the Premises, Tenant shall obtain such permit at Tenant's own
expense.
(b) If at any time during the Term of this Lease Tenant adopts a
policy prohibiting Tenant, its employees, agents or invitees from smoking within
the Premises except in designated smoking areas, Tenant shall, if permitted by
law, establish a designated area within the Premises where Tenant shall permit
smoking. Tenant shall establish such designated area at Tenant's sole expense in
accordance with Article 7 of this Lease. Such designated area shall include,
among other things, adequate area, ventilation and fire safety equipment.
5. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign, transfer, mortgage, or otherwise
encumber this Lease or sublet or rent (or permit occupancy or use by others of)
the Premises, or any part thereof, without obtaining the prior written consent
of Landlord, nor shall any assignment or transfer of this Lease or the right of
occupancy hereunder be effectuated by operation of law or otherwise without the
prior written consent of Landlord. Tenant shall give Landlord written notice of
Tenant's desire to assign, sublet or mortgage the Premises, and Tenant shall pay
Landlord the sum of Three Hundred Dollars ($300.00) to process each such
request. Within thirty (30) days following such request, Landlord shall either
consent to such request on such terms and conditions as Landlord may require, or
reject such request. As to any proposed subletting, Landlord agrees that its
consent to any such request shall not be unreasonably withheld, conditioned or
delayed. In the event Tenant desires to sublet or assign all or a portion of the
Premises for the balance of the Term, Landlord shall have the option to
terminate this Lease as to that portion of the Premises, effective as of the
date of Tenant's intention to sublet or assign or on a date to be agreed upon by
Landlord and Tenant, or to consent to such subletting or assignment and require
that Tenant pay Landlord as additional rent the difference between Base Rent
payable by Tenant and the rent charged by Tenant to such subtenant. Any
attempted assignment or subletting made without Landlord's consent shall, at the
option of Landlord, terminate this Lease provided that Tenant shall remain
liable for all rent due hereunder and all damages suffered by Landlord on
account of Tenant's breach. The consent by Landlord to any assignment or
subletting shall not be construed as a waiver or release of Tenant from the
terms of any covenant or obligation other than a payment obligation to the
extent such payment has been made by the assignee, subtenant or occupant) under
this Lease, nor shall the collection or acceptance of rent from any such
assignee, subtenant or occupant constitute a waiver or release of Tenant of any
covenant or obligation contained in this Lease, nor shall any such assignment or
subletting be construed to relieve Tenant from obtaining the consent in writing
of Landlord to any further assignment or subletting. In the event that Tenant
defaults hereunder, Tenant hereby assigns to Landlord the rent due from any
subtenant of Tenant and hereby authorizes each such subtenant to pay said rent
directly to Landlord. As to any assignment or subletting consented to by
Landlord hereunder, to the extent there is any net profit received by Tenant
from such subletting or assignment (i.e. to the extent the consideration
received by Tenant for such assignment or subletting exceeds the rent due
hereunder and Tenant's out of pocket costs associated with such assignment or
subletting), such net profit shall be shared equally by Landlord and Tenant.
<PAGE>
(b) In the event the original Landlord hereunder, or any successor
owner of the Building, shall sell or convey the Building, all liabilities and
obligations on the part of the original Landlord, or such successor owner, under
this Lease accruing thereafter shall terminate, and thereupon all such
liabilities and obligations shall be binding on the new owner. Tenant agrees to
attorn to such new owner in writing if requested by Landlord to do so.
6. MAINTENANCE BY TENANT.
Tenant shall keep the Premises and fixtures and equipment therein in
clean, safe and sanitary condition, shall take good care thereof, shall suffer
no waste or injury thereto, and shall, at the expiration or other termination of
the Term, surrender the same, broom clean, in the same order and condition in
which they are when Landlord completes the improvements pursuant to Exhibit B,
ordinary wear and tear excepted. Landlord, at its cost, shall provide and
install all original tubes or bulbs in building standard fixtures within the
Premises necessary to provide required lighting and all standard replacement
tubes or bulbs for such lighting; all other bulbs, tubes and lighting fixtures
for the Premises shall be provided and installed by Tenant at Tenant's cost and
expense.
7. TENANT ALTERATIONS.
(a) ALTERATIONS. The original improvement of the Premises by
Landlord for Tenant shall be in accordance with Exhibit B. Tenant shall not make
or permit anyone to make any alterations, decorations, additions or
improvements, structural or otherwise, in or to the Premises or the Building,
without the prior written consent of Landlord. All such alterations,
decorations, additions or improvements permitted by Landlord must conform to all
rules and regulations established from time to time by the Underwriters'
Association of the local area and conform to all requirements of the Federal,
state and local governments. When granting its consent, Landlord may impose any
reasonable conditions it deems appropriate, including, without limitation, the
approval of plans and specifications and obtaining of specified insurance. As a
condition precedent to such written consent of Landlord, Tenant agrees to obtain
and deliver to Landlord written and unconditional waivers of mechanics' and
materialmens' liens upon the Land and Building of which the Premises are a part,
for all work, labor and services to be performed, and materials to be furnished,
by them in connection with such work, signed by all contractors, subcontractors,
materialmen and laborers to be involved in such work. If, notwithstanding the
foregoing, any mechanic's or materialmen's lien is filed against the Premises,
the Building and/or the Land, for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant, such lien shall be
discharged by Tenant within ten (10) days thereafter, at Tenant's sole cost and
expense, by the payment thereof or by filing any bond required by law. If Tenant
shall fail to discharge any such mechanic's or materialmen's lien, Landlord may,
at its option, discharge the same and treat the cost thereof as additional rent
payable with the monthly installment of rent next becoming due; it being hereby
expressly covenanted and agreed that such discharge by Landlord shall not be
deemed to waive or release the default of Tenant in not discharging the same. It
is understood and agreed by Landlord and Tenant that any alterations,
decorations, additions or improvements shall be constructed on behalf of Tenant
and that in the event Landlord gives its written consent to Tenant's making any
such alterations, decorations, additions or improvements, such written consent
shall not be deemed to be an agreement or consent by Landlord to subject
Landlord's interest in the Premises, the Building or the Land to any mechanic's
or materialmen's liens which may be filed in respect to any such work done by or
on behalf of Tenant.
(b) All alterations, decorations, additions or improvements,
including wall-to-wall carpet, upon the Premises (whether with or without the
prior written consent of Landlord) shall, at the election of Landlord, remain
upon the Premises, and become the property of Landlord and be surrendered with
the Premises at the Expiration Date or sooner termination of this Lease without
disturbance, molestation or injury. Should Landlord elect that alterations,
decorations, additions or improvements made by Tenant upon the Premises
including telephone or computer cabling, conduit or wiring be removed at the
Expiration Date or sooner termination of this Lease or upon expiration or
termination of any renewal period, Tenant hereby agrees to cause same to be
removed at Tenant's sole cost and expense. Should Tenant fail to remove the
same, Landlord may cause same to be removed at Tenant's expense and Tenant
hereby agrees to reimburse Landlord for the cost of such removal together with
any and all damages which Landlord may suffer and sustain by reason of the
failure of Tenant to remove the same.
(c) INDEMNIFICATION. Tenant shall indemnify and hold Landlord
harmless from and against any and all expenses, liens, claims or damages to
person or property which arise directly or indirectly by reason of the making
<PAGE>
of any such alterations, decorations, additions or improvements. If any such
alterations, decorations, additions or improvements, structural or otherwise,
are made by Tenant without the prior written consent of Landlord, Landlord shall
have the right to remove same and Tenant shall be liable for any and all
expenses incurred by Landlord in said removal and subsequent restoration of the
Premises to the original condition. All alterations, decorations, additions or
improvements in or to the Premises or the Building made or completed by either
party shall immediately become the property of Landlord and shall remain upon
and be surrendered with the Premises as a part thereof at the Expiration Date or
sooner termination of the Term without disturbance, molestation or injury;
provided, however, that if Tenant is not in default in the performance of any of
its obligations under this Lease, Tenant shall have the right to remove, prior
to the Expiration Date or sooner termination of the Term, all movable furniture,
furnishings, or equipment installed in the Premises at the expense of Tenant. If
such property of Tenant is not removed by Tenant prior to the Expiration Date or
sooner termination of this Lease, the same shall become the property of Landlord
and shall be surrendered with the Premises as a part thereof.
8. SIGNS; FURNISHINGS.
(a) SIGNS. No sign, advertisement or notice shall be inscribed,
painted, affixed or otherwise displayed on any part of the outside or the inside
of the Building except on the directories and doors of offices, and then only in
such place and in such number, size, color and style as is approved by Landlord
and provided by Landlord at Tenant's cost and expense. If any such sign,
advertisement or notice is nevertheless exhibited by Tenant, Landlord shall have
the right to remove the same and Tenant shall be liable for any and all expenses
incurred by Landlord in such removal. Landlord shall have the right to prohibit
any advertisement of Tenant which in its opinion tends to impair the reputation
of the Building or its desirability as a high-quality building for offices or
for financial, legal, insurance and other institutions of like nature. Upon
written notice from Landlord, Tenant shall immediately refrain from and
discontinue any such advertisement.
(b) FURNISHINGS. Landlord shall have the right to prescribe the
weight and position of safes and other heavy equipment or fixtures, which shall,
if considered necessary by Landlord, stand on plank strips to distribute the
weight. Any and all damage or injury to the Premises or the Building caused by
moving the property of Tenant into, in or out of the Premises, or due to the
same being on the Premises, shall be repaired by, and at the sole cost of,
Tenant. No furniture, equipment or other bulky matter of any description will be
received into the Building or carried in the elevators except as approved by
Landlord, and all such furniture, equipment, and other bulky matter shall be
delivered through the designated delivery entrance of the Building. All moving
of furniture, equipment and other materials shall be under the supervision of
Landlord who shall, however, not be responsible for any damage to or charges for
moving the same. Tenant agrees promptly to remove from any sidewalk, driveway or
alley adjacent to the Building any of Tenant's furniture, equipment or other
material there delivered or deposited.
9. TENANT'S EQUIPMENT.
Tenant shall not install or operate in the Premises any electrically
operated equipment or other machinery, other than standard electric typewriters,
personal computers, adding machines, radios, televisions, clocks, facsimile
machines, copying machines, and other similar standard office equipment in
modern offices without first obtaining the prior written consent of Landlord,
who may condition such consent upon the payment by Tenant of additional rent in
compensation for such excess consumption of utilities as determined in the
reasonable discretion of Landlord and for the cost of separate metering or
additional wiring as may be occasioned by the operation of said equipment or
machinery. Tenant shall not install any other equipment of any kind or nature
whatsoever which will or may necessitate any change, replacement or addition to
the water, heating, plumbing, air-conditioning, or electrical systems of the
Premises or the Building without first obtaining the written consent of
Landlord. Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenant shall be installed and maintained by Tenant, at
Tenant's expense, on vibration eliminators or other devices sufficient to
eliminate such noise and vibration. Landlord reserves the right to separately
meter (at its own expense) any utility consumption in the Premises. Any machines
or equipment installed by or on behalf of Tenant shall be maintained by Tenant
at Tenant's sole expense.
<PAGE>
10. INSPECTION.
Tenant shall permit Landlord, or its agents or other designees, to
enter the Premises, without charge therefor to Landlord and without diminution
of the rent payable by Tenant, to examine, inspect, exhibit, and protect the
Premises and the Building and to make such alterations and/or repairs as in the
sole judgment of Landlord may be deemed necessary, and to show the Premises to
prospective purchasers, lenders, and tenants.
11. INSURANCE; INDEMNITY.
(a) PROPERTY INSURANCE. Throughout the Term of this Lease Landlord
shall keep the Building insured under a standard fire insurance policy with
extended coverage endorsement, or in lieu thereof, insure the Building against
loss or damage as a self-insurer.
Tenant shall maintain insurance on the value of Tenant's personal
property located within the Premises, including without limitation alterations
and decorations installed by Tenant in the Premises.
(b) WAIVER OF SUBROGATION. Tenant and Landlord each releases and
relieves the other and waives its entire right of recovery against the other for
loss or damage arising out of or incident to the perils of fire, explosion, or
any other perils described in the "extended coverage" insurance endorsement
approved for use in the jurisdiction in which the Building is located, which
occurs in, on, or about the Premises, whether due to the negligence of either
party, their agents, employees, invitees, or otherwise. Neither party, not its
officers, directors, employees, agents or invitees, nor, in the case of Tenant,
its subtenants, shall be liable to the other for loss or damage caused by any
risk covered by the insurance required by this Article 11. If the foregoing
release shall contravene any law with respect to exculpatory agreements, the
liability of the party in question shall be deemed not released but shall be
secondary to the other's insurer.
(c) INSURANCE RATING. Tenant shall not conduct or permit to be
conducted by its employees, agents, guests or invitees any activity or place any
equipment in or about the Premises or the Building that will in any way increase
the cost of fire insurance or other insurance on the Building. If any increase
in the cost of fire insurance or other insurance is stated by any insurance
company or by the applicable Insurance Rating Bureau, if any, to be due to any
activity or equipment of Tenant in or about the Premises or the Building, such
statement shall be conclusive evidence that the increase in such cost is due to
such activity or equipment and, as a result thereof, Tenant shall be liable for
the amount of such increase. Tenant shall reimburse Landlord for such amount
upon written demand from Landlord and any such sum shall be considered
additional rent payable hereunder. Tenant, at its sole expense, shall comply
with any and all requirements of any insurance organization or company necessary
for the maintenance of reasonable fire and public liability insurance covering
the Premises and the Building.
(d) LIABILITY INSURANCE. Tenant shall carry public liability
insurance with a carrier licensed to do business in the jurisdiction in which
the Building is located and approved by Landlord. Said insurance shall be in
minimum amounts approved by Landlord from time to time (as set forth in the
Rules and Regulations as hereinafter defined), shall name Landlord and
Landlord's mortgagee as additional insureds, as their interests may appear, and
shall contain an endorsement that such policy shall remain in full force and
effect notwithstanding that the insured has waived its right of action against
any party prior to the occurrence of a loss. Tenant shall deliver to Landlord as
a condition precedent to its taking occupancy of the Premises (but not its
obligation to pay rent) a certificate or certificates evidencing such insurance.
Each policy shall contain an endorsement that will prohibit its cancellation
prior to the expiration of thirty (30) days after written notice of such
proposed cancellation to Landlord.
(e) INDEMNITY. Tenant hereby agrees to indemnify and hold Landlord
harmless from and against any cost, damage, claim, liability or expense
(including attorney's fees) incurred by or claimed against Landlord, directly or
indirectly, as a result of or in any way arising from Tenant's use and occupancy
of the Premises or in any other manner which relates to the business of Tenant.
The liability of Tenant to indemnify Landlord shall not extend to any matter
against which Landlord shall be effectively protected by Tenant's insurance
provided, however, that if any such liability exceeds the amount of effective
and collectable insurance, said liability of Tenant shall apply to such excess.
If Tenant fails to maintain any insurance required in this Lease, Tenant shall
be liable for any loss or cost resulting from such failure.
<PAGE>
12. SERVICES AND UTILITIES.
(a) It is agreed that Landlord shall furnish air-conditioning
during the seasons of the year when air-conditioning is required and heat during
the seasons of the year when heat is required. It is further agreed that
Landlord shall provide reasonably adequate electricity, water, exterior window
cleaning service and char and janitorial service. The char and janitorial
service shall be provided Monday through Friday only (except legal holidays) .
Landlord shall provide elevator service by means of automatically operated
elevators; provided, however, that Landlord shall have the right to remove
elevators from service as the same shall be required for moving freight, or for
servicing or maintaining the elevators and/or the Building. Landlord shall
furnish all services and utilities required by this Lease only during the normal
hours of operation of the Building, as set forth in the rules and regulations
attached hereto as Exhibit C and made a part hereof (the "Rules and
Regulations") unless otherwise specified herein. Landlord agrees to notify
Tenant in writing of any changes to the Rules and Regulations at least ten (10)
days before such changes take effect. It is also agreed that if Tenant requires
air-conditioning or heat beyond the normal hours of operation set forth herein
and provided arrangements are made with Landlord's representative, Landlord
shall furnish such air-conditioning or heat and Tenant agrees to pay for the
same with the next monthly installment of rent in accordance with the
then-current schedule of costs and assessments therefor. It is understood and
agreed that Landlord shall not be liable for failure, delay or suspension in
furnishing any of the utilities or services required to be provided by Landlord
caused by breakdown, maintenance, repairs, strikes, scarcity of labor or
materials, acts of God or from any other cause whatsoever. Any such failure or
inability to furnish the utilities or services required hereunder shall not be
considered an eviction, actual or constructive, of Tenant from the Premises, and
shall not entitle Tenant to terminate this Lease or to an abatement of any rent
payable hereunder.
(b) Tenant shall have access to the demised premises twenty four
(24) hours per day, seven (7) days per week (subject however to the rules and
regulations established from time to time by Landlord for the building). Access
to the building entrance outside the building standard hours will be by means of
a security card access system, guard system or other system or arrangement as
established from time to time by Landlord. In addition to the foregoing,
Landlord will provide Tenant with an elevator lock key for each floor leased and
occupied by Tenant.
13. LIABILITY OF LANDLORD.
(a) NO LIABILITY. Landlord shall not be liable to Tenant, its
employees, agents, invitees, or guests for any damage, compensation or claim
arising from the necessity of repairing any portion of the Premises or the
Building, the interruption in the use of the Premises, accident or damage
resulting from the use or operating (by Landlord, Tenant, or any other person or
persons whatsoever) of elevators or heating, cooling, electrical or plumbing
equipment or apparatus, or the termination of this Lease by reason of the
destruction of the Premises, or from any fire, robbery, theft, mysterious
disappearance and/or any other casualty, or from any leakage in any part or
portion of the Premises or the Building, or from water, rain or snow that may
leak into, or flow from, any part of the Premises or the Building, or from
drains, pipes or plumbing work in the Building, or from any other cause
whatsoever. Any goods, property or personal effects, stored or placed by Tenant
in or about the Premises or Building shall be at the risk of Tenant, and
Landlord shall not in any manner be held responsible therefor. If any employee
or representative of Landlord receives any packages or articles delivered to
Tenant, such employee shall be the agent of Tenant for such purposes and not of
Landlord.
(b) LIMITATION OF LIABILITY. Anything contained in this Lease to
the contrary notwithstanding, Tenant agrees that it shall look solely to the
estate and property of Landlord in the Land and the Building of which the
Premises form a part for the collection of any judgment (or other judicial
process) requiring the payment of money by Landlord for any default or breach by
Landlord of any of its obligations under this Lease, subject, however, to the
prior rights of any ground or underlying landlord or the holder of any mortgage
covering the Building or of Landlord's interest therein. No other assets of
Landlord shall be subject to levy, execution or other judicial process for the
satisfaction of Tenant's claim. This provision shall not be deemed, construed or
interpreted to be or constitute an agreement, express or implied, between
Landlord and Tenant that Landlord's interest hereunder and in the Building shall
be subject to impressment of an equitable lien otherwise. Nothing herein
contained shall be construed to limit any right of injunction against Landlord,
where appropriate.
<PAGE>
(c) FORCE MAJEURE. Landlord shall not be deemed in default with
respect to the failure to perform any of the terms, covenants and conditions of
this Lease on Landlord's part to be performed, if such failure is due in whole
or in part to any strike, lockout, labor dispute (whether legal or illegal),
civil disorder, inability to procure materials, failure of power, restrictive
governmental laws and regulations, riots, insurrections, war, fuel shortages,
accidents, casualties, Acts of God, acts caused directly or indirectly by Tenant
(or Tenant's agents, employees, guests or invitees), acts of other tenants or
occupants of the Building or any other cause beyond the reasonable control of
Landlord. In such event, the time for performance by Landlord shall be extended
by an amount of time equal to the period of the delay so caused.
14. RULES AND REGULATIONS.
Tenant, its employees, agents, invitees, and guests shall at all times
abide by and observe the Rules and Regulations. In addition, Tenant, its
employees, agents, invitees, and guests shall abide by and observe such other
rules and regulations as may be promulgated from time to time by Landlord, with
a copy sent to Tenant, for the operation and maintenance of the Building;
provided, however, that the same are not inconsistent with the provisions of
this Lease. Nothing contained in this Lease shall be construed to impose upon
Landlord any duty or obligation to enforce such Rules and Regulations, or the
terms, conditions or covenants contained in any other lease, as against any
other tenant, and Landlord shall not be liable to Tenant for violation of the
same by any other tenant, its employees, agents, invitees or guests. If there is
any inconsistency between this Lease and the Rules and Regulations, this Lease
shall govern.
15. DAMAGE; CONDEMNATION.
(a) DAMAGE TO THE PREMISES. If the Premises or the Building are
destroyed or damaged by fire, earthquake or other casualty to the extent that
they are untenantable in whole or in part, then Landlord shall proceed with
reasonable diligence to rebuild and restore the Premises or such part thereof as
may be destroyed or damaged; provided (i) Landlord has received the insurance
proceeds payable on account of such damage or destruction (which insurance
proceeds Landlord shall attempt to collect with reasonable diligence), (ii) such
damage or destruction is not caused by Tenant or its agents or employees, (iii)
the period for electing to terminate this Lease as provided below in this
Paragraph 15(a) has passed and this Lease has not been terminated, and (iv)
Landlord shall not be responsible for Tenant's trade fixtures, furnishings,
furniture, equipment or personal property. Such rebuilding and restoration shall
be at Landlord's expense if such damage is insured by Landlord or required
hereunder to be insured by Landlord and at Tenant's expense if such damage is
caused by Tenant, its employees, agents, invitees or guests and not required to
be insured hereunder by Landlord. During the period of such rebuilding and
restoration, unless the damage or destruction is caused by Tenant, its
employees, agents, invitees or guests, the rent shall be abated in the same
proportion as the Rentable Area in the portion of the Premises rendered
untenantable shall bear to the total Rentable Area of the Premises. If such
destruction or damage cannot reasonably be repaired within ninety (90) days,
Landlord shall so notify Tenant within fifteen (15) days after Landlord is
notified of the damage or destruction. In such event, Landlord may, within
fifteen (15) days after such notice, terminate this Lease by written notice
thereof to Tenant. If Landlord does not terminate the Lease during that fifteen
(15) day period, this Lease shall remain in effect and Landlord shall diligently
proceed to repair or reconstruct the Premises and rent shall abate subject to
and in accordance with the preceding provisions of this Paragraph 15(a).
(b) CONDEMNATION. If the whole or a substantial part of the
Premises (or use or occupancy of the Premises) shall be taken or condemned by
any governmental or quasi-governmental authority for any public or quasi-public
use or purpose (including sale under threat of such taking), then the terms of
this Lease shall cease and terminate and the rent shall be abated on the earlier
of (i) the date when such title vests in such governmental or quasi-governmental
authority, or (ii) the date when Tenant may no longer occupy the Premises. If
less than a substantial part of the Premises is taken or condemned by any
governmental or quasi-governmental authority for any public or quasi-public use
or purpose (including sale under threat of such a taking), the rent shall be
equitably adjusted (on the basis of the Rentable Area available to Tenant in the
Premises before and after such event) on the date when title vests in such
governmental or quasi-governmental authority and the Lease shall otherwise
continue in full force and effect. Tenant shall have no claim against Landlord
(or otherwise) and hereby agrees to make no claim against the condemning
authority for any portion of the amount that may be awarded as a result of any
governmental or quasi-governmental taking or condemnation (or sale under threat
of such taking or condemnation)
<PAGE>
for the value of any expired or unexpired portion of the Term. Tenant may, if
allowed by statue, seek such awards or damages for moving expenses, loss of
profits and fixtures and other equipment installed by it (if any) which do not,
under the terms of this Lease, become the property of Landlord at the
termination hereof. Such awards or damages must be made by a condemnation court
or other authority and must be separate and distinct from any award to Landlord
for the Land and Building and shall not diminish any award of Landlord. For
purposes of this Paragraph 15(b), a substantial part of the Premises shall be
considered to have been taken if more than twenty-five percent (25%) of the
Premises are unusable by Tenant as a direct result of such taking.
16. DEFAULT OF TENANT.
(a) EVENTS OF DEFAULT. If Tenant shall (i) fail to pay any monthly
installment of rent (as required by Article 3 hereof) or shall fail to timely
make any other payment required by the terms and provisions hereof (although no
legal or formal demand has been made therefor) and such failure shall continue
for five (5) days after written notice thereof to Tenant, or (ii) violate or
fail to perform any of the other terms, conditions, covenants or agreements
herein made by Tenant, and such violation or failure shall continue for a period
of five (5) days after written notice thereof to Tenant by Landlord, or (iii)
abandon or vacate the Premises, or (iv) make or consent to an assignment for the
benefit of creditors or a common law composition of creditors, or a receiver of
Tenant's assets is appointed, or Tenant files a voluntary petition in a
bankruptcy or insolvency proceeding, or an involuntary petition in any
bankruptcy or insolvency proceeding is filed against Tenant and not discharged
by Tenant within sixty (60) days, or Tenant is adjudicated a bankrupt, or (v)
Tenant admits in writing its inability to pay its debts when due or that it is
insolvent, then, and in any of said events, this Lease shall, at the option of
Landlord, cease and terminate and the provisions of this Paragraph 16(a) shall
automatically operate as a notice to quit, any notice to quit, or of Landlord's
intention to re-enter, being hereby expressly waived and Landlord may proceed to
recover possession under and by virtue of the provisions of the laws of the
jurisdiction in which the Building is located or by such other proceeding,
including re-entry and possession, as may be applicable. In the event any such
failure to pay rent or other default on the part of Tenant occurs more than one
(1) time in any consecutive twelve (12) month period, Landlord shall not be
required during the remainder of the Term to send written notice before
proceeding with its remedies under this Article 16. If Landlord elects to
terminate this Lease, everything contained in this Lease on the part of Landlord
to be done and performed shall cease without prejudice, however, to the right of
Landlord to recover from Tenant all rent and any other sums accrued up to the
time of termination or recovery of possession by Landlord, whichever is later.
Should this Lease be terminated before the Expiration Date by reason of Tenant's
default, or should Tenant abandon or vacate the Premises before the Expiration
Date or sooner termination of the Term, Landlord may elect (i) to accelerate the
rent due hereunder to the end of the Term, (ii) to recover possession of the
Premises, by force, summary proceedings, or otherwise, or (iii) to relet the
Premises for such rent and upon such terms as are not unreasonable under the
circumstances, and Tenant shall be liable for all damages sustained by Landlord
including, without limitation, deficiency in rent, reasonable attorney's fees,
brokerage fees, and expenses of placing the Premises in commercially reasonable
rentable condition. At Landlord's option, any damage or loss of rent sustained
by Landlord may be recovered by Landlord at the time of Tenant's default, or at
the time of reletting, or in separate actions, from time to time, as said damage
shall have been made more easily ascertainable by successive relettings, or may
be deferred until cause of action shall not be deemed to have accrued until the
Expiration Date. The provisions contained in this Paragraph 16(a) shall be in
addition to and shall not prevent the enforcement of any claim Landlord may have
against Tenant for anticipatory breach of the unexpired Term.
(b) WAIVER. If, under the provisions hereof, Landlord shall
institute proceedings against Tenant and a compromise or settlement thereof
shall be made, the same shall not constitute a waiver of any other covenant,
condition or agreement herein contained, nor of any of Landlord's rights
hereunder. No waiver by Landlord of any breach of any covenant, condition or
agreement herein contained shall operate as a waiver of such covenant, condition
or agreement itself, or of any subsequent breach thereof. No payment by Tenant
or receipt by Landlord of a lesser amount than the monthly installment of rent
herein stipulated shall be deemed to be other than on account of the earliest
stipulated rent, nor shall any endorsement or statement on any check or letter
accompanying a check for payment of rent be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such rent or to pursue any other remedy provided
in this Lease. No re-entry by Landlord, and no acceptance by Landlord of keys
from Tenant, shall be considered an acceptance or a surrender of the Lease.
<PAGE>
(c) RIGHT OF LANDLORD TO CURE TENANT'S DEFAULT. If Tenant
defaults in the making of any payment or in the doing of any act herein
required to be made or done by Tenant, then Landlord may, but shall not be
required to, make such payment or do such act, and charge the amount of the
expense thereof, if made or done by Landlord, with interest thereon at the
rate per annum which is two percent (2%) greater than the "prime rate" then
in effect at The Riggs National Bank of Washington, D.C., from the date paid
by Landlord to the date of payment thereof by Tenant; provided, however, that
nothing herein contained shall be construed or implemented in such a manner
to allow Landlord to charge or receive interest in excess of the maximum
legal rate then allowed by law. Such payment and interest shall constitute
additional rent hereunder due and payable with the next monthly installment
of rent; but the making of such payment or the taking of such action by
Landlord shall not operate to cure such default or to stop Landlord from the
pursuit of any remedy to which Landlord would otherwise be entitled.
(d) LATE PAYMENT. If Tenant fails to pay an installment of rent
or any other sum due and payable to Landlord on or before the fifth day of
the calendar month when such installment becomes due and payable, Tenant
shall pay to Landlord a late charge (to cover Landlord's administrative and
overhead expenses of processing late payments) equal to the greater of one
hundred dollars ($100.00) or five percent (5%) of the amount of such
installment and, in addition, such unpaid installment shall bear interest at
the rate per annum which is two percent (2%) greater than the "prime rate"
then in effect at The Riggs National Bank of Washington, D.C. (or if such
prime rate is not available, a replacement rate designated by Landlord) from
the date such installment became due and payable to the date of payment
thereof by Tenant; provided, however, that nothing herein contained shall be
construed or implemented in such a manner as to allow Landlord to charge or
receive interest in excess of the maximum legal rate then allowed by law.
Such late charge and interest shall constitute additional rent hereunder due
and payable with the next monthly installment of rent.
(e) LIEN ON PERSONAL PROPERTY. Landlord shall have a lien upon
all personal property of Tenant moved into the Premises, as and for security
for the rent and other obligations of Tenant herein provided. In order to
perfect and enforce said lien, Landlord may at any time after default in the
payment of rent or default of other obligations, seize and take possession of
any and all personal property belonging to Tenant which may be found in and
upon the Premises. If Tenant fails to redeem the personal property so seized,
by payment of whatever sum may be due Landlord under and by virtue of the
provisions of this Lease, Landlord shall have the right, after twenty (20)
days written notice to Tenant of its intention to do so, to sell such
personal property so seized at public or private sale and upon such terms and
conditions as may appear advantageous to Landlord, and after the payment of
all proper charges incident to such sale, apply the proceeds thereof to the
payment of any balance due to Landlord on account of rent or other
obligations of Tenant pursuant to this Lease. In the event there shall then
remain in the hands of Landlord any balance realized from the sale of said
personal property, the same shall be paid over to Tenant. The exercise of the
foregoing remedy by Landlord shall not relieve or discharge Tenant from any
deficiency owed to Landlord which Landlord has the right to enforce pursuant
to any other provisions of this Lease.
17. SUBORDINATION.
This Lease is subject and subordinate to all ground or underlying
leases and to all mortgages and/or deeds of trust which may now or hereafter
affect such leases or the real property of which the Premises form a part, and
to all renewals, modifications, consolidations, replacements and extensions
thereof. This clause shall be self-operative and no further instrument of
subordination shall be required by any mortgagee or trustee. In confirmation of
such subordination, Tenant shall execute promptly any certificate that Landlord
may request. Provided, however, that notwithstanding the foregoing, the party
secured by any such deed of trust shall have the right to recognize this Lease
and, in the event of any foreclosure sale under such deed of trust, this Lease
shall continue in full force and effect at the option of the party secured by
such deed of trust or the purchaser under any such foreclosure sale; and Tenant
covenants and agrees that it shall, at the written request of the party secured
by any such deed of trust, execute, acknowledge and deliver any instrument that
has for its purpose and effect the subordination this Lease to the lien of said
deed of trust. At the option of any landlord under any ground or underlying
lease to which the Lease is now or may hereafter become subject or subordinate,
Tenant agrees that neither the cancellation nor termination of such ground or
underlying lease shall by operation of law or otherwise, result in cancellation
or termination of this Lease or the obligations of Tenant hereunder and Tenant
covenants and agrees to attorn to such landlord or to any successor to
Landlord's interest in such ground or underlying lease, and, in that event, this
Lease shall continue as a direct lease between Tenant and such landlord or its
successor; and, in any case, such landlord or successor
<PAGE>
under such ground or underlying lease shall not be bound by any prepayment on
the part of Tenant of any rent for more than one (1) month in advance, so that
rent shall be payable under this Lease in accordance with its terms, from the
date of the termination of the ground or underlying lease, as if such prepayment
had not been made; and provided, further, not be bound by this Lease or any
amendment or modification of this Lease unless prior to the termination of such
ground or underlying lease, a copy of this Lease or amendment or modification
thereof, as the case may be, shall have been delivered to such landlord or
successor by Tenant.
18. LENDER REQUIREMENTS.
In the event that any lender providing construction or permanent
financing or any refinancing for the Building requires, as a condition of such
financing, that modification to this Lease be obtained, and provided that such
modifications (i) are reasonable; (ii) do not adversely affect in a material
manner Tenant's use of the Premises as herein permitted; and (iii) do not
increase the rent and other sums to be paid by the Tenant hereunder, Landlord
may submit to Tenant a written amendment to this Lease incorporating such
required written changes, and Tenant hereby covenants and agrees to execute,
acknowledge and deliver such amendment to Landlord within ten (10) days of
Tenant's receipt thereof.
19. FINANCIAL INFORMATION.
In connection with the sale or the financing or refinancing of the
Building, Landlord may require current financial information from tenants in the
Building. In this regard, Tenant agrees, at any time and from time to time, upon
not less than ten (10) days prior written notice by Landlord to execute,
acknowledge and deliver to Landlord in writing (i) a current and audited
financial statement documenting Tenant's present financial condition, (ii) a
statement of all current claims and/or litigation pending against Tenant, and
(iii) a statement of all present liens placed upon Tenant's property in the
Premises. Landlord agrees to treat all information furnished to Landlord as
confidential and to make it available only to a bona fide purchaser or lender
conducting a financial analysis of the Building precedent to such sale,
financing or refinancing, which purchaser or lender shall also agree to maintain
such information in a confidential manner.
20. POSSESSION; HOLDING OVER.
(a) POSSESSION. It is understood and agreed that in the event
Landlord, for any reason whatsoever, cannot deliver possession of the Premises
to Tenant on the Commencement Date, this Lease shall not be void or voidable,
nor shall Landlord be liable to Tenant for any resulting loss or damage. In such
event the Commencement Date shall be extended to the first day of the calendar
month following the earlier of either (a) Tenant has occupied the Premises or
(b) Landlord has delivered possession of the Premises to Tenant and the
Expiration Date shall be correspondingly extended, both as set forth in Article
2. Any such extensions shall be subject to the terms and conditions set forth in
Article 2. For that period of the partial month prior to the Commencement Date,
if any, during which Tenant has received possession of the Premises from
Landlord, Tenant covenants and agrees to pay to Landlord a daily rental equal to
one thirtieth (1/30) of the monthly installment of Base Rent as specified in
Item D(2) of the Basic Lease Provisions per day, without notice, deduction,
set-off, abatement or demand, upon Landlord's tendering of possession of the
Premises. All of the terms, covenants and provisions of this Lease shall be in
full force and effect during any such early occupancy prior to the Commencement
Date.
(b) HOLDING OVER. In the event that Tenant shall not immediately
surrender the Premises on the Expiration Date, Tenant shall, by virtue of the
provisions hereof, become a tenant by the month at one and one half times the
monthly rent including all additional rent in effect during the last month of
the Term which said monthly tenancy shall commence with the first day after the
Expiration Date. Tenant, as a monthly tenant, shall be subject to all of the
terms, conditions, covenants and agreements of this Lease. Tenant shall give to
Landlord at least thirty (30) days written notice of its intention to quit the
Premises, and Tenant shall be entitled to thirty (30) days written notice to
quit the Premises, unless Tenant is in default hereunder, in which event Tenant
shall not be entitled to any notice to quit, the usual thirty (30) days notice
to quit being hereby expressly waived. Notwithstanding the foregoing, in the
event that Tenant shall hold over after the Expiration Date, and if Landlord
shall desire to regain possession of the Premises promptly at the expiration of
the Term, then Landlord at its option, may forthwith re-
<PAGE>
enter and take possession of the Premises without process, or by any legal
process in force in the jurisdiction in which the Building is located.
21. INTENTIONALLY OMITTED.
22. COVENANTS OF LANDLORD.
(a) QUIET ENJOYMENT. Landlord represents, warrants and covenants
that it has the right to make this Lease for the Term aforesaid, and that if
Tenant shall pay the rent and perform all of the covenants, terms, conditions
and agreements of this Lease to be performed by Tenant, Tenant shall, during the
Term hereby created, freely, peaceably and quietly occupy and enjoy the full
possession of the Premises without molestation or hindrance by Landlord or any
party claiming through or under Landlord or otherwise, subject to the provisions
of Paragraph 22(b) below.
(b) RESERVATION. Landlord hereby reserves to itself and its
successors and assigns the following rights (all of which are hereby consented
to by Tenant): (i) to change the street address and/or name of the Building
and/or the arrangement and/or location of entrances, passageways, doors,
corridors, elevators, stairs, toilets, or other public parts of the Building,
(ii) to erect, use and maintain pipes and conduits in and through the Premises,
and (iii) to grant to anyone the exclusive right to conduct any particular
business or undertaking in the Building, subject to the provisions of Paragraph
22(a) above. Landlord may exercise any or all of the foregoing rights without
being deemed to be guilty of an eviction, actual or constructive, or a
disturbance or interruption of the business of Tenant or Tenant's use or
occupancy of the Premises.
23. HAZARDOUS MATERIAL; INDEMNITY.
Tenant shall not cause or permit any Hazardous Material (as hereinafter
defined) to be brought upon, kept, or used in or about the Land, the Building or
the Premises by Tenant, its agents, employees, contractors or invitees, without
the prior written consent of Landlord (which Landlord shall not unreasonably
withhold as long as Tenant demonstrates to Landlord's reasonable satisfaction
that such Hazardous Material is necessary or useful to Tenant's business and
will be used, kept and stored in a manner that complies with all laws regulating
any such Hazardous Material so brought upon or used or kept in or about the
Land, the Building or the Premises). If Tenant breaches the obligations stated
in the preceding sentence, or if the presence of Hazardous Material on the Land,
the Building or the Premises caused or permitted by Tenant results in
contamination of the Land, the Premises or the Building, or if contamination of
the Land, the Premises or the Building by Hazardous Material otherwise occurs,
for which Tenant is legally liable to Landlord for damage resulting therefrom,
then Tenant shall indemnify, defend and hold Landlord harmless from any and all
claims, judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the Land, the Premises or
the Building, damages for the loss or restriction on use of rentable or usable
space or of any amenity of the Land, the Premises or the Building, damages
arising from any adverse impact on marketing of space on the Land or in the
Premises or the Building, and sums paid in settlement of claims, attorneys'
fees, consultant fees and expert fees) which arise during or after the Term of
this Lease as a result of such contamination. This indemnification of Landlord
by Tenant includes, without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal, or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the Land or the Building. Without limiting the
foregoing, if the presence of any Hazardous Material on the Land, the Premises
or the Building caused or permitted by Tenant results in any contamination of
the Land, the Premises or the Building, Tenant shall promptly take all actions
at its sole expense as are necessary to return the Land and/or the Premises
and/or the Building to the condition existing prior to the introduction of any
such Hazardous Material to the Land, the Premises and/or the Building; provided
that Landlord's written approval of such actions shall first be obtained, which
approval shall not be unreasonably withheld so long as such actions would not
potentially have any material adverse long-term or short-term effect on the
Land, the Premises or the Building.
As used herein, the term "Hazardous Material" means any hazardous or
toxic substance, material or waste which is or becomes regulated by any local
governmental authority, the District of Columbia or the United States
Government. The term "Hazardous Material" includes, without limitation, any
material or substance that is (i)
<PAGE>
defined as a "hazardous substance" under the laws of the District of Columbia,
(ii) petroleum, (iii) asbestos, (iv) designated as a "hazardous substance"
pursuant to Section 311 of the Federal Water Pollution Control Act (33 U.S.C.
Section 1321), (v) defined as a "hazardous waste" pursuant to Section 1004 of
the Federal Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et
seq. (42 U.S.C. Section 6903), (vi) defined as a "hazardous substance" pursuant
to Section 101 of the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq. (42 U.S.C. Section 9601), or (vii)
defined as "regulated substance" pursuant to Subchapter IX, Solid Waste Disposal
Act (Regulation of Underground Storage Tanks), 42 U.S.C. Section 6991 et seq.
24. MISCELLANEOUS.
(a) NO REPRESENTATION BY LANDLORD. Tenant acknowledges that
neither Landlord nor any broker, agent or employee of Landlord has made any
representations or promise with respect to the Premises or the Building except
as herein expressly set forth, and no right, privilege, easement or license is
acquired by Tenant except as herein expressly set forth. Tenant, by taking
possession of the Premises, shall accept the same "as is", and such taking of
possession shall be conclusive evidence that the Premises and the Building are
in good and satisfactory condition at the time of such taking of possession,
minor punch list items excepted.
(b) NO PARTNERSHIP. Nothing contained in this Lease shall be
deemed or construed to create a partnership or joint venture of or between
Landlord and Tenant, or to create any other relationship between the parties
hereto other than that of landlord and tenant.
(c) BROKERS. As part of the consideration for the granting of this
Lease, Tenant expressly represents and warrants to Landlord that, in the
negotiation of this Lease, Tenant dealt with no broker(s) other than as
specified in Item G of the Basic Lease Provisions, and that said broker(s) are
the only parties entitled to a commission or other compensation or consideration
by Landlord for services rendered in connection with the genesis or procurement
of this Lease. Tenant hereby indemnifies and holds harmless Landlord from and
against any and all liability, claims, actions, damages, costs and expenses
whatsoever, including reasonable attorney fees, arising from any claim or demand
that may be made upon Landlord for payment of a commission or other compensation
or consideration, including finder fee, in connection with any inaccuracy or
alleged inaccuracy of the foregoing representation.
(d) ESTOPPEL CERTIFICATE. Tenant agrees, at any time and from time
to time, upon not less than five (5) days prior written notice by Landlord, to
execute, acknowledge and deliver to Landlord a statement in writing (i)
certifying that this Lease is unmodified and in full force and effect (or if
there have been modifications, that the Lease is in full force and effect as
modified and stating the modification), (ii) stating the dates to which the rent
and any other charges hereunder have been paid by Tenant, (iii) stating whether
or not, to the best knowledge of Tenant, Landlord is in default in the
performance of any covenant, agreement or condition contained in this Lease, and
if so, specifying each such default of which Tenant may have knowledge, (iv)
stating the address to which notices to Tenant should be sent, (v) stating the
Commencement Date and Expiration Date of this Lease, and (vi) stating such other
information as Landlord shall reasonably request. Any such statement delivered
pursuant hereto may be relied upon by any owner of the Building or the Land, any
prospective purchaser of the Building or the Land, any mortgagee or prospective
mortgagee of the Building or the Land or of Landlord's interest in either, or
any prospective assignee of any such mortgage.
(e) WAIVER OF JURY TRIAL. Landlord and Tenant hereby waive trial
by jury in any action, proceeding, or counter claim brought by either of the
parties hereto against the other in respect of any matter whatsoever arising out
of or in any way connected with this Lease the relationship of Landlord and
Tenant hereunder, Tenant's use or occupancy of the Premises and/or any claim of
injury or damage.
(f) NOTICES. All notices or other communications hereunder shall
be in writing and shall be deemed duly given if delivered in person or upon
receipt by certified or registered mail, return receipt requested, first-class
postage prepaid, (i) if to Landlord as specified in Item H(1) of the Basic Lease
Provisions, (ii) if to Tenant as specified in Item H(2) of the Basic Lease
Provisions, if prior to the Commencement Date and thereafter at the Premises,
unless notice of a change of address is given pursuant to the provisions of this
Paragraph 24(f).
<PAGE>
(g) INVALIDITY OF PARTICULAR PROVISIONS. If any provision of this
Lease or the application thereof to any person or circumstances shall to any
extent be invalid or unenforceable, the remainder of this Lease, or the
application of such provisions to persons or circumstances other than those to
which it is invalid or unenforceable, shall not be affected thereby, and each
provisions of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
(h) GENDER AND NUMBER. Feminine or neuter pronouns shall be
substituted for those of the masculine form, and the plural shall be substituted
for the singular number, in any place or places herein in which the context may
require such substitution.
(i) BENEFIT AND BURDEN. The provisions of this Lease shall be
binding upon, and shall inure to the benefit of, the parties hereto and each of
their respective representatives, successors, and assigns. Landlord may freely
and fully assign its interest hereunder.
(j) ENTIRE AGREEMENT. This Lease, together with the Exhibits
attached hereto, contains and embodies the entire agreement of the parties
hereto, and no representation, inducement or agreement, oral or otherwise,
between the parties not contained in this Lease and the Exhibits, shall be of
any force or effect. This Lease may not be modified, changed or terminated in
whole or in part in any manner other than by an agreement in writing duly signed
by both parties hereto.
(k) AUTHORITY. Landlord and Tenant hereby covenant each for
itself, that each has full right, power and authority to enter into this Lease
upon the terms and conditions set forth. If Tenant signs as a corporation, each
of the persons executing this Lease on behalf of Tenant does hereby covenant and
warrant that Tenant is a duly authorized and existing corporation, qualified to
do business in the jurisdiction in which the Building is located, that the
corporation has full right and authority to enter into this Lease, and that each
of the persons signing on behalf of the corporation was authorized to do so.
(l) TRANSFER OF LANDLORD'S INTEREST. Landlord hereby reserves the
right to sell, assign or transfer this Lease upon the condition that in such
event this Lease shall remain in full force and effect, subject to the
performance by Tenant of all the terms, covenants and conditions on its part to
be performed. In the event that such purchaser, assignee or transferee agrees to
perform all the terms, covenants and conditions of Landlord pursuant to this
Lease which are to be performed by Landlord from and after the effective date of
such sale, assignment or transfer then, upon any such sale, assignment or
transfer, other than merely as security, Tenant agrees to look solely to the
purchaser, assignee or transferee with respect to all matters in connection with
this Lease and the transferor Landlord shall be released from any further
obligations hereunder.
(m) INTENTIONALLY OMITTED.
(n) ATTORNEY'S FEES. If as a result of any breach or default in
the performance of any of the provisions of this Lease by Tenant, Landlord uses
the services of an attorney in order to secure compliance with such provisions
or recover damages therefor, or to terminate this Lease or evict Tenant, Tenant
shall reimburse Landlord upon demand for any and all reasonable attorney's fees
and expenses so incurred by Landlord, except if Tenant shall be the prevailing
party in any legal action brought by Landlord against Tenant, after rendering of
a final, non-appealable judgment.
(o) SURRENDER. At the termination of this Lease by lapse of time
or otherwise, Tenant shall surrender possession of the Premises to Landlord,
shall deliver all keys to the Premises and all locks therein to Landlord, shall
make known to Landlord the combination of all combination locks in the Premises,
and shall return the Premises and all equipment and fixtures of Landlord therein
to Landlord in broom clean condition as when Tenant originally took possession,
ordinary wear and tear excepted, failing which Landlord may restore the Premises
and such equipment and fixtures to such condition and Tenant shall pay the cost
thereof to Landlord on demand.
(p) TIME OF THE ESSENCE. Time is of the essence of each provision
of this Lease.
<PAGE>
(q) GOVERNING LAW. This Lease is governed by the laws of the
jurisdiction in which the Building is located.
(r) EXAMINATION OF LEASE. Submission of this Lease to Tenant for
examination or signature by Tenant shall not constitute reservation of or option
to lease, and the same shall not be effective as a lease or otherwise until
execution and delivery by both Landlord and Tenant.
25. AUTOMOBILE PARKING.
(A) PARKING AREAS. Any areas of the Building which may
be set aside by Landlord for the parking of automobiles may be used by Tenant
and Tenant's visitors, invitees and licensees while engaged in business in the
Demised Premises, for the parking of their automobiles, in common with like use
by other lessees of space in the Building, but subject to any charges which
Landlord may impose from time to time on such use. The use of said automobile
parking areas by Tenant and Tenant's visitors, invitees and licensees shall be
at their sole risk and expense, and in no event shall Landlord have any
liability for damage to, theft or loss of property of the Tenant or of Tenant's
employees, visitors, licensees or invitees suffered or sustained in or about
said parking areas. Said parking areas (if any) shall be under the exclusive
control of Landlord, who shall have the right to establish rules and regulations
governing the use of said parking areas, and the right to change such rules and
regulations from time to time, and the right to limit or terminate the right of
Tenant, its visitors, invitees and licensees or any other parties to use such
parking areas. Tenant agrees to keep, observe and comply with all such rules and
regulations so established by Landlord, and will direct and require its
employees, licensees, visitors and invitees to comply therewith. No employee of
Landlord is authorized to accept possession of any vehicle from the Tenant or
from Tenant's employees, licensees, visitors or invitees, nor to
accept custody of any articles from Tenant.
(B) TENANT'S PARKING CONTRACTS. Subject to the terms and
conditions hereinafter set forth in this Paragraph (B), Tenant may execute with
Landlord or its designee, parking contracts in the Building garage, at the ratio
of one (1) contract for each 1,000 rentable square feet of area demised
hereunder, at locations to be designated from time to time by Landlord, for
parking of automobiles of Tenant's executives and personnel, such contracts to
be upon the monthly rental and upon the terms and conditions, rules and
regulations prevailing and imposed from time to time by Landlord or its
designees. The terms of such garage contracts shall be as set forth therein. In
addition, Tenant will execute and deliver promptly upon Landlord's request any
future garage contracts which Landlord may require from time to time, covering
the spaces to be leased under this
Paragraph 25(B).
(C) TERMINATION OF PARKING RIGHTS. Upon expiration or
any termination of any such garage contracts, the Tenant will cause all of its
automobiles and those of its executives and personnel (or such automobiles to
which the terminated, and not renewed, garage contract has ceased, as the case
may be) to be immediately removed from the garage. If this Lease is terminated
or expires, then in any such event all parking contracts of Tenant for parking
shall thereupon also terminate.
26. EXPANSION SPACE. (A) Provided Tenant is not then in default
hereunder, after the expiration of any applicable notice and cure period, Tenant
shall have the right to lease all (but not less than all) of the ninth (9th)
floor of the building (the "Expansion Space") by notifying Landlord in writing
of such election at any time during the first twelve (12) months of the initial
lease term, whereupon the parties shall promptly execute an amendment to this
Lease adding the Expansion Space to the premises. Except as hereinafter set
forth, all of the provisions of this Lease shall be applicable to the Expansion
Space, including the expiration date, it being understood that the basic annual
rent therefor shall be upon the same rental rate per square foot as the
remainder of the premises and that Tenant's Proportionate Share shall be
increased to account for the additional square footage contained in the
applicable Expansion Space. In addition to the foregoing, Landlord shall build
out the Expansion Space in substantially the same manner as the original
premises was built out by Landlord, such build out to be "turnkey" with Tenant
entitled to a rent credit or payment from Landlord to the extent such build out
(including soft costs) does not cost Landlord $18.00 per rentable square foot.
The Expansion Space shall be delivered to Tenant within approximately sixty (60)
days after Landlord receives Tenant's written election to lease such space,
subject to Landlord's recovery of possession of such space from the current
occupant.
<PAGE>
(B) Provided Tenant is not then in default hereunder, after the
expiration of any applicable notice and cure period, Tenant shall have the
right to lease all (but not less than all) of the fourth (4th) floor of the
building (the "Fourth Floor Expansion Space") by notifying Landlord in
writing of such election at any time during the first twelve (12) months of
the initial lease term, whereupon the parties shall promptly execute an
amendment to this Lease adding the Fourth Floor Expansion Space to the
premises. Except as hereinafter set forth, all of the provisions of this
Lease shall be applicable to the Fourth Floor Expansion Space, including the
expiration date, it being understood that the basic annual rent therefor
shall be upon the same rental rate per square foot as the remainder of the
premises and that Tenant's Proportionate Share shall be increased to account
for the additional square footage contained in the applicable Fourth Floor
Expansion Space. In addition to the foregoing, Landlord shall build out the
Fourth Floor Expansion Space in substantially the same manner as the original
premises was built out by Landlord, such build out to be "turnkey" with
Tenant entitled to a rent credit or payment from Landlord to the extent such
build out (including soft costs payable to unrelated third parties other than
interest) does not exceed a cost to Landlord of more than $18.00 per rentable
square foot above a shell, if so requested by Tenant does not cost Landlord
$18.00 per rentable square foot. The Fourth Floor Expansion Space shall be
delivered to Tenant within approximately sixty (60) days after Landlord
receives Tenant's written election to lease such space, subject to Landlord's
recovery of possession of such space from the current occupant whose lease
does not expire until the end of June, 2000.
27. RIGHT OF OFFERING. Provided Tenant is not then in default
under this Lease, after notice to Tenant and expiration of the applicable cure
period, and subject to any preexisting rights of other tenants to such space,
Tenant shall have the right of offering to lease from Landlord any space in the
Building which becomes available for lease during the initial term hereof (the
"Offering Space"). If during such time, any such space becomes available for
lease, Landlord shall notify Tenant in writing of the market terms and
conditions upon which Landlord will lease same to Tenant (the "Offering
Notice"). Any Offering Space offered to Tenant shall be offered in "as is"
condition. Tenant shall have fifteen (15) business days after receipt of the
Offering Notice to accept the terms contained therein and then Tenant must
execute and return to Landlord an amendment to this Lease reasonably acceptable
to Tenant incorporating herein said space within fifteen (15) days after
delivery of said amendment from Landlord to Tenant. Failure of Tenant to
exercise its rights to such space within the first fifteen (15) business day
period shall render this entire paragraph thereafter forever void and of no
further force or effect.
28. SATELLITE. Subject to the provisions hereof and provided same
is performed in accordance with all applicable local, state and/or federal laws,
rules or regulations without requesting a waiver or variance thereof (or if a
waiver or variance is required, same is procured by Tenant at Tenant's sole cost
and expense), Tenant shall have the non-exclusive right to install or have
installed, at Tenant's sole cost and expense, on the roof of the Building,
satellite dishes (the "Equipment"), the number, size, style, location and
installation of which all being subject to the prior written approval of the
Landlord. Upon Tenant electing to install any such equipment, Landlord shall
provide to Tenant the form of satellite license agreement required by Landlord
for any use of the roof of the Building. Tenant agrees to submit to Landlord,
for Landlord's review and approval, prior to installation, detailed
specifications and shop drawings concerning the Equipment and the installation
thereof as well as final plans therefore. Landlord reserves the right, in its
sole and absolute discretion, to specify reasonable installation procedures
which Tenant must follow in order to (i) preserve and protect the integrity of
the structure of the Building as well as the building components, and (ii) not
void any warranties provided to Landlord for the roof or any building
components, notwithstanding the cost or inconvenience to Tenant. Landlord agrees
to take into consideration, in its review process, any warranties procured by
Tenant for the Equipment as well as the operational requirements of the
Equipment. Tenant agrees to install the Equipment in compliance with all
applicable laws (including, but not limited to, providing appropriate screening
if so required). Tenant's installation, maintenance and removal of the Equipment
shall be done free of liens on any of Landlord's property and without any damage
to any property of Landlord or others. Tenant agrees to pay all costs and
expenses of installation, maintenance and removal of Equipment. Tenant agrees to
pay any increase in premiums for Landlord's insurance that may be charged to
Landlord resulting from the installation and maintenance of the Equipment on the
Building. Notwithstanding the preceding sentence, upon Tenant's notification to
Landlord of its intention to install or have installed, Landlord shall notify
Tenant of any increase in premiums for Landlord's insurance resulting therefrom.
Tenant will indemnify, defend and hold harmless Landlord from and against any
and all claims, actions, damages, liability and expenses in connection with loss
of life, personal injury and/or damage to property to the extent arising from or
out of any occurrence within, at, or as a result of the Equipment, or the
installation, use, maintenance or removal by Tenant of the Equipment, or
occasioned wholly or in part by any act or omissions of Tenant, its agents,
employees or contractors in connection with the installation or use of the
Equipment.
<PAGE>
29. CANCELLATION BY TENANT. Provided that Tenant is not in default
under this Lease in any respect, it is agreed that (subject to the conditions
contained in this paragraph) Tenant shall have the right (the "Cancel Right") to
terminate this Lease with respect to all (but not less than all) space in the
building leased to it hereunder, upon the following terms and conditions:
(i) Tenant shall have the right to terminate this Lease
only after the thirty-sixth (36th) month of the term of this Lease. The
Cancel Right shall be exercisable by Tenant only by written notice of such
exercise delivered to Landlord at least six (6) months prior to the effective
termination date selected by Tenant (which date shall not be before the
forty-second (42nd) month of the term of this Lease. The written notice must
also be accompanied by a sum equal to the unamortized costs of Landlord's
improvements and commissions paid for this Lease (such sum being hereinafter
referred to as the "Cancel Payment") said amount to be provided to Tenant in
writing within ninety (90) days after Tenant commences occupancy of the
Premises (plus any additional amounts paid by Landlord for expansion space
leased by Tenant under the terms of this Lease). If Tenant exercises the
Cancel Right but fails to deliver the Cancel Payment as required or is
thereafter in default or subject to an event of bankruptcy and Landlord
terminates this Lease as a result of such event, then the Cancel Right shall
be void and instead Landlord's rights and remedies and Tenant's obligations
which pertain to such termination by Landlord shall prevail and apply.
(ii) If Tenant exercises the Cancel Right and timely
tenders the Cancel Payment, Tenant shall nevertheless continue to pay
Landlord all rentals, rental increases, pass throughs and other sums payable
under this Lease and perform all of Tenant's other covenants and obligations
hereunder through and including the later to occur of (x) the effective
cancellation date or (y) such later date, if any, when Tenant has surrendered
to Landlord exclusive possession of all space in the building leased by
Tenant under this Lease. If Tenant exercises the Cancel Right, then (i)
Tenant shall surrender to Landlord exclusive possession of all space in the
building leased by Tenant under this Lease, broom clean and in good condition
and repair (reasonable wear and tear excepted) and in the condition called
for in this Lease for such surrender, free of subleases and occupants, with
all of Tenant's and its sublessee's personal property removed therefrom. The
failure of Tenant to vacate and surrender possession on the effective
termination date shall not create any tenancy for Tenant thereafter and
Tenant shall be deemed a tenant at sufferance, subject to eviction at any
time, with or without legal process.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal on
the day and year first hereinabove written.
ATTEST: LANDLORD:
(Seal) 666 11TH STREET ASSOCIATES
By: ___________________________ By:______________________________
Name:_________________________ Name:____________________________
Its:____________________________ Its: ______________________________
ATTEST: TENANT:
(Seal) Netivation.com, Inc.
By: ___________________________ By:______________________________
Name:_________________________ Name:____________________________
Its:____________________________ Its: ______________________________
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Neither the whole nor any part of the sidewalks, plaza areas, entrances,
passages, courts, elevators, vestibules, stairways, corridors, or halls of the
Building shall be obstructed or encumbered by any tenant or used for any purpose
other than ingress and egress to and from the premises of such tenant.
2. No awning or other projections shall be attached to the outside walls or
windows of the Building. No curtain, blind, shade, or screen (other than those
furnished by Landlord as Building Standard) shall be attached to, hung in, or
used in connection with any window or door of the premises of any tenant.
3. No showcase of other article shall be put in front of or affixed to any
part of the exterior of the Building nor placed in the halls, corridors,
vestibules, or other public parts of the Building.
4. The sinks and toilets and other plumbing fixtures in the Building shall
not be used for any purpose other than those for which they were constructed,
and no sweepings, rubbish, rags, or other substances (including, without
limitation, coffee grounds) shall be thrown therein. All damages, resulting
from misuse of the fixtures, shall be borne by the tenant who, or whose
employees, agents, guests, invitees, or licensees, shall have caused the same.
5. No tenant shall bring or keep, or permit to be brought or kept, any
inflammable, combustible, or explosive fluid, material, chemical, or
substance in or about its premises.
6. No tenant shall mark, paint, drill into, or in any way deface any part
of the Building or its premises. No boring, cutting, or stringing of wires
shall be permitted.
7. No cooking shall be done or permitted in the Building by any office
tenant. No tenant shall cause or permit any unusual of objectionable odors to
emanate from its premises.
8. Neither the whole nor any part of the premises of any tenant shall be
used for manufacturing, for the storage of merchandise, or for the sale or
auction of merchandise, goods, or property.
9. No tenant shall make, or permit to be made, any unseemly or disturbing
noises or disturb or interfere with other tenants or occupants of the
Building or neighboring buildings whether by the use of any musical
instrument, radio, television, or other audio device, unmusical noise,
whistling, singing, or in any other way. Nothing shall be thrown out any
door, window, or skylight or down any passageway.
10. No additional lock or bolt of any kind shall be placed upon any door, or
window in the premises of any tenant, nor shall any change be made in locks
or the mechanism thereof. Each tenant must, upon the termination of its
tenancy, restore to Landlord all keys to offices and toilet rooms either
furnished to, or otherwise procured by, such tenant; and in the event of the
loss of any keys, such tenant shall pay Landlord the reasonable cost of
replacement keys.
11. The normal hours of operation of the Building shall be 8:00 a.m. to 6:00
p.m., Monday through Friday, with HVAC service provided to the Building
during the hours of 8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00
a.m. to 1:00 p.m., Saturday; customary legal holidays excluded. Tenants shall
have access to the Building 24 hours per day, 365 days per year.
12. No tenant shall use or occupy, or permit any portion of its premises to
be used or occupied, as an employment bureau, or pay any employees in the
Building, except those actually working for such tenant in the Building, nor
advertise for laborers, giving the address of the Building.
<PAGE>
13. Landlord shall have the right to prohibit any advertising by any tenant
which, in Landlord's opinion, tends to impair the reputation of the Building
or its desirability as a location for offices; and upon notice from Landlord,
such tenant shall refrain from or discontinue such advertising.
14. Landlord reserves the right to control and operate the public portions
of the Building and the public facilities, as well as facilities furnished
for the common use of the tenants, in such manner as it deems best for the
benefit of the tenants.
15. Each tenant, before closing and leaving its premises at any time, shall
see that all entrance doors are locked and that all electrical appliances are
turned off.
16. No premises shall be used, or permitted to be used, for lodging or
sleeping or for any immoral or illegal purpose.
17. The requirements of tenants will be attended to only upon application at
the office of Landlord or Landlord's Property Manager. Building employees or
employees of Landlord's Property Manager shall not be required to perform,
and shall not be requested by any tenant to perform, any work outside of
their regular duties, unless under specific instructions from the office of
Landlord or Landlord's Property Manager.
18. Canvassing, soliciting, and peddling in the Building are prohibited, and
each tenant shall cooperate in seeking their prevention.
19. There shall not be used in the Building either by tenants or by their
agents or contractors, in the delivery or receipt of merchandise, freight of
other matter, any hand trucks or other means of conveyance, except those
equipped with rubber tires, rubber side guards, and such other safeguards as
Landlord may require.
20. No animals of any kind except working dogs shall be brought into or kept
about the Building by tenants.
21. No tenant shall place, or permit to be placed, on any part of the floor
or floors of its premises a load exceeding the floor load per square foot
which such floor was designed to carry and which is allowed by law.
22. No vending machines shall be permitted to be placed or installed in any
part of the Building by any tenant. Landlord reserves the right to place or
install vending machines in any of the common areas of the Building.
23. No plumbing or electrical fixtures shall be installed by tenants without
the prior written consent of Landlord.
24. Bicycles, motorcycles, or any other types of vehicles shall not be
brought into the lobby or elevators of the Building or into the premises of
any tenant.
25. Tenant will refer all contractors, contractor's representatives, and
installation technicians, rendering any services on or to the premises for
any tenant, to Landlord for Landlord's approval and supervision before
performance on any contractual service. This provision shall apply to all
work performed in the Building, including installation of telephones,
telegraph equipment, electrical devices and attachments, and any installation
of any nature affecting floors, walls, woodwork, trim, windows, ceilings,
equipment, or any other physical portion of the Building. Such approval, if
given, shall in no way make Landlord a party to any contract between such
tenant and any such contractor, and Landlord shall have no liability therefor.
26. For the protection of Tenant and Landlord, as their interests may
appear, Tenant hereby agrees at its own expense, to maintain in full force
and effect at all times during the Term of this Lease, policies of insurance,
issued by a responsible carrier or carriers acceptable to Landlord, which
afford the following coverages:
Workmen's Compensation Statutory.
Employer's Liability Not less than $100,000
<PAGE>
Comprehensive General Liability Insurance Not less than $1,000,000 including
Blanket Contractual Liability, combined single limit for Broad Form Property
Damage, Personal both bodily injury and Injury, Completed Operations, Products
property damage Liability, Fire Damage
27. Smoking will be strictly prohibited in the Building's common public
areas, including but not limited to the lobby, hallways, stairwells,
restrooms as well as the front entrance to the Building. This policy applies
to all tenants, employees, clients, contractors and visitors. Tenants shall
only allow smoking within their demised premises pursuant to all applicable
District of Columbia smoking regulations.
28. Landlord reserves the right, at any time and from time to time, to
rescind, alter, or waive, in whole or in part, or add to any of these Rules
and Regulations when it is deemed necessary, desirable, or proper, in
Landlord's judgment, for its best interest or for the best interests of the
tenants.
29. Violations of these Rules and Regulations, or any amendments thereof or
additions thereto, may be considered a default of this Lease and shall be
sufficient cause for termination of this Lease at the option of Landlord.
<PAGE>
EXHIBIT A
DEMISED PREMISES
<PAGE>
EXHIBIT B
WORKLETTER
Landlord shall, at Landlord's sole cost and expense, build out the premises in
accordance with Tenant's plan, such plan being subject to Landlord's review and
approval. As part of such process, Tenant shall engage the engineers for this
work above shell and Landlord shall pay such cost as part of the build out cost
for the space. Landlord will also demolish the premises at Landlord's sole cost
and expense. Landlord and Tenant acknowledge and agree that in the event
Landlord's cost to build out the premises (including soft costs) is less than
$18.00 per rentable square foot, Landlord shall provide the difference between
the cost and $18.00 per foot to Tenant by either providing a moving allowance in
such amount. It is understood and agreed that Landlord shall perform the
construction in the premises without obtaining a permit therefore and Landlord
shall indemnify and hold Tenant harmless from any loss, cost, damage or expense
resulting from Landlord's failure to obtain a permit for such work.
<PAGE>
EXHIBIT 10.4
NETIVATION.COM, INC.
NON-QUALIFIED STOCK PLAN
EFFECTIVE: DECEMBER 15, 1999
TERMINATION DATE: DECEMBER 15, 2009
1. PURPOSES.
(a) GENERAL PURPOSE. The Company, by means of this Non-Qualified
Stock Plan (the "Plan"), seeks to retain the services of the group of persons
eligible to receive Stock Awards, to secure and retain the services of new
members of this group and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
(b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to
receive Stock Awards are the Employees and Consultants of the Company and its
Affiliates. Provided, however, no Stock Awards shall be granted to an
Officer, Director or other persons subject to Section 16 of the Exchange Act.
(c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide
a means by which eligible recipients of Stock Awards may be given an
opportunity to benefit from increases in value of the Common Stock through
the granting of the following Stock Awards: (i) Nonstatutory Stock Options,
(ii) stock bonuses and (iii) rights to acquire restricted stock.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the
Board appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Netivation.com, Inc.
(g) "CONSULTANT" means any person, including an advisor, (i)
engaged by the Company or an Affiliate to render consulting or advisory
services and who is compensated for such services or (ii) who is a member of
the Board of Directors of an Affiliate. However, the term "Consultant" shall
not include either Directors who are not compensated by the Company for their
services as Directors or Directors who are merely paid a director's fee by
the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service
with the Company or an Affiliate, whether as an Employee or Consultant, is
not interrupted or terminated. The Participant's Continuous Service shall not
be deemed to have terminated merely because of a change in the capacity in
which the Participant renders service to the Company or an Affiliate as an
Employee or Consultant or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination
of the Participant's Continuous Service. For example, a change in status from
an Employee of the Company to a Consultant of an Affiliate will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that
<PAGE>
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(i) "DIRECTOR" means a member of the Board of Directors of the
Company.
(j) "DISABILITY" means the permanent and total disability of a
person within the meaning of Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in THE WALL STREET JOURNAL
or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(n) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "OPTION" means a Nonstatutory Stock Option granted pursuant
to the Plan.
(p) "OPTION AGREEMENT" means a written agreement between the
Company and an Optionholder evidencing the terms and conditions of an
individual Option grant. Each Option Agreement shall be subject to the terms
and conditions of the Plan.
(q) "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
(r) "PARTICIPANT" means a person to whom a Stock Award is
granted pursuant to the Plan or, if applicable, such other person who holds
an outstanding Stock Award.
(s) "PLAN" means this Netivation.com, Inc. Non-Qualified Stock
Plan.
(t) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(u) "STOCK AWARD" means any right granted under the Plan,
including an Option, a stock bonus and a right to acquire restricted stock.
(v) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
<PAGE>
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as
provided in subsection 3(c). Any interpretation of the Plan by the Board and
any decision by the Board under the Plan shall be final and binding on all
persons.
(b) POWERS OF BOARD. The Board shall have the power, subject to,
and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each Stock
Award shall be granted; the provisions of each Stock Award granted (which need
not be identical), including the time or times when a person shall be permitted
to receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations
for its administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of
the Plan to a Committee or Committees of one (1) or more members of the
Board, and the term "Committee" shall apply to any person or persons to whom
such authority has been delegated. If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee any of the administrative powers the Committee
is authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11
relating to adjustments upon changes in Common Stock, the Common Stock that
may be issued pursuant to Stock Awards shall not exceed in the aggregate one
million (1,000,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the shares of Common Stock not
acquired under such Stock Award shall revert to and again become available
for issuance under the Plan. If the Company repurchases any shares of Common
Stock issued under a Stock Award, the shares of Common Stock so repurchased
shall revert to and again become available for issuance under the Plan for
all Stock Awards.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the
Plan may be unissued shares or reacquired shares, bought on the market or
otherwise.
<PAGE>
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Stock Awards may be
granted to non-Officer Employees and Consultants. Provided, however, no Stock
Awards shall be granted to an Officer, Director or other persons subject to
Section 16 of the Exchange Act.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be
designated Nonstatutory Stock Options at the time of grant. The provisions of
separate Options need not be identical, but each Option shall include
(through incorporation of provisions hereof by reference in the Option or
otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN OPTION. The Board shall determine the
exercise price of each Option.
(c) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is
exercised or (ii) at the discretion of the Board at the time of the grant of
the Option, or subsequently (1) by delivery to the Company of other Common
Stock, (2) according to a deferred payment or other similar arrangement with
the Optionholder or (3) in any other form of legal consideration that may be
acceptable to the Board; provided, however, that at any time that the Company
is incorporated in Delaware, payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by
deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) TRANSFERABILITY OF AN OPTION. An Option shall be transferable
to the extent provided in the Option Agreement. If the Option does not
provide for transferability, then the Option shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a
third party who, in the event of the death of the Optionholder, shall
thereafter be entitled to exercise the Option.
(e) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable
in periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may
be exercised (which may be based on performance or other criteria) as the
Board may deem appropriate. The vesting provisions of individual Options may
vary. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares of Common Stock as to which
an Option may be exercised.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the
Optionholder's death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination) but only within such period of time
ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder's Continuous Service (or such longer or
shorter period specified in the Option Agreement), or (ii) the expiration of
the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate.
(g) EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
<PAGE>
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in
subsection 6(a) or (ii) the expiration of a period of three (3) months after
the termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(h) DISABILITY OF OPTIONHOLDER. In the event that an
Optionholder's Continuous Service terminates as a result of the
Optionholder's Disability, the Optionholder may exercise his or her Option
(to the extent that the Optionholder was entitled to exercise such Option as
of the date of termination), but only within such period of time ending on
the earlier of (i) the date twelve (12) months following such termination (or
such longer or shorter period specified in the Option Agreement) or (ii) the
expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionholder does not exercise his or her Option
within the time specified herein, the Option shall terminate.
(i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for
a reason other than death, then the Option may be exercised (to the extent
the Optionholder was entitled to exercise such Option as of the date of
death) by the Optionholder's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance or by a person designated to
exercise the option upon the Optionholder's death pursuant to subsection 6(d)
, but only within the period ending on the earlier of (1) the date eighteen
(18) months following the date of death (or such longer or shorter period
specified in the Option Agreement) or (2) the expiration of the term of such
Option as set forth in the Option Agreement. If, after death, the Option is
not exercised within the time specified herein, the Option shall terminate.
(j) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the
full vesting of the Option. Any unvested shares of Common Stock so purchased
may be subject to a repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate.
(k) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board to make or not to make grants of Options hereunder, the Board shall
have the authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a
"Re-Load Option") in the event the Optionholder exercises the Option
evidenced by the Option Agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option shall (i) provide
for a number of shares of Common Stock equal to the number of shares of
Common Stock surrendered as part or all of the exercise price of such Option;
(ii) have an expiration date which is the same as the expiration date of the
Option the exercise of which gave rise to such Re-Load Option; and (iii) have
an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load
Option shall be subject to the same exercise price and term provisions
heretofore described for Options under the Plan.
There shall be no Re-Load Options on a Re-Load Option. Any such
Re-Load Option shall be subject to the availability of sufficient shares of
Common Stock under subsection 4(a) and shall be subject to such other terms
and conditions as the Board may determine which are not inconsistent with the
express provisions of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical,
<PAGE>
but each stock bonus agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an
Affiliate for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the
stock bonus agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In
the event a Participant's Continuous Service terminates, the Company may
reacquire any or all of the shares of Common Stock held by the Participant
which have not vested as of the date of termination under the terms of the
stock bonus agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common
Stock under the stock bonus agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the stock
bonus agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the stock bonus agreement remains subject to the
terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions
as the Board shall deem appropriate. The terms and conditions of the
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate restricted stock purchase agreements need
not be identical, but each restricted stock purchase agreement shall include
(through incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:
(i) PURCHASE PRICE. The Board shall determine the
purchase price of restricted stock awards.
(ii) CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; provided, however, that at any
time that the Company is incorporated in Delaware, then payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law,
shall not be made by deferred payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance with a vesting schedule
to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In
the event a Participant's Continuous Service terminates, the Company may
repurchase or otherwise reacquire any or all of the shares of Common Stock
held by the Participant which have not vested as of the date of termination
under the terms of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares of Common
Stock under the restricted stock purchase agreement shall be transferable by
the Participant only upon such terms and conditions as are set forth in the
restricted stock purchase agreement, as the Board shall determine in its
discretion, so long as Common Stock awarded under the restricted stock
purchase agreement remains subject to the terms of the restricted stock
purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards,
the Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Stock Awards.
<PAGE>
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards
shall constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall
have the power to accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part thereof will
vest in accordance with the Plan, notwithstanding the provisions in the Stock
Award stating the time at which it may first be exercised or the time during
which it will vest.
(b) SHAREHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any
shares of Common Stock subject to such Stock Award unless and until such
Participant has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant any right to continue to serve the Company or an
Affiliate in the capacity in effect at the time the Stock Award was granted
or shall affect the right of the Company or an Affiliate to terminate (i) the
employment of an Employee with or without notice and with or without cause,
(ii) the service of a Consultant pursuant to the terms of such Consultant's
agreement with the Company or an Affiliate or (iii) the service of a Director
pursuant to the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the Company or the
Affiliate is incorporated, as the case may be.
(d) INVESTMENT ASSURANCES. The Company may require a Participant,
as a condition of exercising or acquiring Common Stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to the
Participant's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business
matters and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the Stock
Award; and (ii) to give written assurances satisfactory to the Company
stating that the Participant is acquiring Common Stock subject to the Stock
Award for the Participant's own account and not with any present intention of
selling or otherwise distributing the Common Stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall
be inoperative if (iii) the issuance of the shares of Common Stock upon the
exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act or (iv) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may,
upon advice of counsel to the Company, place legends on stock certificates
issued under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited to,
legends restricting the transfer of the Common Stock.
(e) WITHHOLDING OBLIGATIONS. To the extent provided by the terms
of a Stock Award Agreement, the Participant may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
<PAGE>
Common Stock under a Stock Award by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Participant by the Company) or by a combination of such means: (i) tendering
a cash payment; (ii) authorizing the Company to withhold shares of Common
Stock from the shares of Common Stock otherwise issuable to the participant
as a result of the exercise or acquisition of Common Stock under the Stock
Award; or (iii) delivering to the Company owned and unencumbered shares of
Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a), and the outstanding Stock Awards will be
appropriately adjusted in the class(es) and number of securities and price per
share of Common Stock subject to such outstanding Stock Awards. The Board shall
make such adjustments, and its determination shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event
of a dissolution or liquidation of the Company, then all outstanding Stock
Awards shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR
REVERSE MERGER. In the event of (i) a sale, lease or other disposition of all
or substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or (iii)
a reverse merger in which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then any surviving corporation or acquiring
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar stock awards (including an award to acquire the same
consideration paid to the shareholders in the transaction described in this
subsection 11(c) for those outstanding under the Plan. In the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then with respect to Stock Awards held by Participants whose Continuous
Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall
be accelerated in full, and the Stock Awards shall terminate if not exercised
(if applicable) at or prior to such event. With respect to any other Stock
Awards outstanding under the Plan, such Stock Awards shall terminate if not
exercised (if applicable) prior to such event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section
13(d) or 14(d) of the Exchange Act, or any comparable successor provisions
(excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act, or
comparable successor rule) of securities of the Company representing at least
fifty percent (50%) of the combined voting power entitled to vote in the
election of Directors, then with respect to Stock Awards held by Participants
whose Continuous Service has not terminated, the vesting of such Stock Awards
(and, if applicable, the time during which such Stock Awards may be
exercised) shall be accelerated in full.
(e) CHANGE IN CONTROL--CHANGE IN INCUMBENT BOARD. In the event
that the individuals who, as of the date of the adoption of this Plan, are
members of the Board (the "Incumbent Board"), cease for any reason to
constitute at least fifty percent (50%) of the Board, then with respect to
Stock Awards held by persons whose Continuous Service has not terminated, the
vesting of such Stock Awards (and, if applicable, the time during which such
Stock Awards may be exercised) shall be accelerated in full. If the election,
or nomination for election, by the Company's shareholders of any new Director
was approved by a vote of at least fifty percent (50%) of the Incumbent
Board, such new Director shall be considered as a member of the Incumbent
Board.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to
time, may amend the Plan.
(b) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Participant and (ii)
the Participant consents in writing.
(c) AMENDMENT OF STOCK AWARDS. The Board at any time, and from
time to time, may amend the terms of any one or more Stock Awards; provided,
however, that the rights under any Stock Award shall not be impaired by any
such amendment unless (i) the Company requests the consent of the Participant
and (ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before
the tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the
Plan shall not impair rights and obligations under any Stock Award granted
while the Plan is in effect except with the written consent of the
Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of Delaware, without
regard to such state's conflict of laws rules.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF NETIVATION.COM, INC.
InterLink Services, Inc. (Washington corporation)
The Online Medical Bookstore, Inc. (Idaho corporation)
Net.Capitol, Inc. (Delaware corporation)
MEDMarket, Inc. (Colorado corporation)
Raintree Communications Corporation (Virginia corporation)
Public Disclosure, Inc. (Delaware corporation)
Politicallyblack.com, Inc. (Delaware corporation)
Netivation.com Merger Three Corporation (Delaware corporation
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previously filed
Registration Statements, File No. 333-90639 and 333-32742
s/ Arthur Andersen LLP
Seattle, Washington
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
BALANCE SHEET AS OF DECEMBER 31, 1999 AND CONDENSED STATEMENT OF OPERATION
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,504,135
<SECURITIES> 681,794
<RECEIVABLES> 295,007
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,319,896
<PP&E> 681,794
<DEPRECIATION> 0
<TOTAL-ASSETS> 35,773,112
<CURRENT-LIABILITIES> 1,606,307
<BONDS> 0
0
0
<COMMON> 46,908,724
<OTHER-SE> (18,743,061)
<TOTAL-LIABILITY-AND-EQUITY> 35,773,112
<SALES> 1,053,601
<TOTAL-REVENUES> 434,844
<CGS> 314,622
<TOTAL-COSTS> 314,622
<OTHER-EXPENSES> 3,497,740
<LOSS-PROVISION> (3,377,559)
<INTEREST-EXPENSE> (94,746)
<INCOME-PRETAX> (3,282,813)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,282,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,282,813)
<EPS-BASIC> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
